How can a balanced scorecard improve an organization?

The Balanced Scorecard (BSC) is a successful management framework that has been around more than 25 years. And while the BSC has been studied, evaluated, and proven for companies of all sizes, using the Balanced Scorecard in a small, 20-person nonprofit organization is entirely different than using it in a large organization with over 10,000 employees.

Ready to see strategic success in your company? It’s time to put the Balanced Scorecard to work.

If you are looking at different management frameworks for your large organization, here are four critical benefits that highlight the importance of the Balanced Scorecard (BSC) in strategic management.

1. The Balanced Scorecard can tie your long-term strategy into a short-term set of goals.

It’s much easier to look out a year in advance than it is to look out five or 10 years in advance—but large organizations know that it’s critical to do scenario planning for well into the future. For instance, companies may determine how they would react if the economy were to shrink by 5% or grow by 3%—and how every scenario would impact their strategy. They also may run environmental scans to look at what would happen in the event of major changes in their business environment. For example, what if two of their competitors merged?

These techniques allow large firms to implement long-term strategic views—and using the Balanced Scorecard as a management framework allows such organizations to interact with long-term “what if” scenarios alongside their shorter-term strategic plans. Your strategic plan in your Balanced Scorecard would take into consideration some of these long term views.

2. The Balanced Scorecard is a “framework of frameworks.”

The Balanced Scorecard is unique in that it’s a management framework that is flexible enough to manage multiple other frameworks. For example, many large corporations have sophisticated approaches to finances, customer relations, or human resources. To help organize these systems, they may rely on any number of frameworks (for instance, Six Sigma Black Belt or Total Quality Management).

The beauty of the BSC is that it can act as the organization system for all other management frameworks and help employees throughout the company see the connection between their departmental approaches and put them into context.

3. The Balanced Scorecard can help manage diverse company units.

Big organizations tend to have very diverse units, divisions, and departments—and these groups are all ideally working toward the same strategy. For example, a large municipality could have hundreds to thousands of individuals working in transportation, public safety, or parks and recreation—this combination of employees could be so diverse that, outside of the highest levels of leadership, they may not interact with each other at all.

The Balanced Scorecard allows you to ensure that every department sees and understands clear linkages between its own strategy and the strategy of the organization as a whole. This gives employees a clean line of sight into how their role is translatable across the organization and where the commonalities between departments lie.

Note: The BSC can also be deployed independently in a single division or department without interfering elsewhere. This isn’t necessarily recommended, but it can be done if the circumstances don’t allow for company-wide strategic alignment.

4. You can use the Balanced Scorecard to manage numerous data sources.

One of the major challenges in large organizations is managing the hundreds of sources for data. Since the BSC relies on strategic measures across the organization, bringing them all into one common place can be a huge challenge. In fact, we’ve seen large companies with strategy teams of 3-5 people working full time on gathering data in order to create their scorecard or most recent report—and, of course, this kind of overhead can quickly kill a strategy.

When using a robust Balanced Scorecard software, you can automatically upload data from a variety of sources or accept as many individuals as you’d like to input data sources. This makes reporting far easier and helps large companies get a handle on both organizational and departmental strategies.

Take A Look At These BSC Examples

Strategy mapping is a critical way for a large organization to unify and achieve its objectives. Take a look at this free ebook for details on the importance of the Balanced Scorecard and examples of five BSC strategy maps in financial, manufacturing, software, and insurance companies.

Quick Insights: Management Theory in Practice

Measure and improve team performance to realise your strategy

30 Second Summary

The Balanced Scorecard can give leaders and strategists a more comprehensive overview of performance. By setting and reporting on goals and measures, leaders can encourage teams to work towards a unified, challenging, and specific vision. Potential benefits include improved employee performance (Bezujien et al, 2010) and more focused strategic vision (Kaplan and Norton, 1993).

3 Minute Deep(er) Dive

What is Balanced Scorecard?

Proposed by Kaplan and Norton in 1992, the Balanced Scorecard is “a set of measures that gives top managers a fast but comprehensive view of the business”. The result of a year’s worth of data collection working with 12 successful organizations, the Balanced Scorecard aims to balance financial metrics and goals against other key organizational concerns. Namely, the framework encourages leadership teams to track “customer satisfaction, internal processes, and the organization’s innovation and improvement activities”. In completing the Balanced Scorecard, strategists and leaders should seek to answer four main questions:

1. How do we look to stakeholders? — Financial perspective
2. What must we excel at? — Business process perspective
3. Can we continue to improve and create value? — Innovation and learning perspective
4. How do customers see us? — Customer perspective

For each of these areas, the authors suggest managers select a small number of specific goals to work towards. For each goal, managers should work with their teams to identify appropriate measures, which can be used to understand how effectively the goal is being achieved.

At team level, it may then be useful to highlight potential initiatives that could enable the organization to attain its goals. Additionally, targets for performance may be included, as in this example.

How can the Balanced Scorecard add strategic value?

In a subsequent study, Kaplan and Norton highlight that are many potential reasons for organizations to adopt the Balanced Scorecard.

“Clearly, many companies already have myriad operational and physical measures for local activities. But these local measures are bottom-up and derived from ad hoc processes. The scorecard’s measures, on the other hand, are grounded in an organization’s strategic objectives and competitive demands. And, by requiring managers to select a limited number of critical indicators within each of the four perspectives, the scorecard helps focus this strategic vision.”

Ultimately, by considering both future goals and progress on a regular basis, the Balanced Scorecard approach encourages us to examine both “current and future success” (Kaplan and Norton, 1993).

How to use the Balanced Scorecard in practice

To use the balanced scorecard in your organisation, consider organising a strategy workshop or session. This may be aimed at managers in some organisations, while in others, team members in different roles may wish to attend and share ideas. In the session, it’s useful to consider the existing vision and long term strategic goals of your department or team, as well as broader organisational aims. When participants are clear on the long term strategic vision, try to work in groups to formulate high impact goals, and clear, understandable measures. Be careful to ensure that measures selected are actually measurable in practice, and can be checked and shared with the team regularly.

If you are facilitating this session remotely, virtual whiteboard tools can be a useful way to complete the board as a group. Miro provides Balanced Scorecard templates for teams to use in their sessions, while Google’s Jamboard may be a useful alternative.

Once you have developed a set of goals, it is important to be consistent in measuring, reviewing, and sticking to them in the long term. However, be aware that landscapes change, and you shouldn’t be scared to adapt to your environment. Often this can be done without changing goals themselves. That said, I recommend avoiding the urge to define initiatives in great detail upfront, as this can reduce your ability to respond to new opportunities and information in the long run.

How does a balance scorecard improve organizational performance?

Why balanced scorecards should be used in an organization?

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