With a balanced scorecard, you break down your strategy to concrete metrics.
Developing a strategy is one thing. Communicating it is something else entirely. Many companies fail to transform employees from stakeholders to participants. As a result, goals are not achieved and expectations are not met. A successful strategy implementation brings the corporate strategy to all employees and makes them understand what it means for their daily actions. Robert S. Kaplan and David P. Norton focused their research on management concepts designed to do just that. This is how the concept for the Balanced Scorecard and, based on it, the Strategy Map came into being. For us, these concepts are particularly interesting because of the aspect of visualization and comprehensible strategy communication.
Table of content
- What is a Balanced Scorecard?
- Difference to the Strategy Map
- The structure of a Balanced Scorecard
- Creating a Balanced Scorecard – this is how it works
- Advantages and disadvantages of the Balanced Scorecard
- Implementing strategies with the Balanced Scorecard
- Design of a Balanced Scorecard
The developed Balanced Scorecard, or BSC for short, is a tool for translating a strategy into concrete key figures. What is interesting here is that the BSC not only looks at the financial level, but also enables a holistic view of the company with further perspectives.
For a BSC, a strategy, vision or mission must first be distributed among the individual perspectives. It must be identified as the important aspect for each perspective. These aspects are translated into key figures and serve decision-makers as an indication of how the developed strategy, vision or mission is performing.
There is a strong interaction between the Balanced Scorecard and the Strategy Map. For the BSC, the focus is on quantifying the mission, strategy and vision – clearly measurable achievements. For the Strategy Map, the focus is on finding an appealing representation of these goals.
This link contains the key metrics and shows the links between them. Not surprisingly, this big picture is a popular tool for strategy communication. It allows you to reach all the employees of your company, because each and everyone will find an aspect that involves them.
The Balanced Scorecard gives a clear overview of the strategic decisions of your company. This is still described in rather general terms, so when creating the Balanced Scorecard, you work with four perspectives: The financial, customer, process and development perspectives. The financial and customer perspectives describe what a company wants to achieve and the process and development perspectives focus on the implementation of the strategy.
Prioritizing profit and return over provisions? Increase in sales despite tight market situation? Investment in market development?
The financial perspective asks what goals your company wants to achieve in purely financial terms and how you can reconcile them with your corporate strategy. Not surprisingly, the financial perspective is very important for private companies.
The competitor of finance is the customer. The customer perspective is about how you want to treat your customers and what value you ascribe to them. Ask yourself questions about customer loyalty, customer satisfaction, or even your customer relationship management (CRM) in general.
Customer and financial perspectives are strategic, but have no influence on day-to-day business. For these changes, you refer to the process perspective. It is responsible for helping you achieve your goals from the financial and customer perspective. New processes and optimizations are the only way to reach your goals.
Not only your processes, but also your employees must fit your goals. Promoting innovation and employee development are the focus of the development perspective, also called the innovation perspective.
First of all, the strategy, vision or mission for which the balanced scorecard is made must be clear. This means that the corporate strategy must be fixed and ready. Only when this is given, the implementation of the Balanced Scorecard can be started.
For the Balanced Scorecard one should define in practice several goals per perspective. A goal always consists of the target, a key figure, a target specification and a measure.
Let’s assume that we have the goal “increase customer acquisition”. Then a possible key figure would be the SEO ranking of the homepage for keyword “XY”. With the target you set a goal for the metric, like page 1 or top 3 of the search results on Google. The measure says how you want to achieve the goal. Here the measure could be a comprehensive search engine optimization of the homepage.
- Goal: Increase customer acquisition via inbound leads
- Key figure: Search engine ranking
- Target: Top 5 on Google
- Measure: Search engine optimization on the company website
Of course, each goal belongs to one of the four perspectives. Here we are dealing with a process perspective goal. We support a customer perspective goal, for example “generate more sales”, by optimizing the website and bringing more potential customers to our website.
As with any management tool, the Balanced Scorecard comes with advantages and disadvantages.
Everything in one place
All information, i.e. all goals, measures and so on, are in one place. This gives you the opportunity to look at your entire strategy. And not as words and numbers, but as a complete work.
Basis for discussion
All the information in one place? Sounds like the perfect basis for discussion. The Balanced Scorecard gives the decision makers in your company all the same basis for debates concerning individual goals or the strategy in general.
