What is the BSC Balanced Scorecard? Learn the best practices!
The business world intensely demands the excellence of companies more and more day after day. The great competition, the race for customer satisfaction and the need to improve organizational processes in an increasingly globalized world mean that the use of methodologies and tools to aid strategic planning are essential for success.
Organizations with good strategies understand the need to invest in the management of tangible and intangible assets to achieve objectives. Here on the blog we have already covered some of these methodologies, such as OKR, PDCA and FCA. Today we will talk about the BSC Balanced Scorecard.
The Balanced Scorecard, briefly known as BSC, is a measurement and performance management methodology used since 1992. Its concept is widely used today by companies and organizations that wish to increase their performance in a strategic way, being present in large companies, inside and outside the US.
Read on and learn more about this important methodology!
How did the BSC Balanced Scorecard come about?
The BSC was created by Kaplan and Norton, professors at Harvard Business School. Its beginning was in 1992, when they released the first article on the concept. This article treated the tool as a way of measuring results and setting objectives. Its main difference, however, was the use of different types of indicators.
This broad and innovative view of the researchers, which emerged as a response to the limitations of traditional performance assessment systems, has made the method widely known in academia as well as in the business world. With this article, the authors began an unexpected revolution. They aimed to show the drawbacks of using only financial measures for evaluation. In this way, they showed how customer satisfaction and quality are also essential factors for success.
After the first article, 5 other books on the subject were published. During these 26 years, the BSC Balanced Scorecard concept has been adapted to different situations and organizations and is constantly updated. The last book, Execution Premium (2008), adapts to the challenges of the digital age, which we have lived intensely in the last decade.
What is the BSC Balanced Scorecard?
BSC can also refer to Balanced Performance Indicators. The BSC Balanced Scorecard is a set of goals that gives all employees a quick and comprehensive view of the company’s strategy. For Kaplan and Norton, there are three essential steps to building good management: description, measurement, and management.
Conceptually, the BSC Balanced Scorecard assumes that a company must consider other perspectives, as important as accounting, to evaluate its performance effectively. Therefore, the BSC is a model of evaluation and organizational performance. It is a facilitating tool, such as a control panel, that helps the team develop to achieve common goals.
To be clearer: imagine being on a plane to a distant place. For the pilot, looking only at the speedometer would be too risky to determine the safety and success of the trip, right? For this, the monitoring and performance of several other aspects are fundamental.
This is the role of BSC in companies. Managers pay attention to specific indicators that allow them to be able to guide the business safely and satisfactorily. In this way, the margin of error decreases drastically. The BSC is not an end in itself, it is a management tool that can be used not only to measure organizational performance, but also to establish goals (individual and team), compensation, resource allocation, planning, budgeting, feedback and strategic learning.
What aspects does the BSC Balanced Scorecard consist of?
Strategic map: a map is a tool that helps to implement a company strategy . As a visual representation, the map is a summary of the important steps taken with a focus on development.
Did you know that less than 10% of company strategies are actually executed? And that in most failures, about 70% of them, the problem is not of strategy but of execution?
Building strategy is an essential step in the development and implementation of BSC. To do this, you must master the entire business path and know where you want to go. Good execution planning is the difference between companies that have strategy and companies that can make it a reality.
Strategic objective: these are the objectives previously defined by the organization, which must be based on long-term aspirations.
Indicators: Indicators that measure the success of achieving the goal. Regardless of the types of indicators chosen for each goal, they need to be: clear, easily obtainable, and measurable.
Goals: It is necessary to establish goals that will be part of the journey until reaching the strategic objective.
Action plan: is the set of necessary measures and actions chosen to achieve the strategic objectives.
What are the benefits of the BSC Balanced Scorecard?
Now that you know where the Balanced Scorecard came from and what the methodology proposes, find out its benefits:
- Allows a better visualization of the future;
- Enables improvement of results;
- Puts action plans into action;
- Continuous improvement of quality and performance;
- Monitoring, measurement and targeting of actions;
- Promotes communication and feedback among staff;
- Promote adjustments and corrections in action plans;
- Alignment of key indicators with the organization’s strategic objectives;
- Stimulates a learning culture.
But how to determine which indicators are important to observe in an organization?
Kaplan and Norton have determined four essentials, which are called perspectives:
Ask yourself: How do we see ourselves and how do shareholders see us?
This perspective has the objective of analyzing the impacts of strategic decisions on the established goals. It is necessary to clarify long-term financial objectives by linking them to a plan of action that is tied to financial processes, customers, internal processes, and also to employees and systems to achieve a satisfactory result.
To think about this perspective, it is important to reflect on the vision the company wants to pass on to shareholders and what it is really going through. Financial indicators are not neglected in the Balanced Scorecard methodology, on the contrary. They are very important and are usually a symptom of what is working and what is going wrong in an organization.
The goal of the BSC Balanced Scorecard is not to ignore the existence of this perspective, but to show that others are just as important. From a financial perspective, success can be measured by profitability, company growth, and share value growth. If the results are not as expected, the problem may be a result of poor execution, deployment, or strategy definition.
