Balanced Scorecard fundamentals
Balanced Scorecard (BSC) is a management tool that organizations are using to keep track of the activities and their execution, and to supervise the consequences arising afterwards.
Gartner Group suggests that over 50% of large US firms have adopted the BSC and more than half of major companies in the US, Europe, and Asia are using the BSC. The use of BSC in areas such as Middle East and Africa is nowadays growing. A recent global study by Bain & Co listed balanced scorecard fifth on its top ten most widely used management tools around the world. BSC has also been selected by the editors of Harvard Business Review as one of the most influential business ideas of the past 75 years.
BSC represents a system for strategic planning and management implemented in many organization in order to:
- Ease the communication, where the attention is brought to synchronize and smooth the processes within the organization;
- Ensure that all people involved in the process are working in align with the strategy;
- To make appropriate priorities;
- To measure the progress towards the strategic targets;
This system assists to connect the essential elements in the company such as mission, vision, core values, strategic focus, objectives, key performance indicators, targets and initiatives. Surveys show that BSC tool is used from different type of organizations and the main focus is typically on managing the strategy implementation or operational activities execution. Corporate BSC elements are also used to inform personal goal setting and incentive calculations. Many other not so popular areas of BSC utilization are present, such as way of tracking personal performance on individual level.
Many software solutions are available to gather performance information at any point of time after scorecard has been developed and implemented. They help gathering and systematizing corporate data transformation and knowledge.
ERMC provides a practical approach for strategic planning management system development which is based on balanced scorecard. Essential parts of our framework are process management, people coaching and problem solving in order to ensure sustainable system and maximum efficiency of the tool. The biggest benefits which balanced scorecard gives are:
- better project and program visibility and transparency within the organization;
- accurate performance measurement;
- usage of KPI’s to make comparison towards the accomplishment of the organizational strategic objectives and mission and vision alignment of the organization.
Balanced Scorecard technology:
The BSC design uses a “4 perspective” approach to identify what measures (KPI’s), targets and actions to use to track the implementation of strategy:
- Financial: this perspective views organizational financial performance and encourages the identification of a few relevant high-level financial measures such as cash flow, sales growth, operating income, return on equity;
- Customer/Stakeholder: or organizational performance from the point of view of the customer or other key stakeholders. Possible measures such as percent of sales from new products, on time delivery, share of important customers’ purchases, ranking by important customers;
- Internal Process: or organizational performance according to product or service quality and efficiency, several good examples are cycle time, unit cost, yield, new product introductions.
- Learning and Growth/ Organizational Capacity: associates organizational performance with human capital, infrastructure, technology, culture and other capacities measurements.
Using these perspective headings, organisation managers select a small number of measures that best describe organisation’s strategic performance. Generally speaking, balanced scorecard technology uses actual performance measurements, where the measured values are compared to a reference values. Based on the differences between the actual and reference performance measurements, appropriate corrective interventions are made. This control requires the following actions:
- appropriate selection of data to measure,
- adequate setting of a reference values,
- the ability to make a corrective actions;
In other words, BSC can be seen as a report, which consists of a mixture of financial and non-financial measures each compared to a ‘target’ value within a single concise report. This report is a summary that captures the most relevant information to those reading it and provides the possibility to determine whether current performance ‘meets expectations’. It is used to bring the attention of the managers to the areas where performance deviates from the expectation and further, to trigger improvement in the performance.
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