Understanding the Balance Scorecard
Expert Paul Niven describes the balanced scorecard as, ‘a carefully selected set of quantifiable measures derived from an organisation’s strategy.’ (¹Balanced Scorecard: Step-by-Step, 2006)
The tool can be used to communicate, measure, and execute a strategic management plan. That’s a pretty big task, so there are a few documents that support the balanced scorecard:
- A statement outlining the organisation’s vision, mission, and strategy.
- A strategy map, which outlines the objectives required to execute the strategy as well as the links between them.
- A tactical action plan, which breaks down the objectives into initiatives and projects.
The scorecard is then created and used to create and implement the tactical action plan. It typically focuses on four perspectives of the business:
- Internal processes
- Employee learning and growth
Overview of the Balanced Scorecard Process
The big picture.
The balanced scorecard process is an intensive one, but at the end of it, you will have a complete guide to where you are going and how you are going to get there. We have included a flow chart below on the next page, with the colour of the boxes representing various phases of the project.
- Black = Planning, Training, and Set-up
- Green = Balanced Scorecard Development
- Orange = Implementation
Sample Strategy Map
The strategy map is the foundation for all of your balanced scorecard efforts. It is a graphic that shows how your company will achieve its strategy.
Traditionally, strategy maps are focused on four perspectives:
- Customers: What does success mean to our customers?
- Financial: What non-tangible investments do we need to make? What results do we want to see?
- Internal processes: How will we achieve our financial and customer perspectives? Typically, you will focus on four major areas:
* Operations Management
* Customer Management
* Regulatory and Social
4. Employee learning and growth: What non-tangible investments do we need to make? Typically, you will focus on three major areas:
i) Human capital: What people do we need in place for success? What knowledge resources do we need?
ii) Information capital: What information sharing and technology resources need to be in place?
iii)Organisational capital: What cultural and leadership supports should be in place?
However, these perspectives are only intended as a guideline. Various companies have also chosen to include perspectives on:
- Operational excellence (i.e. improving processes with Six Sigma or Lean)
- Cutting edge innovation
Sample Balanced Scorecard
As we discussed earlier, the balanced scorecard is used to communicate, measure, and execute a strategic management plan. It provides a balanced way of synthesising the critical actions required to achieve the goals on the strategy map.
In the balanced scorecard below, you can see the four perspectives and their objectives in the yellow boxes. Then, each perspective contains specific actions and measures. (Here, we have only included a few actions and measures, just to give you an idea of what it’s all about.)
Remember that balanced scorecards can take many, many forms, and in fact, it’s necessary to customise the scorecard to reflect your organisation!
Sample Tactical Action Plan
The tactical action plan breaks down the strategy map even further, taking the various balanced scorecard elements and creating an action plan for each one. Specific initiatives and budgets are included.
Often, the action plan is broken down into different strategic themes; in the example below, the focus is leadership. This allows various themes to be assigned to a team of people and makes execution and monitoring much easier.
You can see a sample excerpt below. Remember, tactical action plans should reflect what your organisation needs, so you will see many different forms. Choose a form that works for you and don’t be afraid to revise it.
References and Footnotes
¹Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.
Balanced Scorecard: Step-by-Step 2006 Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.