Ask yourself: How does the customer see the organization?
This is where a company’s market share and customer satisfaction are verified. It is important to identify your stakeholders and select the results that will be evaluated, such as market share, acquisition, retention, satisfaction and profitability.
Think about the characteristics that will attract this audience, such as characteristics of the product (functionality, quality and price), the relationship with the customer (quality of the shopping experience and personal relationships) and image and reputation. In this regard, it is important to know what the customers’ view of the company is.
According to the authors, this perspective should be based on the analysis of the following points:
- Market share: proportion of sales in relation to the number of customers according to the market in which a company operates; units sold and invested capital;
- Customer retention: percentage of customers that a business maintains a commercial relationship with;
- Customer acquisition: percentage of new customers acquired;
- Customer satisfaction: level of satisfaction related to previously established criteria;
- Customer Profitability: Measurement relative to a company’s profit in a specific niche, including the expenses necessary to serve customers.
Internal Processes Perspective
Ask yourself: How can we improve?
Here, it is important to focus on the quality of the processes performed, as well as the degree of innovation invested in them. The productivity, technology, cost and time of development must be analyzed with a focus on the constant repair of damages and the improvement and excellence of the processes.
One point of difference the BSC has in this perspective is the insertion of new techniques in several phases of internal processes to follow technological developments and, as a result, to excel in the market. Efficiency is a consequence of team engagement. Kaplan points out three essential characteristics of this perspective:
- Innovation: focusing on meeting the needs of target customers and always thinking ahead;
- Operation: improvement of cost, quality and response time. The operation starts with the request of the product / service and ends in its delivery;
- After-sales: essential for building a company’s reputation. Includes warranties, repairs, successful communication, returns etc.
Learning and Growth Perspective
Ask yourself: How can we grow and create value?
This perspective is responsible for evaluating employees’ internal satisfaction. Try to guide intangible assets that are earned, that is, those that are not financial, but are part of the development of the organization when thinking about a future of success.
The objectives and infrastructure measures needed to successfully achieve objectives also fall into this aspect. Constantly question your company’s capacity for growth and improvement. Important indicators to measure the success of this perspective are:
- Versatility of employees;
How can you implement BSC in your company?
Kaplan and Norton defined four key management processes for implementing the Balanced Scorecard:
Translate the vision and strategy
This first step is intended to harmonize and unite the vision of the company to the strategy created to achieve its objectives. This translation must be done with all employees, from the highest to the lowest positions. Only then can strategic maps be created, making the strategy clearer and easier to visualize for the team. In this way, the process becomes more dynamic, focused and clear. Therefore: clear the vision; establish consensus; translate the vision and the strategies.
Communicate and link-up
The team’s engagement and understanding of the action plan is what will make the BSC work. Communicate company strategy horizontally and vertically. With effective communication, organizational and individual goals integrate more effectively. Therefore: communicate and educate; set goals and link rewards to performance indicators.
Plan and set goals
For the strategy to work, you need to align actions to available resources. Keeping track of the budget, booking, and acquiring resources to achieve goals is a critical part of planning and execution. So: set objectives; align strategic actions; allocate resources and establish control points.
Feedback is essential for the organization to have strategic growth and learning. Strategic management is an ongoing process and, in order to function, needs the constant improvement of each employee. So: articulate a shared vision and give strategic feedback to the team. In this way, strategy review and learning become achievable.
Warnings for when implementing the BSC Balanced Scorecard:
The BSC Balanced Scorecard is used by companies of the most diverse industries and sizes around the world. Because BSC is a flexible methodology, it can be easily adapted to a variety of markets. However, it is important to be careful not to make common mistakes:
- The BSC is a means, not an end! It assists in implementing strategy, but does not have a role in building it. In this way, only start implementing a Scorecard when your company has enough management maturity to build an effective strategy.
- Be careful when analyzing the indicators. As the indicators are new, their analyzes may turn out to be very inaccurate. The absence of a historical basis for comparison and analysis can undermine the process. So be careful and analyze meticulously.
- Top management needs to be engaged. Engagement is important in teams at all levels, but the lack of engagement among leadership completely destroys the BSC’s implementation. The difficulty of getting out of the status quo is a common situation in every methodological implementation, but with a good culture of change it is possible to move the organization forward.
- Without training there is no change. Absolutely everyone involved – more or less – in the BSC needs to be trained to perform their duties satisfactorily. People need to know what their roles are, how and why they need to be done, and especially where they fit into the strategic plan. A key piece of success that many organizations end up leaving is to pass a broad picture of the strategy (big picture) to all employees.
Now you know a little more about this complex, but very effective methodology! Implementing the BSC in your company brings several benefits, but it also requires certain care. Linking the method to well-articulated strategic planning and execution is the assurance that your strategic map will deliver good results in guiding, measuring, and supporting good decision making across the organization.
Finally, companies can only grow when they risk and undergo changes, but do not forget the importance of good leadership and change management focused on your human capital! People need to be gradually adapted to change and employees are key to the success of your strategy.
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