The Balanced Scorecard
The Balanced Scorecard (“BSC”) is a management tool that allows you to lead a business with the help of a small number of decisive key figures in a flexible, effective manner.
The goal of the BSC is to provide the management and staff of the business with a permanent insight into the progress of the business and individual areas of responsibility. It is comparable to the concept of an aeroplane cockpit, showing all information about the status of the aeroplane and the course it is following that is needed in order for the plane to reach its destination.
With the BSC, you can raise awareness of your strategies throughout your enterprise while at the same time making them easier to implement. With your help, employees should be motivated to commit fully to the success of the business.
You undoubtedly already use some key statistics already in order to get information about the progress of your business. In many cases, these figures are “lagging indicators” that depict the effect of your business only after a long time delay. For example, customer (dis)satisfaction is only reflected in profit and loss accounts after a period of time. Instead, the BSC draws your attention towards “leading indicators” – which allow you to identify and correct a problem while it is still happening.
It may be the case that you only work with financial indicators such as revenue, profit, return on investment, or payment volumes. However, these do not provide any direct information about how well you manage your processes, what your customers think of you, or how committed your employees are. These factors all have a significant impact on your financial situation however.
A prerequisite for the BSC is that it must be integrated into an existing strategic planning process.
This diagram shows the process of creating a Balanced Scorecard:
The BSC brings together and summarises statistics from the following perspectives and areas of the business:
- Finance: Traditional financial statistics, particularly for shareholders;
- Customers: Customers’ opinions and attitudes;
- Process: How effectively internal processes function, with regard to time, quality, and cost;
- Development: How good the business climate is, and how highly motivated the employees are.
The BSC gives you answers to the following questions:
- How do our customers see us? Can we convey our vision to them more effectively?
- Are we achieving our goals? Which business processes are responsible in the event that we are not doing so?
- Are all employees contributing to the achievement of our goals? Are they receiving sufficient support from our IT systems?
- Are our shareholders satisfied with the performance of the business? How should we describe our profitability and successes with to our bankers?
