The ‘balanced scorecard’ may not be the best known of management systems but make no mistake, it is a vital management tool that seeks to improve performance and create a framework for strategic planning. It is for this reason that it is used in businesses, industry and by Governments throughout the world.
The balanced scorecard is effective, because it suggests that managers take a balanced view of any organisation. So the emphasis is not just on finance, not just on production or sales targets, but a balanced view of the business as a whole.
The 4 Balanced Scorecard Perspectives
The balanced scorecard approach indicates that there are 4 key perspectives from which any organisation needs to be viewed and each has to be analysed, data collected and then compared against each other.
The 4 perspectives are:
Learning and growth,
Business processes,
Customer,
Financial.
Each of these is then analysed, but no one perspective is looked at in isolation.
Learning And Growth
Learning and growth relates to how individuals and the company itself are trained to learn and to grow. This recognises the fact that the key resource of any company is the personnel who work there, so for them to be successful they need to be encouraged both to learn and to grow. Learning is not just about being trained, but is also about communication and awareness within an organisation.
Business Processes
This obviously relates to the business processes that are used within the company and matrices are drawn up to show how the business is actually functioning, is it a well oiled machine, or is a wheel just about to drop off?
Customers
This focuses on the needs and wants of the customers. Are they happy with what is being provided? Does it meet their needs? The work involved in looking at the business from the perspective of the customer requires making direct contact with customers as well as looking at the different types of customer groups that the business has and how they may have differing needs.
Financial
The financial perspective is important, but unlike some management tools, the financial perspective is only one aspect of the process. Thus the balanced scorecard does not look only at financial data, because this system relies on a balanced approach to looking at different aspects of the business. However, standard financial data is analysed and there is also a good deal of related data analysed, such as cost-benefit information as well as financial risk management information.
The Balanced Scorecard And Strategy Maps
The balances scorecard is very much linked with strategy maps which can clearly show how and where value is being created for any organisation. These maps show a very methodical and logical link between certain strategic objectives of the company and they are depicted on a strategy map as being a chain, linked by cause and effect.
These maps also have a structure whereby the learning and growth perspective is shown as the bottom tier, but the map shows how improving the performance here can further increase the objectives of the next tier up (the business process tier) and when these are improved then the organisation is more able to meet its objectives with regard to the customer and financial tiers.
So this is actually a very analytical and methodical piece of analysis and the beauty of this system is that it adopts a holistic approach to looking at an organisation. All the other companies may be led purely by financial requirements or objectives, but the balanced scorecard shows just how analysing 4 different perspectives of a company can actually lead to growth in the financial department, thereby ensuring the company remains financially sound.
