What is a balanced scorecard?
A balanced scorecard is an organisational framework used to manage and monitor performance against strategic goals. It combines strategic (non-financial) performance measures to traditional P&L – to provide businesses with a balanced view of their performance.
Put simply, it is a strategic system used to track and measure performance to help businesses manage future growth. The balanced scorecard includes traditional financial measures to indicate past performances and complements them with operational measures.
Managers can create a balanced scorecard by translating their company’s strategy and mission statements into specific goals and measures:
- Finances: How do factors such as revenue, expenditure and ROI impact on your financial performance and how are you tracking these against your financial targets?
- People: What are the key drivers and barriers to staff performance and how are they measured? Are they measured often enough; so you can demonstrate growth if these drivers or barriers are enhanced/removed?
- Processes: What internal operations could be improved? How do you measure improvement to create more effective and efficient processes?
- Market/Customers: How can you learn and improve your products, processes, systems and people based on your market/customers? How can this influence your overall performance and increase your market share?
Why should businesses use it?
Business leaders can utilise balanced scorecards to bring organisational strategy to life and track performance. The ability to measure and remeasure over time is crucial for gauging the success of the initiatives you are putting in place to drive better business performance.
Unlike traditional methods of tracking business performance, the balanced scorecard gives you a holistic organisational view – allowing you to gauge if your company is meeting its objectives.
Make future predictions: When someone from finance sees your P&L they will typically provide instant, short-sighted solutions. They do not look to the long-term future. By using balanced scorecards, business leaders and shareholders can measure the short, medium, and long-term objectives in one glance.
Compare metrics: By consistently using the same metrics and KPIs, improvements can be tracked and benchmarked against previous metrics over time. Comparisons can be made to company goals and overall vision, as well as industry benchmarks. This ensures they are beneficial for all companies, including those with continuous improvement programmes.
Improve communication: On top of being a measurement tool, a balanced scorecard is also a communication tool. It can be used to educate your workforce around company strategy and how everyone’s performance will impact business objectives. It can also be used to communicate key business metrics and performance to the board, investors and the outside community.
The trouble with measuring your balanced scorecard
Without the right tools, it is very difficult to accurately measure your scorecard.
The difficulty in pulling through the data for a balanced scorecard is knowing how to measure the intangibles elements, e.g. the key drivers and blockers in staff performance. If you want to ensure progression, you must also have to know how to put targets against these areas.
Another challenge is making sure you have access to real-time information, which will help you understand what is happening in your organisation right now. Not two or three months ago. Outdated data will skew your decision making.
How we can help
By using real-time pulse surveys, you can easily communicate strategy and performance across your organisation in real-time. You can deliver key updates, whilst providing your workforce with an opportunity to feedback their concerns, praises, ideas and innovations. This will increase engagement and highlight how much you value everyone’s opinion – thus empowering your workforce.
On top of this, pulse surveys will help you to accurately gather and measure the right data.
This will allow you to drive performance across key areas:
We have a principle called “The 2nd P&L” which ties together the tangible elements of the traditional P&L and the intangible elements such as culture, engagement and staff sentiment. By overlaying the two sets of data you can generate a holistic view of your business. This will allow you to demonstrate the impact the intangible elements have on your financial performance. For example, investing and developing a strong culture can lead to a reduction in staff turnover and reduce recruitment expenditure.
By understanding the sentiment of your staff in real-time and identifying the key themes affecting them, you can create and deliver relevant action plans to help boost culture, engagement and ultimately profit. By remeasuring regularly, you can ensure these initiatives are having the desired impact and helping you to make smarter decisions and drive your business forward.
Who better to help you understand the strengths and weaknesses of your processes than your people and customers. Through their unique feedback and insights, you can make smarter business decisions to help improve services, systems and processes. This can enhance the client experience and improve financial performance.
Understanding the ‘softer’ side of your market, e.g. client sentiment is vital for customer retention. It is important to understand your current market share, but in isolation, it is a reflection of past performance. By factoring in client sentiment it’s possible to predict the future action of clients and make adaptations to help ensure customer satisfaction. This can lead to repeat business, referrals and the creation of loyal brand advocates.
Simply having a balanced scorecard will not deliver improvements. However, by using it as part of a wider strategy and coupling it with pulse surveys – organisations can accurately measure and track performance and effectively communicate it to everyone. When done correctly, it will drive performance across your key areas and increase profits.