Initially created by Dr. Robert Kaplan and Dr. David Norton at Harvard Business School, the Balanced Scorecard has been used widely to measure business success. Historically, companies measured their success using only short-term financial measures like revenue, profit margins, etc. In addition to financial metrics, balanced scorecards add different non-financial performance indicators such as customer satisfaction, employee engagement, innovation, etc., which help companies improve their overall business outcomes.
The Balanced Scorecard has been widely adopted in many industries, including manufacturing, services, healthcare, energy, finance, and government.
The Balanced Scorecard was developed to help organizations make better decisions by focusing on four key performance indicators:
- Internal Business Processes
- Learning and Growth
It provides a framework for aligning strategy with operations and measuring progress toward organizational goals.
Financial measures are the most visible part of any company's balance sheet. They include revenue, profit, cash flow, assets, liabilities, equity, and market value. Managers have traditionally used these metrics to evaluate their performance. However, they do not tell the whole story about how well a company is doing. A complete picture can be obtained by adding other necessary measures such as customer satisfaction and employee engagement.
Customer satisfaction refers to the degree to which customers feel satisfied with the quality of products or services provided by a company. Customer loyalty is another term used to describe this concept. It includes measurements like repeat purchases, referrals, complaints, and sales. In addition, customer retention involves determining how long a customer remains loyal to your brand.
3. Internal Business Processes:
These measures include efficiency, productivity, cost control, and innovation. Efficiency refers to the ability to produce goods and services at the lowest possible cost while maintaining high levels of quality. The productivity measures the output per unit of time. Cost control measures the amount spent on materials, labour, and overhead costs. Innovation measures the rate at which new products and services are introduced into the marketplace.
4. Learning and Growth:
This section focuses on learning and growth. Learning is defined as the process of acquiring knowledge, skills, attitudes, values, and behaviours needed for personal and professional development. This can occur within an individual or across multiple individuals, groups, and/or teams. In terms of the workplace, learning can refer to training programs offered by companies to improve employees' skills and abilities.
This type of measurement helps companies identify areas where they need improvement and learn from past experiences.
After developing a scorecard for an organization, it is essential to roll it out throughout the entire company. In order for everyone to be able to connect their actions back to an organizational outcome, they need to understand the relationship between what they do and the organizational outcomes.
For the scorecard to be successful, it must become an integral part of its culture.