Balanced Scorecard




There are several methodologies and concepts that you need to know to manage a business. Each one more or less adhered to its market segment and business model. However, there is a very flexible methodology that has already changed the course of several companies worldwide: the Balanced Scorecard.

Ready to learn what a Balanced Scorecard (BSC) is and how to apply it to your business? Then read on:

AFTER ALL, WHAT IS BALANCED SCORECARD (BSC)?

The Balanced Scorecard (BSC), or in Portuguese “Balanced Performance Indicators” is a methodology focused on the strategic planning and management of companies.

The differential of BSC is that it preaches that a company should not limit itself to monitoring only economic and financial key performance indicators (KPI). Rather, balancing the administration and pursuit of company objectives from four perspectives (Financial, Customers, Internal Processes, and Organizational Capacity).

The BSC methodology preaches that it is the sum of these factors that will lead the company to the results it seeks, including financial ones.

In other words, the Balanced Scorecard provides an integrated and balanced view of the company. In addition, there are a number of reactions and cause and effect links between perspectives.

Another important point of the BSC is the alignment that it brings from the strategic planning with the KPIs, goals, and action plans.

THE BSC PERSPECTIVES

The Balanced Scorecard (BSC) is composed of four fundamental perspectives. Based on them, strategic objectives, goals, and KPIs should be established. The perspectives of the BSC are:

  1. Financial

  2. Clients / Stakeholders

  3. Internal processes

  4. Organizational Capacity

It is worth saying that there may be variations in the nomenclature used to describe the perspectives of the Balanced Scorecard. For example, there are authors who exchange "Customer" for "Market", "Learning and growth" for "People" and several others.

Now, let's get to know a little more about the perspectives of the BSC.

FINANCIAL

Financial aspects are still important in a company that adopts the BSC methodology. What happens is that now the other three factors are also taken into account and they have a harmonic relationship with each other.

In the financial perspective, we place the planning linked to the company's economic and financial goals and indicators. There are a number of key performance indicators and metrics that must be monitored in this perspective. For example:

  • EBITDA or EBITDA;

  • Contribution Margin;

  • Markup and Profit Margin;

  • Breakeven Point;

  • And many others!

CLIENTS / STAKEHOLDERS

A company that has no interest in attracting and retaining customers is bound to be in trouble. Thus, the BSC methodology has a perspective dedicated to customers, which also involves the relationship and positioning of the company in the market in which it is inserted.

In addition to the customers themselves, this perspective also assesses the company and its performance according to its key stakeholders.

From the perspective of customers, there are several activities that need to be performed, monitored and updated. For example:

  • Customer Satisfaction Survey;

  • Competitors Research;

  • Market research;

  • And many others!

In addition, there are a number of key performance indicators and metrics that must be monitored from the perspective of customers. For example:

  • Churn Rate;

  • NPS (Net Promoter Score);

  • Customer Health Score;

  • And many other operational and customer satisfaction indicators!

INTERNAL PROCESSES

Seeking to have the best internal processes is to ensure productivity and efficiency in all areas of the company. For this reason, the Balanced Scorecard reinforces the importance of optimizing a company's internal processes and how they affect other perspectives.

There are several ways to ensure good internal processes, for example:

  • Benchmarking;

  • Automate processes;

  • Internal audits, external audits and field audits;

  • Continuous improvement methodologies, such as Kaizen;

  • And many others!

In addition, there are a number of key performance indicators and metrics that can be monitored from the perspective of internal processes. For example:

  • Service SLA

  • Logistics Indicators (such as Cost of Storage, Delivery Performance, etc.)

  • Quality control indicators for products and services;

  • And others.

ORGANIZATIONAL CAPACITY

Before, the perspective of Organizational Capacity was called Learning and Growth. This perspective allocates care to the company's human capital, infrastructure, technology, organizational culture and much more.

There are several ways to improve the company's performance in terms of its organizational capacity, for example:

  • Promote training;

  • Encourage knowledge sharing;

  • Create feedback routine;

  • Promote actions to retain talent;

  • And several other actions!

Among the KPIs that can be followed from the perspective of Organizational Capacity we have, for example:

  • Turnover rate;

  • Number of employees engaged in Endomarketing activities;

  • Number of employees with a certain certification or who have been certified through a company initiative;

  • And many others.

ORIGIN OF THE BSC METHODOLOGY

The creators of the Balanced Scorecard concept are Robert S. Kaplan, professor at Harvard Business School and David P. Norton, president of Renaissance Solutions.

In 1992 they published the article “The Balanced Scorecard: Measures that boost performance” in Harvard Business Review (HBR). Then, the topic was explored in several books and articles by Kaplan and Norton and other scholars.

WHAT ARE THE BENEFITS FOR THOSE WHO ADOPT THE BSC?

There are several advantages to adopting the BSC methodology, so much so that it is used by several companies in different segments. Among the main benefits of adopting the Balanced Scorecard we can mention, for example:

  • Integrated management;

  • Easier to generate value for customers and stakeholders;

  • Increase in efficiency when applying business strategies;

  • Clarity of the desired results;

  • Objective ways of measuring performance;

  • Systemic thinking;

  • And many others!

Another important point is that the Balanced Scorecard works very well when combined with other methodologies for monitoring tasks, results and even reading scenarios, such as SWOT analysis, 5w2h, Ishikawa Diagram and much more!

WHAT DO I NEED TO KNOW BEFORE STARTING THE BSC METHODOLOGY?

Before deploying the Balanced Scorecard, you need to know a few terms. Believe me, these aspects will be fundamental when we talk about the implementation and management routine with BSC.

Strategy map - This visual document is the 'engine' of the Balanced Scorecard. With it, it is possible to describe the company's strategy through the objectives in the four perspectives, the cause and effect between them and how it generates value for the business.

Strategic objectives - These are the continuous improvement activities that must be carried out to implement the strategy outlined. In addition, they represent the breaking of more abstract concepts such as Mission, Vision and Values ​​in practical steps.

The activities and actions carried out by employees must help achieve the company's strategic objectives.

Action Plan - It is the formalization of the strategy designed to achieve the strategic objectives. This includes what actions will be taken, resources needed (technologies and / or human capital), deadlines and expected results.

Indicators - This is how you intend to measure the performance of the actions and activities that make up the strategic objectives. For each objective in the strategy map, at least one KPI must be established to measure.

KPIs monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and desired performance and determine the organization's effectiveness and operational efficiency. It is worth emphasizing that the indicators must be SMART.

Goals - Value to be achieved in the indicators defined for monitoring. For example, if a KPI to be followed is that of Turnover, then a possible goal to be drawn is to reduce turnover by 10%.

HOW TO IMPLEMENT THE BALANCED SCORECARD?

After getting to know the perspectives that make up the Balanced Scorecard, it is time to know how to actually implement this methodology.

First, the top decision-makers need to do the company's strategic planning. Then it is necessary to define the company's strategic objectives and set up the strategic map. Then, create the action plan, define the KPIs and the goals involved to achieve each strategic goal set.

BALANCED SCORECARD IN CASCADE

The BSC methodology requires a great involvement of the leaders, both for strategic planning, for how, in fact, to achieve the objectives set. However, the BSC needs to come down and involve the entire organization to be successful.

Cascading Balanced Scorecard means translating the corporate scorecard (called layer 1) into business units, support or departments (layer 2) and then teams or individuals (layer 3).

The organization's alignment must be clearly visible to everyone, regardless of hierarchical level, through the strategy, using the strategic map, performance indicators and the initiatives in progress.

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