What Is a Balanced Scorecard (BSC), How Is it Used in Business? (2024)

What Is a Balanced Scorecard (BSC)?

The term balanced scorecard (BSC) refers to a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes. Used to measure and provide feedback to organizations, balanced scorecards are common among companies in the United States, the United Kingdom, Japan, and Europe. Data collection is crucial to providing quantitative results as managers and executives gather and interpret the information. Company personnel can use this information to make better decisions for the future of their organizations.

Key Takeaways

  • A balanced scorecard is a performance metric used to identify, improve, and control a business's various functions and resulting outcomes.
  • The concept of BSCs was first introduced in 1992 by David Norton and Robert Kaplan, who took previous metric performance measures and adapted them to include nonfinancial information.
  • BSCs were originally developed for for-profit companies but were later adapted for use by nonprofits and government agencies.
  • The balanced scorecard involves measuring four main aspects of a business: Learning and growth, business processes, customers, and finance.
  • BSCs allow companies to pool information in a single report, to provide information on service and quality in addition to financial performance, and to help improve efficiencies.

What Is a Balanced Scorecard (BSC), How Is it Used in Business? (1)

Understanding Balanced Scorecards (BSCs)

Accounting academic Dr. Robert Kaplan and business executive and theorist Dr. David Norton first introduced the balanced scorecard. The Harvard Business Review first published it in the 1992 article "The Balanced Scorecard—Measures That Drive Performance." Both Kaplan and Norton worked on a year-long project involving 12 top-performing companies. Their study took previous performance measures and adapted them to include nonfinancial information.

BSCs were originally meant for for-profit companies but were later adapted for nonprofit organizations and government agencies. The performance metric is meant to measure the intellectual capital of a company, such as training, skills, knowledge, and any other proprietary information that gives it a competitive advantage in the market. The balanced scorecard model reinforces good behavior in an organization by isolating four separate areas that need to be analyzed. These four areas, also called legs, involve:

  • Learning and growth
  • Business processes
  • Customers
  • Finance

The BSC is used to gather important information, such as objectives, measurements, initiatives, and goals, that result from these four primary functions of a business. Companies can easily identify factors that hinder business performance and outline strategic changes tracked by future scorecards.

The scorecard can provide information about the firm as a whole when viewing company objectives. An organization may use the balanced scorecard model to implement strategy mapping to see where value is added within an organization. A company may also use a BSC to develop strategic initiatives and strategic objectives. This can be done by assigning tasks and projects to different areas of the company in order to boost financial and operational efficiencies, thus improving the company's bottom line.

Characteristics of the Balanced Scorecard Model (BSC)

In a balanced scorecard model, information is collected from four aspects of a business and analyzed:

  1. Learning and growth are analyzed through the investigation of training and knowledge resources. This first leg handles how well information is captured and how effectively employees use that information to convert it to a competitive advantage within the industry.
  2. Business processes are evaluated by investigating how well products are manufactured. Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or waste.
  3. Customer perspectives are collected to gauge customer satisfaction with the quality, price, and availability of products or services. Customers provide feedback about their satisfaction with current products.
  4. Financial data, such as sales, expenditures, and income, are used to understand financial performance. These financial metrics may include dollar amounts, financial ratios, budget variances, or income targets.

These four legs encompass the vision and strategy of an organization and require active management to analyze the data collected.

The balanced scorecard is often referred to as a management tool rather than a measurement tool because of its application by a company's key personnel.

Benefits of a Balanced Scorecard (BSC)

There are many benefits to using a balanced scorecard. For instance, the BSC allows businesses to pool information and data into a single report rather than having to deal with multiple tools. This allows management to save time, money, and resources when they need to execute reviews to improve procedures and operations.

Scorecards provide management with valuable insight into their firm's service and quality in addition to its financial track record. By measuring all of these metrics, executives are able to train employees and other stakeholders and provide them with guidance and support. This allows them to communicate their goals and priorities in order to meet their future goals.

Another key benefit of BSCs is the help it provides companies to reduce their reliance on inefficiencies in their processes. This is referred to as suboptimization. This often results in reduced productivity or output, which can lead to higher costs, lower revenue, and a breakdown in company brand names and their reputations.

Examples of a Balanced Scorecard (BSC)

Corporations can use their own, internal versions of BSCs. For example, banks often contact customers and conduct surveys to gauge how well they do in their customer service. These surveys include rating recent banking visits with questions about wait times, interactions with bank staff, and overall satisfaction. They may also ask customers to make suggestions for improvement. Bank managers can use this information to help retrain staff if there are problems with service or to identify any issues customers have with products, procedures, and services.

In other cases, companies may use external firms to develop reports for them. For instance, the J.D. Power survey is one of the most common examples of a balanced scorecard. This firm provides data, insights, and advisory services to help companies identify problems in their operations and make improvements for the future. J.D. Power does this through surveys in various industries, including the financial services and automotive industries. Results are compiled and reported back to the hiring firm.

What Is a Balanced Scorecard and How Does It Work?

A balanced scorecard is a strategic management performance metric that helps companies identify and improve their internal operations to help their external outcomes. It measures past performance data and provides organizations with feedback on how to make better decisions in the future.

What Are the Four Perspectives of the Balanced Scorecard?

The four perspectives of a balanced scorecard are learning and growth, business processes, customer perspectives, and financial data. These four areas, which are also called legs, make up a company's vision and strategy. As such, they require a firm's key personnel, whether that's the executive and/or its management team(s), to analyze the data collected in the scorecard.

How Do You Use a Balanced Scorecard?

