Balanced Scorecard Is A Comprehensive Strategic Planning And Management Tool Developed By Dr. Robert Kaplan and Dr. David Norton in 1992.
Balanced Scorecard method helps organizations to understand the whole structure of the businesses. It illustrates the organization in four perspectives that include internal and external, financial and non-financial, tangible and nontangible, and leading and lagging. These perspectives are:
• Financial perspective
• Customers perspective
• Internal processes perspectives
• Growth and development / Organizational capacity Perspective
Let’s Understand Each of These Factors in Greater Detail
Focus One –Financial Perspective
At the end of the day, it is all about the revenue you have generated and the profitability mark that you have hit. All the activities of your business need to be aligned with the finances; whatever you do has to bring in expected revenue and done in a seamless manner. So, how to make that happen? Below is the basic question that you as strategy maker or a decision maker need to ask yourself:
• How did our finances help us in achieving the goals set before the start of the fiscal year?
• How do we look to our shareholders?
• How can we create value for owners?
• How can we maximize mission value and effectiveness?
This means, you have to consider your revenue/ income, expenses, cash flow, budget which are the main pillars once you examine, build your financial perspective
Focus Two – Customer Perspective
Customers are the brand ambassadors of your brand and company. They have to remain satisfied and happy to make repetitive purchases from you as well as to spread out positive feedback about your products and help increase sales. To do this, the best way is to answer to these questions:
• Are we meeting all the needs of the customers?
• Can we go beyond that level and deliver more than what they expect?
• How do our customers see us? From the eyes of customers and stakeholders.
This is normally how you handle customers and their perspectives. Also, you need to look at customer service, new products, new markets, customer retention, customer satisfaction and loyalty. Once, we put in the answers in the balanced scorecard, we will automatically be able to deduce the action items.
Focus Three – Internal Processes Perspective
Once you know what your customers are looking for, you need to analyze if your business processes are able to respond to the customers’ desires and expectations or not. This will help you address the questions of targets and revised methodology or alteration in the processes to make them more effective in order to meet the demands of customers. To do this the best way is to answer these questions:
• What should we be best at?
• How can we improve internal process to deliver products & services better, faster, and cheaper?
Operations management processes, customer service processes, regulatory & social processes, innovation processes are to be reviewed, updated or modified to achieve this perspective.
Focus Four – Growth and Development Perspective
For this, your employees should be aligned with you on your business goals and what vision you have to achieve in the long run. They have to be motivated, inspired and encouraged so that they keep working with you to achieve the outcomes that you are trying to achieve for your business. This is the basic ingredient towards this strategy. The below questions to be answered to build this perspective:
• How can we improve and create value?
• How can we support the internal processes through improved knowledge, skills & abilities, tools and technology, leadership and other capacities
.Employee’s development and training indirectly helps you achieve success in the business. In other words you need to have the right people with the right skills at the right time with the right tools, right technology, and right infrastructure.
How is Balanced Scorecard framework good?
There are two factors that talk about the importance of a balanced scorecard framework – one is that it is concrete and other is that it is tactical. This is one of those most effective frameworks that help businesses understand the actual action points and jobs that need to be done. Most of the other ones just tell what are the things that your business should be accomplishing however, this one answers the how part of it.
From strategic plans, you may move on to execution plans and action points and they activate each stakeholder in making that happen. Thus, this is an active framework rather than being passive.