Balanced Scorecard
Simply Explained
Simply Explained
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The balanced scorecard is a management tool that helps companies to measure and manage their performance. It goes beyond traditional financial indicators and also considers three other important perspectives: customers, internal business processes and learning and growth. This holistic view enables companies to clearly define and implement their strategic goals, improve collaboration and achieve long-term success. In short, the Balanced Scorecard offers a balanced method for comprehensively evaluating and managing the success of a company.
The Balanced Scorecard (BSC) was developed in the early 1990s by Robert S. Kaplan and David P. Norton. Originally, they wanted to create a method that went beyond purely financial key figures and offered a more comprehensive view of the company's performance. This extension made the BSC special because, in addition to the financial aspects, it also includes the customer perspective, internal business processes and learning and growth in the performance assessment.
The following special features make the Balanced Scorecard a valuable tool in strategic management and help companies to act sustainably and successfully.
This table provides an overview of the most important advantages and disadvantages of using the balanced scorecard in strategic management.
| Advantages | Disadvantages |
|---|---|
| Holistic view of company performance | High implementation effort |
| Linking of short and long-term goals | Requires continuous adjustment and monitoring |
| Promotes strategic alignment and clarity | Can be complex and time-consuming to create |
| Improves internal and external communication | Depends on the quality of the selected KPIs |
| Increases employee loyalty and motivation | Employees may be overwhelmed by too many key figures |
| Integration of financial and non-financial aspects | Risk of neglecting important areas that are difficult to measure |
| Supports strategic planning and control | May be susceptible to subjective interpretation |
| Promotes continuous improvement and innovation | Possible resistance to change within the company |
The aim of the Balanced Scorecard (BSC) is to provide a comprehensive and balanced method for assessing the performance and strategic management of a company. In detail, the BSC pursues the following objectives:
Overall, the balanced scorecard aims to provide a structured and balanced method for strategic management and performance evaluation that takes into account both financial and non-financial aspects. This should ensure that the company can operate effectively and successfully in the long term.
The Balanced Scorecard (BSC) consists of four perspectives that together provide a comprehensive and balanced view of the company's performance. Each perspective comprises specific objectives and key figures that are linked to each other in order to achieve the company's strategic objectives.
The following diagram shows an overview of the 4 balanced scorecard perspectives that exist.
By integrating these four perspectives, the Balanced Scorecard offers a balanced and comprehensive method for evaluating and managing corporate performance.
Important terms for
Balanced Scorecard explained
| Term | Explanation |
|---|---|
| Balanced Scorecard (BSC) | A strategic management system for measuring and controlling corporate performance. |
| Perspectives | The four dimensions of the BSC: finance, customers, internal business processes, learning and growth. |
| Financial perspective | Assesses the financial performance and profitability of the company. |
| Customer perspective | Measures customer satisfaction and loyalty as well as the company's market position. |
| Internal business processes | Analyzes the efficiency and effectiveness of internal workflows and processes. |
| Learning and growth | Evaluates the ability to innovate and the development of employees and systems. |
| Key figures | Specific metrics used to evaluate performance in the various perspectives. |
| Targets | Specific performance targets to be achieved within each perspective. |
| Measures | Actions or projects that are carried out to achieve the set goals. |
| Cause-effect relationship | The relationship between the objectives and measures of the different perspectives. |
| Strategy map | A visual tool that depicts the strategic objectives and their interrelationships. |
| Strategy | A long-term plan for achieving the company's goals by aligning the perspectives. |
| KPI (Key Performance Indicator) | Important key figures for measuring progress and success in the various perspectives. |
| Balanced | The balance between the financial and non-financial aspects of the company's performance. |
This table provides an overview of the central terms of the Balanced Scorecard and their meaning in strategic management.
The balanced scorecard combines leading and lagging indicators to enable a comprehensive and balanced assessment of the company's performance. Leading indicators help to identify and correct potential problems at an early stage, while lagging indicators measure actual successes and failures and thus evaluate the effectiveness of the measures taken.
Leading indicators are key figures that predict future developments and results. They provide information on whether the measures and strategies currently being implemented are likely to achieve the desired results. Leading indicators are proactive and enable companies to make timely adjustments in order to achieve the desired goals.
Examples of leading indicators:
Lagging indicators measure the actual results and performance of a company in the past. They are retrospective and provide information on how successful previous strategies and measures have been. Lagging indicators are often financial indicators that reflect the success or failure of a company.
Examples of lagging indicators:
By integrating both financial and non-financial indicators, the balanced scorecard offers a balanced view of the various aspects of a company. This holistic approach makes it possible to translate the corporate strategy into concrete goals and measures, ensure strategic alignment and improve internal communication. In addition, the BSC promotes the continuous monitoring and improvement of company processes, motivates employees through clear targets and supports well-founded decision-making processes.
The following diagram provides an overview of the functions of a balanced scorecard.
The following functions of a balanced scorecard are well known and provide new perspectives and insights for companies.