Balanced scorecards allow companies to measure their intellectual capital along with their financial data to break down successes and failures in their internal processes. By compiling data from past performance in a single report, management can identify inefficiencies, devise plans for improvement, and communicate goals and priorities to their employees and other stakeholders.

What Are the Balanced Scorecard Benefits?

There are many benefits to using a scorecard. The most important advantages include the ability to bring information into a single report, which can save time, money, and resources. It also allows companies to track their performance in service and quality in addition to tracking their financial data. Scorecards also allow companies to recognize and reduce inefficiencies.

What Is a Balanced Scorecard Example?

Corporations may use internal methods to develop scorecards. For instance, they may conduct customer service surveys to identify the successes and failures of their products and services or they may hire external firms to do the work for them. J.D. Power is an example of one such firm that is hired by companies to conduct research on their behalf.

The Bottom Line

Companies have a number of options available to help identify and resolve issues with their internal processes so they can improve their financial success. Balanced scorecards allow companies to collect and study data from four key areas, including learning and growth, business processes, customers, and finance. By pooling information in just one report, companies can save time, money, and resources to better train staff, communicate with stakeholders, and improve their financial position in the market.

What Is a Balanced Scorecard (BSC), How Is it Used in Business? (2024)

FAQs

What Is a Balanced Scorecard (BSC), How Is it Used in Business? ›

The term balanced scorecard (BSC) refers to a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes.

What is the balanced scorecard and how is it used? ›

The balanced scorecard is a management system aimed at translating an organization's strategic goals into a set of organizational performance objectives that, in turn, are measured, monitored and changed if necessary to ensure that an organization's strategic goals are met.

What is a balanced scorecard in business example? ›

Therefore, an example of Balanced Scorecard description can be defined as follows: A tool for monitoring the strategic decisions taken by the company based on indicators previously established and that should permeate through at least four aspects – financial, customer, internal processes and learning & growth.

Why should businesses use a balanced scorecard? ›

The balanced scorecard is important for an organization because it: - Provides a Holistic View: Offers a comprehensive view of organizational performance beyond financial metrics. - Aligns Strategy and Operations: Bridges the gap between strategic goals and day-to-day operations.

What is the purpose of the balanced scorecard is best? ›

The Balanced Scorecard can be used to guide the design of performance reports and dashboards. This ensures that the management reporting focuses on the most important strategic issues and helps companies monitor the execution of their plan.

What is the use of balanced scorecard in performance management? ›

A balanced scorecard is ultimately a shorthand name for a particular performance management tool. Organizations can use these tools to monitor and evaluate the performance of the various aspects of a business, such as quality, service, customer satisfaction and cost.

What are the 7 main elements of the balanced scorecard? ›

The seven main elements of a balanced scorecard are:
  • Customer value.
  • Internal processes.
  • Innovation and improvement.
  • Organizational learning goals.
  • Financial metrics.
  • Operations, and.
  • Strategic goals.
Oct 12, 2022

What company uses a balanced scorecard? ›

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OrganizationSectorCountry
Equifax, Inc.Financial ServicesUSA
ExxonMobil Corp.EnergyUSA
Fannie MaeBankingUSA
Finnforest, UKNatural ResourcesUK
120 more rows

How does Coca-Cola use a balanced scorecard? ›

Coca-Cola uses a balanced scorecard to align its sustainability goals with its overall business strategy and monitor its progress. This was done in the early 2000s as the company was dealing with increased competition and declining sales.

How can a balanced scorecard improve an organization? ›

In addition, the balanced scorecard approach can help businesses to:
  1. Communicate their strategy to all employees.
  2. Align day-to-day operations with the company's overall strategy.
  3. Encourage employee involvement in the strategic planning process.
  4. Set and track progress against specific goals and objectives.
Dec 13, 2023

What is the target in the balanced scorecard? ›

Objectives, Measures, Targets, and Initiatives

Strategic objectives - what the strategy is to achieve in that perspective. Measures - how progress for that particular objective will be measured. Targets - the target value sought for each measure. Initiatives - what will be done to facilitate the reaching of the target.

What is the purpose of the balanced scorecard is best described as helping? ›

The purpose of the balanced scorecard is BEST described as helping an organization introduce innovative products and services desired by target customers. mobilize employee skills for continuous improvements in processing capabilities, quality, and response times.

What is a balanced scorecard in business? ›

A balanced scorecard (BSC) is defined as a management system that provides feedback on both internal business processes and external outcomes to continuously improve strategic performance and results.

How a balanced scorecard greatly helps? ›

Alignment of Strategic Objectives: The Balanced Scorecard helps organizations align their strategic objectives with meaningful Key Performance Indicators (KPIs). This ensures that employees at all levels of the organization are working towards common goals and priorities, driving improved performance and outcomes.

What are the challenges of a balanced scorecard? ›

Experts who add quality contributions will have a chance to be featured.
  • 1 Lack of clarity. One of the main challenges of using a balanced scorecard is to define clear and relevant objectives, indicators, and targets for each perspective. ...
  • 2 Too many measures. ...
  • 3 Poor communication. ...
  • 4 Lack of action.
Mar 10, 2023

How is the balanced scorecard used in the planning process? ›

A balanced scorecard is a framework that translates your strategy into a set of objectives, indicators, targets, and initiatives for each of the four perspectives. It helps you communicate your strategy to your stakeholders, align your resources and activities with your priorities, and track your progress and results.

What is the responsibility of the balanced scorecard? ›

It is a management tool that recognizes organizational responsibility to different stakeholder groups, such as employees, suppliers, customers, business partners, the community, and shareholders. Often different stakeholders have different needs or desires that the managers of the organization must balance.

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