Keeping score can sometimes be a fun and a competitive way of keeping tabs on personal or team progress. Whether we are cheering on our favorite football team by mentally keeping score as our team kicks the 3 point game winning field goal in the last second or if we are keeping score of how many reports we can complete at work before lunchtime, keeping score happens more than we probably notice.
What is a Balanced Scorecard?
A balanced scorecard is defined in the Oxford dictionary as “In business, a statistical record used to measure achievement or progress towards a particular goal”. However, just like the fun of keeping score during sports games, a balanced scorecard also known as BSC can be used in or out of business because it has tools that work well beyond our business goals. A balanced scorecard is all about PLANNING! In order to keep a balanced scorecard, the plans must be well thought out and strategic in detail and in overall organization. Another key part of maintaining a balanced scorecard is to master the art of positive communication and to learn how to prioritize tasks and projects in a way that goals are met.
That’s all nice but… Why is it called a balanced ‘scorecard’? What score is being kept?
The ‘balanced’ part of a balanced scorecard system may come from the juggling of positive communication, planning and prioritizing tasks however, no successful plan can be executed without monitoring and measuring how the goals are being met. In a sense, it’s a way of keeping score. All the steps of planning are useless if there’s no way of seeing results, right? The scorecard is how we can all prove that the positive results came about from balanced planning.
Here’s an example of a balanced scorecard system being part of a productive plan:
At a midtown Manhattan firm, Jeff prided himself in being a phenomenal office manager over his 400 agents for 20 years. They all individually told Jeff over the years how much they loved working with him and what a great leader he always was as a constant adviser to them in their difficult contract negotiations. Jeff enjoyed the overall positive moral in his office atmosphere with lots of smiles and laughter and very little conflict between his agents. All of this was great but, once a year, Jeff had to show the company CEO that he was making the company money in his annual review. If he could show that his management brought about company growth in his office, he would be rewarded with a huge bonus! So how could Jeff prove that he was an awesome manager in hard numbers? What measurable proof did he have that the office was more successful under his guidance? Jeff had the perfect solution: He showed the CEO a report noting that the sales were up by 20% every year in his office and he also added in the report that he recruited several new agents every year and kept the top most profitable agents happy by giving them his personal attention during their deals and negotiations.
So Jeff used a balanced scorecard method in order to make his bonus and to show the CEO that he was a great manager. Even though Jeff had a plan that included positive communication, goal setting and priority making of his time, he most importantly had to prove his measurable results through increased sales and by recruiting and maintaining happy, top producing agents. The proof was the monitored and measured RESULTS! Jeff’s balanced scorecard system was saved the day in his situation.
We can all comfortably can say that in our lives that no PRODUCTIVE plan or goal setting works without the quest for positive results. A balanced scorecard is the start to finish way of accomplishing those goals.
Why is the balanced scorecard so important?
Remember how Jeff the manager needed to show proof to his company CEO that he made his office more money so that he could get his big annual bonus? Balanced scorecards are important for that exact same reason to many employees and companies and other reasons that mark business growth. How can a company take note of higher profit margins if there’s no balanced scorecard in place to measure growth and losses in a given period of time? A successful balanced scorecard is not just bunch of numbers and percentages, if it’s done well, it can also be an effective tool of communication of where the company has been and where it’s headed. A balanced scorecard can bring a little bit of confidence that the current plans and strategies are working well. If it’s not showing profits however, a balanced scorecard can help a company to reroute its current path and make a plan B that may better suit its business needs. If Jeff happened to be a TERRIBLE manager, his balanced scorecard strategy would have come up with unsatisfactory numbers that would have showed the CEO a sales slump and possibly led to top producing agents who left to go work elsewhere. Needless to say, Jeff would NOT have gotten that big bonus, right? So balanced scorecards are important on several levels and they help a business and employees to have a better idea of how everything is moving along.
What are 4 steps needed to create a balanced scorecard? How were they created?
In the world of balanced scorecards, 1992 was a big year! This was when the book, ‘The Balanced Scorecard: Translating Strategy Into Action’ was written by Robert S. Kaplan and David P. Norton. In this book, Kaplan and Norton set the business world on fire by writing new strategies and ideas and introducing the 4 basic steps needed to create a balanced scorecard:
- To communicate and note the overall company vision and connect the vision to employee performance
If a small business only has 5 employees, imagine how successful the business would be if all of the employees loved the company mantra and worked as hard as they could to help the business thrive. If the company vision is clear to the employees and they feel a personal connection to wanting the company’s success, the business stands a better chance at moving forward. Employee moral goes a LONG WAY!