Creating a balanced scorecard (BSC) is a collaborative process that involves multiple levels and functions within an organization. Here are the key players that are typically involved in the creation of a BSC:
| Actor | Role | Contribution |
|---|---|---|
| Management and Management Board | Definition of the overarching corporate strategy and vision. | Sets the strategic goals and priorities that form the basis for the BSC. |
| Strategic management team | Translates the corporate strategy into concrete goals and key figures. | Develops the structure of the BSC, defines the perspectives and ensures that the targets and KPIs are in line with the corporate strategy. |
| Head of department and division | Identifies department-specific targets and key figures. | Contributes expertise from the respective departments and ensures that the BSC objectives can be integrated into daily operations. |
| Controller and Finance Department | Provision of financial data and key figures. | Develops the financial lag indicators and ensures that financial performance is monitored and analyzed. |
| Human Resources (HR) | Focuses on the learning and growth perspective. | Develops metrics and targets for employee development, training and innovation capability. |
| IT department | Supports data collection and reporting. | Implements systems to collect and analyze KPIs and supports the automation of BSC reporting. |
| External consultants (optional) | Support with methodology and implementation. | Brings in external expertise, especially if the company is new to using the BSC. |
| Employees | Implement the measures to achieve the objectives. | Actively participates in the achievement of the defined indicators and provides feedback to improve the BSC. |
The success of the balanced scorecard depends heavily on collaboration and communication between the different levels and departments of the company. Regular meetings, workshops and feedback sessions are crucial to ensure that the BSC is not only created, but also effectively implemented and adapted.
The Balanced Scorecard is used by executives, managers, employees, controllers and project managers. It can be used in a variety of organizations and industries, including commercial enterprises, public administrations, non-profit organizations, healthcare and educational institutions. The BSC helps these organizations to define, communicate and implement their strategic goals and to comprehensively monitor performance.
Balanced Scorecard
opportunities and risks
| Opportunities | Risks |
|---|---|
| Improvement of strategic alignment | Implementation effort and complexity |
| Increasing transparency and clarity | Risk of neglecting important but difficult to measure areas |
| Promotion of internal communication and collaboration | Resistance to change within the company |
| Supporting decision-making through clear key figures | Overburdening employees with too many key figures |
| Strengthening customer orientation | Dependence on the quality and selection of key figures |
| Increasing the ability to innovate and adapt | Risk of misinterpretation of data and key figures |
| Promotion of continuous improvement | Requires continuous maintenance and adjustment |
| Better allocation of resources and efficiency | Possibility of focusing on short-term goals |
This table provides an overview of the potential opportunities and risks associated with the implementation and use of the Balanced Scorecard.
The creation of a balanced scorecard (BSC) follows a systematic process that involves several steps. Here is an overview of the typical steps:
By systematically following these steps, companies can introduce, develop and implement an effective balanced scorecard that helps them achieve their strategic goals and comprehensively monitor their performance.
Here is an example of a balanced scorecard (BSC) for a fictitious company operating in the consumer goods industry. The BSC includes the four perspectives: Finance, Customers, Internal Business Processes, and Learning and Growth. Specific goals, key figures, target values and measures are defined for each perspective.
The Balanced Scorecard consists of four perspectives, which together provide a comprehensive and balanced view of the company's performance. Each perspective comprises specific objectives, key figures, target values and measures.
By systematically applying these steps and following a structured approach, companies can develop and implement an effective balanced scorecard that helps them to achieve their strategic goals and comprehensively monitor their performance.
This table provides an overview of the specific objectives, KPIs, target values and measures of the four perspectives of the balanced scorecard in the example. The example shows how a company can use the balanced scorecard to define and measure its strategic goals and achieve them through targeted measures.
| Perspective | Target | Key figure | Target value | Measure |
|---|---|---|---|---|
| Financial perspective | Sales increase | Sales growth | 10% per year | Introduction of new products |
| Cost reduction | Operating cost ratio | < 20% | Process optimization in production | |
| Profit increase | Net profit margin | 15% | Efficiency increase through automation | |
| Customer perspective | Increase in customer satisfaction | Customer satisfaction index | 90% | Improvement in customer service |
| Increase customer loyalty | Repurchase rate | 80% | Loyalty programs and discount campaigns | |
| Expansion of market share | Market share | 25% | Marketing campaigns and market research | |
| Internal business processes | Improvement of product quality | Error rate | < 1% | Implementation of a quality management system |
| Increase in process speed | lead time | -15% | lean management initiatives | |
| Increase in innovation | Number of new products | 5 per year | Investment in research and development | |
| Learning and growth | Increase in employee satisfaction | Employee satisfaction index | 85% | Training programs and employee benefits |
| Increase in employee qualifications | Number of training days per employee | 5 days per year | Continuous education and training | |
| Promotion of innovation | Number of suggestions for improvement submitted | 100 per year | Innovation workshops and promotion of creativity |
Yes, the balanced scorecard is a controlling instrument. It enables companies to define, measure and manage their strategic goals by integrating financial and non-financial indicators. As a result, it provides a comprehensive and balanced view of the company's performance and supports management in making well-founded decisions and ensuring the long-term direction of the company.
Yes, the balanced scorecard is a system of key performance indicators. It uses a variety of metrics from different perspectives such as finance, customers, internal business processes, learning and growth to comprehensively measure and manage a company's performance. By integrating these metrics, the Balanced Scorecard provides a structured method for evaluating and monitoring corporate goals.
Controllers can use the balanced scorecard to plan key figures such as sales growth, profit margin and return on investment (ROI) for the financial perspective. For the customer perspective, they can define key figures such as customer satisfaction, customer loyalty and market share. In the internal business process perspective, key figures such as throughput times, error rate and process costs are relevant. For the learning and growth perspective, you can plan key figures such as employee satisfaction, number of training days and innovation rate.
The balanced scorecard model is a strategic management tool that helps companies to comprehensively measure and manage their performance. It integrates financial and non-financial key figures from four perspectives: Finance, Customers, Internal Business Processes and Learning and Growth. This model enables a balanced assessment of company performance and supports the implementation and monitoring of strategic goals.
The challenges of a balanced scorecard include the high implementation costs, the complexity of creating it, continuous maintenance and adjustment as well as the risk of overloading it with too many key figures. It also requires close cooperation and communication within the company to ensure that all employees understand and implement the objectives and key figures.
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