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How to build a balanced Scorecard

A Balanced Scorecard is a performance measurement tool that helps organizations track and improve their performance by considering multiple perspectives. It was developed in the 1990s by Drs. Robert Kaplan and David Norton as a way to help organizations move beyond traditional financial measures of performance to include non-financial measures such as customer satisfaction, internal processes, and learning and growth.

The Balanced Scorecard consists of four main perspectives: financial, customer, internal process, and learning and growth. Each perspective contains a set of objectives and measures used to track and improve performance. The financial perspective contains objectives such as increasing profits, reducing costs, and increasing shareholder value. The customer perspective contains objectives such as increasing customer satisfaction, reducing customer churn, and increasing revenue. The internal process perspective contains objectives such as reducing turnaround time, increasing efficiency, and reducing employee turnover. The learning and growth perspective contains objectives such as increasing knowledge and skills, reducing risk, and increasing innovation.

Each perspective is divided into five categories: financial performance, customer performance, internal process performance, learning and growth performance, and measurement. Financial performance is measured by financial metrics such as profits, revenues, and shareholder value. Customer performance is measured by customer metrics such as customer satisfaction, customer churn, and revenue. Internal process performance is measured by process metrics such as turnaround time, efficiency, and employee turnover. Learning and growth performance is measured by learning and growth metrics such as knowledge and skills, risk reduction, and innovation. Measurement is divided into two categories: objective and performance. Objectives are the goals that the organization wants to achieve. Performance is the actual results that are achieved.

The Balanced Scorecard is a valuable tool for organizations because it provides a way to track and improve performance across multiple dimensions. It can help organizations move beyond traditional financial measures of performance to include non-financial measures such as customer satisfaction, internal processes, and learning and growth.

  1. Financial Perspective focuses on financial outcomes, such as profitability, return on investment, and cash flow. It is important for organizations to track their financial performance to ensure that they are meeting the financial needs of their stakeholders.

  2. Customer Perspective focuses on customer satisfaction, loyalty, and retention to maintain a healthy customer base. Satisfied customers are more likely to return and recommend a company to others, while unhappy customers are more likely to voice their complaints and leave a company. Organizations can improve customer satisfaction by understanding customers' needs and preferences, delivering quality products and services, and meeting customer expectations.

  3. Internal Process Perspective. In order to improve its overall performance and competitiveness, an organization must focus on its internal processes. This includes measures such as efficiency, quality, and innovation. Organizations can improve their overall performance and competitiveness by improving these internal processes.

    For example, an organization may be inefficient in its production process. The organization can save on resources and increase its overall efficiency by improving this process. In addition, by improving the quality of its products, the organization can ensure that its customers are happy and that its products meet their expectations. Finally, by implementing innovative processes, the organization can stay ahead of the competition and gain an advantage over its rivals.

  4. Learning and Growth Perspective: This perspective focuses on developing and growing the organization's human capital and infrastructure. It includes measures such as employee training and development, knowledge management, and technology investments. Organizations can increase their long-term competitiveness and sustainability by investing in their employees and infrastructure.

Implementing a Balanced Scorecard requires a clear understanding of the organization's strategic goals and objectives and the measures and targets that will be used to track progress toward these goals. It is important to involve all levels of the organization in the development of the Balanced Scorecard to ensure buy-in and support for the process.

Once the Balanced Scorecard has been developed, it should be regularly reviewed and updated to ensure that it is still aligned with the organization's strategic goals and objectives. It is also important to communicate the results of the Balanced Scorecard to all levels of the organization in order to promote transparency and accountability.

In conclusion, the Balanced Scorecard is a powerful tool that helps organizations track and improve their performance by considering multiple perspectives. By regularly reviewing and updating the Balanced Scorecard, organizations can ensure that they are making progress towards their strategic goals and objectives, and are continuously improving their overall performance and competitiveness.

Reference point:  https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2