- To plan a business –
This step is pretty straight forward in meaning. A well-oiled business plan can lead to a successful business model and a higher probability of profits to come. Any balanced scorecard will require this step in order to understand the many levels of how the business is expected to run over an extended period of time. A business with no plan is like going to a roller rink with no roller skates, right? There’s no point.
- To translate the company vision and implement them into obtainable goals –
Having visions of opening up a ballet school without an innate knowledge of the art of ballet dancing sounds like a joke however, businesses open every day that have no obtainable goals connected to the company vision. If the concept wouldn’t be doomed from the beginning, by overlooking the next level of implementing the obtainable goals would stop the business before it even started. The point of a company vision connecting to goals is so that the business concept can be realistically started without unnecessary problems or delays later to come. If the goals remain obtainable, it’s a green light for a business to get off the ground. This step in the balanced scorecard ensures this place in the business process.
- To provide feedback, training/education and strategy adjustments –
Great news! The business is almost ready to open. The employees are hired, the lease is signed for the fabulous new business location and all of the supplies and equipment has been ordered to open. Wait, there’s still a few important things to plan for: Who will train and educate the employees? How will feedback come back on how the products are? Are there any strategies that didn’t work as planned? If so, who will make necessary changes? This final step in a balanced scorecard can be the ‘make it or break it’ step in the business model.
And there you have it…
If all of the steps are included, the balanced scorecard can be started and the strategies can help a company to flourish for many years to come. If all of the steps are laid out in detail and well thought out, the sky’s the limit! From the initial company vision to the final stages of training and getting product feedback, a balanced scorecard can be the earliest blueprint of what a business will need down the road.
Aren’t balanced scorecards great?
Now that we know how to put together a balanced scorecard. We can move on to the 4 types of business perspectives that can be utilized on a balanced scorecard to plan ahead. What perspectives work for a farmer or a small doctor’s office? Guess what… Balanced scorecard perspectives do not discriminate or only work for one or two industries. A well done balanced scorecard should shine a light on any kind of business model if they are done correctly.
What are the 4 Balanced Scorecard Perspectives?
- Financial: This perspective breaks down and measures the financial health of the business by including sales growth, cash flow, income and any other financial aspects that can be analyzed. If the money and the other financial elements aren’t right, most likely the rest of the business perspectives will negatively be affected as well. However, a healthy financial balanced scorecard can be promising for a business.
- Customer: This balanced scorecard perspective takes us to the areas in a business where customer satisfaction and anything related to the customer will impact the business model. Examples would be product reviews, delivery time and any other ways of measuring how customers respond to the product. Making sure that the customer stays happy is what worthy of its own perspective. Happy customers = Business success, correct? That is what keeps them coming back for more.
- Internal Business Structure: This perspective is more abstract and can encompass many factors that the business may need to take note of and measure from a back office place of improvement. For example, this perspective could mean the possibility factors of creating a eye catching, new product or possibly stopping production on an unpopular product that isn’t selling well. There may be a company merger in the works or whispers of an owner retiring early. The internal business structure perspective for a balanced scorecard may not be on a level of visibility to customers or employees however, it’s just as important as the other perspectives listed here.
- Learning/Training and Overall Growth: The most inspirational perspective for a business would probably be this one. How is it so inspirational? Look at the two parts of this perspective. The entire thought of business growth would be based on measuring ‘hope’ and the possibilities to come. And what can we confirm about employees being trained and/or educated from a business? This shows employees that they matter to a company that’s willing to continue to train them. When a company looks to measure growth and train and teach employees, this would be noted on the balanced scorecard here in this perspective.
How is balanced scorecard used in LEAN manufacturing?
Lean manufacturing is built on the basic idea of reducing waste on all levels of production. There’s 8 different wastes that lead manufacturing prepares employees to avoid in their designated work spaces. Since a balanced scorecard is all about measuring the results of a plan, if adapted into the lean manufacturing systems and philosophies, a balanced scorecard in lean would have one big goal: To prove that there was little or no waste!
Balanced scorecards are wonderful road maps for businesses to plan ahead and go deeper into the details that help them to succeed. Thank you Kaplan and Norton for introducing us all to these great strategies in 1992.
Measuring goals will always be examined on a much higher playing field thanks to balanced scorecards. Many businesses will be winners with these perspectives and other businesses will lose for not implementing them.
How can digital signage improve the balanced scorecard?
The balanced score card perspectives include KPIs (key performance indicators). Digital signage communicates real-time, weekly, monthly and quarterly KPIs so that employees know what the score is. Digital signage can also deliver newsletters and management messages to reinforce company culture and improve internal communication and employee engagement.