Balanced Scorecard

Four perspectives for a broad view

The (Business) Balanced Scorecard (BBSC) works with four perspectives, which are translated into KPIs, key performance indicators. These perspectives are:

1. Financial

The financial perspective focuses on the objectives and KPIs related to profitability, cost control and ROI. This perspective is crucial for assessing and improving the financial health of the organisation.

2. Customer

The customer perspective focuses on improving customer satisfaction, loyalty and market share. This perspective is crucial for understanding what customers want and how to keep them.

3. Internal processes

The process perspective focuses on optimising internal processes for efficiency, effectiveness and quality. This perspective is crucial for eliminating waste and raising productivity.

4. Learning and growth

The “Learning and growth” perspective focuses on developing employee skills, innovation and culture change. This perspective is crucial for equipping the organisation for the future. By investing in employees and encouraging a culture of continuous improvement, the organisation can adapt to changing circumstances and stay competitive.

This is one of the tools you learn to apply in the Green Belt training.

Combining the perspectives prevents navel-gazing and one-sided steering. A basic example: if an organisation steers on customer satisfaction alone, prices (after all an important KPI or CTQ from the customer’s point of view) for products or services could be kept so low that it comes at the expense of the business result. The other way round, whatever people may have thought in the 1980s, not everything revolves around money alone.

Four implementation steps, from making concrete to evaluating

Implementing the Balanced Scorecard takes four steps:

1. Make the vision and strategy concrete

A vision gives direction: it tells you where the organisation wants to be in three or five years. Both vision and strategy are often abstract. The strategy map is a tool for visualising vision and strategy. We make vision and strategy concrete by translating the perspectives into KPIs, as described above. Looking in all four directions keeps these KPIs broad and makes clear how the strategy is to be achieved. This can be a combination of process KPIs and improvement KPIs. In some organisations you see the BBSC laid out with process KPIs in the top section and, underneath, improvement KPIs whenever a process KPI turned red. That helped to define and scope improvements.

2. Communicate

What applies to vision and strategy also applies to the objectives linked to them: you cannot communicate about them often enough. Objectives are also linked to individual performance, so that every layer and every level of the organisation is working on them. Cascading them down to the different layers of the organisation is part of this too. You then see several BBSCs emerge, with regular meetings to check whether everyone is still on course.

3. Plan and make measurable

Objectives come with deliverables and deadlines. And those in turn find their way into a plan. Planning is a discipline in its own right and we will not cover it in this article. For now it is enough to say that a realistic plan helps you to adjust course in time.

4. Evaluate

The Balanced Scorecard is anything but an Excel file cast in concrete. On the one hand, vision and strategy are subject to change and development, which calls for flexibility. On the other hand, the Balanced Scorecard is rarely right first time, however much we want it to be and however hard we try. Evaluation helps to improve the Balanced Scorecard continuously, and so does discussing it regularly. In that sense the BBSC resembles an Obeya programme, or it can support one.

The advantages & disadvantages of the Balanced Scorecard

The Balanced Scorecard offers a wide range of advantages to organisations that implement the method. Some of the main advantages and disadvantages are:

Tips for a successful implementation:

• Make sure top management is strongly committed.
• Invest in training and coaching to help employees understand and use the BSC.
• Make the BSC relevant and practical for the organisation.
• Monitor and evaluate the BSC continuously.
• Be flexible and willing to adapt the BSC to the changing needs of the organisation.

Synergy with Lean Six Sigma

The Balanced Scorecard can be combined with Lean Six Sigma, another powerful management method that focuses on optimising processes and eliminating waste. The BSC can set the strategic context and the objectives for Lean Six Sigma projects, while Lean Six Sigma supplies the tools and techniques to optimise the processes and improve performance.

Conclusion

The Balanced Scorecard is a valuable tool that can help organisations implement their strategy, improve their performance and engage their employees. By maximising the advantages and minimising the disadvantages, the BSC can make a valuable contribution to the success of the organisation.

Want to know more about the Balanced Scorecard and the Lean and Six Sigma techniques you can plot on it? We are happy to tell you in which of our training courses we go into this in depth. You can contact us at [email protected] or 088 53 26 700.