When you create a Balanced Scorecard for your company, you have the best overview of your company’s strategic orientation there is. The goals and measures, properly filled in, are clear and precise. This means that neither vague statements nor hiding of true intentions are possible. The Balanced Scorecard cannot lie and gives the honest overview of your company.
Digitization affects many aspects. The Balanced Scorecard is no exception. With digital tools, the balanced scorecard can be sorted, filtered and prioritized without much additional effort. This also simplifies reporting. The compilation and associated documentation is optimized and there is no longer much to do.
The Balanced Scorecard also has disadvantages. This does not mean that it should be replaced. The point here is that the Balanced Scorecard should be supported with additional tools for certain aspects.
A balanced scorecard focuses on your company’s strategy and how your company can achieve the strategy’s goals. Therefore, it is rightly said that external factors such as competitors are not taken into consideration. But this is part of the character of the Balanced Scorecard. So there is no basis to include external factors at all. A simple combination with a competition-oriented tool can already remedy this.
The goals formulated on the Balanced Scorecard are clear and to the point. In itself a good thing. But crisp formulations sometimes leave out certain details. Specifically, risks are not addressed. Well, we have to be fair. Risks are most certainly addressed, but they don’t have a permanent place in the balanced scorecard.
The Balanced Scorecard lacks a time dimension, a deadline. This disadvantage is not part of the character of the Balanced Scorecard and can therefore be easily circumvented if you consider the time aspect in the measures. A measure like “Increase Ctr in Q1 by 3%” shows exactly that. Of course, this is not very precise, but it might be just right as a milestone. For more precise deadlines, you should work with exact wording for the measures and perhaps use a cascade structure so that it is always clear which goals must be achieved first.
From strategy to balanced scorecard, there are a few things to consider. After all, you are defining the path of your company and this should be well thought out. It is important to note that the BSC is still a management tool to implement a strategy taking into account the company as a whole.
First, you need to determine your company’s strategic goals and focus. Make sure you assign each goal to a perspective. If you can’t decide whether an objective belongs more to the financial or innovation perspective, then you probably didn’t choose your wording cleanly and weren’t specific enough.
With the target agreement, you have chosen the focus of your company. Now it’s time to find the right strategic alignment. To do this, you need to find out who will carry out your strategic alignment and whom you want to convince with it.
This step concerns your target group, your investors or perhaps your employees. Based on your answers, you can then compare whether the strategic alignment and the target agreement aim at the same thing or whether you have contradictions in your strategy development.
After you have aligned your strategic direction and your goals, it’s time to get specific, i.e., to complete the Balanced Scorecard. Each goal, i.e. each separate entry in the Balanced Scorecard, is assigned exactly one key figure. Exactly one because you should formulate your goals as precisely and clearly as possible. For example, one of your goals may be to expand your social media presence. However, this goal alone won’t work. You need to define sub-goals that relate to the higher goal. In this case, sub-goals could be an increase in likes, shares, or comments.
Review and adjustment
If you have finished the Balanced Scorecard, then you have reached your goal. Well, almost. Once you have your BSC ready, you can start measuring the success of your goals. If everything is working to your liking, then there’s not much to do. But more likely is the case that either individual goals are not met or you identify missing goals. In this case, you need to revise and adjust the BSC. In doing so, you should not simply create a new Balanced Scorecard, you should supplement the old one and delete targets only if you have really found out the cause of this action.
At Cleverclip, design is very important to us. Here, however, we are not alluding to a beautiful appearance. For us, design goes one step further. Design must appeal to a broad target group with the right illustrations and explain complicated relationships simply. With the right design, you are assured of the interest and commitment of your employees.
You must first find out who you want to convince. The key figures are especially interesting for the division managers and board members. Here, old-fashioned tools, such as Excel or PowerPoint, can be completely sufficient.
If it is about all employees, then the design becomes more complicated. It needs a presentation that responds to the interests of the individual people. Here, digital tools such as landing pages, interactive infographics or microsites are recommended. They offer the possibility that you have all the information in the same place, but still only present aspects that really interest the current reader.
With the Balanced Scorecard you implement your strategy. If you formulate your goals precisely and concretely, you get a very clear view of your strategy and your company as a whole. This way you always know exactly how you want to align your company and how you want to achieve it. A good BSC gives you a first insight into a strategy. For example, you can use a BSC to identify an increased focus on online marketing and ask yourself right away whether or not that is compatible with the vision.
And don’t forget: The constant companion of the Balanced Scorecard is the Strategy Map.
For convenience purposes this post has been translated automatically.