Business, Sales

Balanced Scorecard: concept, perspectives and how to apply

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Balanced Scorecard: a strategic concept that will change your company by pointing the way forward, objectives and strategic initiatives

The Balanced Scorecard concept (also known by the acronym BSC) was launched by two renowned Harvard professors, David Norton and Robert Kaplan. The objective of the scholars was to present a strategic management model in which the measurement of results and definition of objectives would move away from the traditional use of financial, billing or market indicators.

In 1992, professors published their article The Balanced Scorecard: Measures that drive performance, which had important repercussions in both academia and business, revealing to the world a new methodology to measure the performance of organizations and, at the same time, define strategies and plan in a much broader and more comprehensive way, without being limited to metrics solely focused on financial results.

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The article was later turned into one of the best-selling books on strategic management and planning, entitled: Strategy in Action – Balanced Scorecard.

Today, the concept of Balanced Scorecard is widely used by several companies and organizations around the world with positive results that, every day, bring more followers to this strategic methodology.

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What is the concept of a Balanced Scorecard?

The concept of Balanced Scorecard (BSC) can be defined as a strategic management model that helps measure the progress of companies towards their long-term goals, from the translation of strategy into objectives, indicators, goals and strategic initiatives.

Therefore, the concept of BSC presents us with some key terms:

  • Strategic management
  • measurement of progress
  • Strategy
  • Goals
  • Indicators
  • goals
  • strategic initiatives

The secret of the BSC is to ensure that the organization’s administrator is able to clearly understand the objectives of its strategy and, based on them, arrive at the definition of the strategic initiatives that must be executed. Hence the name of the book: A Strategy in Action.

For this, the measurement must take into account 4 strategic perspectives that we will analyze below.

The 4 perspectives of the Balanced Scorecard

The concept of Balanced Scorecard encompasses 4 perspectives: Financial, Market, Internal Processes and Learning

The Balanced Scorecard uses the concept of 4 strategic perspectives that must be properly defined and subsequently measured and monitored:

  1. financial perspective
  2. Market Perspective
  3. Internal Processes Perspective
  4. Learning Perspective

To define each of them, we must answer a specific question in each case:

  • Financial perspective

To satisfy our shareholders, what financial goals should we pursue?

  • Market Perspective

To achieve our financial goals, what needs of our customers must we meet?

  • Internal Processes Perspective

To satisfy our customers and shareholders, which internal processes must we excel at?

  • Learning Perspective

To achieve our goals, how should our organization learn and innovate?

In this context, the concept of Balanced Scorecard regarding strategic perspectives can be summarized as follows:

  • To make our company more valuable and profitable, we need to satisfy the market and our customers. For this, it is necessary to improve our internal processes, which will only be possible if we learn from experience and practice innovation.

After defining each of the perspectives, in answering these questions, you need to turn strategy into action.

Thus, 4 important elements that are part of the Balanced Scorecard (BSC) concept must be determined for each perspective individually.

Defining objectives, indicators, goals and strategic projects

Having fully understood how each of the perspectives influences and should be treated in your business, it is now necessary to define for each of them:

  • Your goals
  • Which indicators to use
  • The goals to be achieved
  • Strategic projects in practice

To facilitate your understanding of these 4 Balanced Scorecard concepts, we provide a practical definition below.

Goals:

Define what the company wants to achieve in each strategic perspective.

Indicators:

They indicate the company’s performance for each defined objective.

Goals:

Depending on the indicators, what is the expected level of performance to be achieved?

Strategic projects:

The actions, initiatives and interventions that must be taken in order to reach the determined performance goals.

As you can see, the Balanced Scorecard has a concept that aims to decouple each step of the analysis until reaching the operational level: what do we need to do to reach the company’s strategic objectives?

These are the so-called strategic initiatives or projects that translate the strategy into practical actions, which must be measured and monitored.

And to make all this easier to understand and disseminate by the company, we must build a BSC Strategic Map.

How to build the Balanced Scorecard Strategic Map?

The end result of all this should be a kind of summary picture of the Balanced Scorecard concept that should be applied to your company.

The map is divided into 4 bands, each referring to one of the 4 strategic perspectives (see more balanced scorecard examples here).

The tracks are sorted from top to bottom, in this order:

  1. financial perspective
  2. Market Perspective
  3. Internal Processes Perspective
  4. Learning Perspective

Then, put boxes on each banner with the strategic initiatives that will be taken in each of them, so that prospects can achieve their goals. In some cases, it is common to place arrows from one box to another, in different bands or in the same ones, indicating how the initiative will favor others, in different perspectives.

It is also worth remembering that some companies use their own perspectives, different from the 4 most used.

Bunco VW uses its own strategic perspectives, specific to its business

Subset’s Strategic Map presents arrows among the strategic initiatives

What is the Balanced Scorecard and how does it work?

The Balanced Scorecard (BSC) is a strategic management model with the objective of measuring a company’s performance and progress. It is a widely used management tool for long-term goals based on four perspectives: financial, market, internal processes and learning.

What are the 4 pillars of the Balanced Scorecard?

BSC strategic management uses four pillars that are indicators according to the company’s performance objectives. These four main perspectives cover the following variables: Financial, Market (customers), Internal Processes and Learning/Growth.

What is the main benefit of using the Balanced Scorecard BSC?

The main benefit of using the Balanced Scorecard (BSC) is the alignment of strategic planning in pursuit of defined objectives. Its advantage lies in the possibility of measuring and managing the real actions and measures that will serve in the progress towards achieving the goals and objectives determined in the organization.