As a business coach I often work with larger companies where the application of the “balanced scorecard” comes into play.

So here’s an outline of what it’s all about.

A Balanced Scorecard defines what management means by “performance” and measures whether management is achieving desired results. The Balanced Scorecard translates Mission and Vision Statements into a comprehensive set of objectives and performance measures that can be quantified and appraised. These measures typically include the following categories of performance:

  • Financial performance (revenues, earnings, return on capital, cash flow)
  • Customer value performance (market share, customer satisfaction measures, customer loyalty/Net promoter score
  • Internal business process performance (productivity rates, quality measures, timeliness)
  • Innovation performance (percent of revenue from new products, employee suggestions, rate of improvement index)
  • Employee performance (morale, knowledge, turnover, use of best demonstrated practices)

What Balanced Scorecards do:

  • Articulate the business’s vision and strategy
  • Identify the performance categories that best link the business’s vision and strategy to its results (e.g., financial performance, operations, innovation, employee performance)
  • Establish objectives that support the business’s vision and strategy
  • Develop effective measures and meaningful standards, establishing both short-term milestones and long-term targets
  • Ensure companywide acceptance of the measures
  • Create appropriate budgeting, tracking, communication, and reward systems
  • Collect and analyse performance data and compare actual results with desired performance
  • Take action to close unfavourable gaps

Companies use Balanced Scorecards to:

  • Clarify or update a business’s strategy
  • Link strategic objectives to long-term targets and annual budgets
  • Track the key elements of the business strategy
  • Incorporate strategic objectives into resource allocation processes
  • Facilitate organizational change
  • Compare performance of geographically diverse business units
  • Increase companywide understanding of the corporate vision and strategy

Overall it’s a strategy mechanism to check that the business is thinking and operating in a strategic context.