- On August 25, 2018
The balanced scorecard (BSC) and strategy map are key tools for the implementation of organizational strategy. The BSC implements strategy by providing a comprehensive and multi-perspective performance measurement tool that reflects the measures critical for the success of the execution of firm’s strategy and thereby provides a means for aligning the performance measurement in the firm to the firm’s strategy. Thus managers and their subordinates within the firm have the awareness of their firm’s critical success factors (CSFs) (through the balanced scorecard) and an incentive to achieve these CSFs through moving the firm forward to its strategic goals.
Simply, when increasing the learning and the knowledge of the human resources of the firm that will result in improving the internal processes efficiency (higher quality) and then this will support customer satisfaction which will be reflected in higher sales revenue that is the main constituent of the higher financial performance.
In sum, the BSC provides the structure of performance measures and the strategy map provides the road map the firm can use to execute the strategy.
Nowadays a rapidly increasing number of firms, not-for-profit organizations (NPOs), and governmental units use the BSC to assist them in implementing strategy. As aforementioned the balanced scorecard consists of four perspectives, or groupings of critical success factors:
- Financial perspective includes financial performance measures such as operating income, Return on investment, Percentage increase in sales, by product line and cash flows.
- Customer perspective includes measures like surveys of customer satisfaction and Customer profitability by distribution channel.
- Internal process perspective includes measures of productivity, process speed, lead time and percentage of defects and rework.
- Learning and growth perspective includes such measures as Training hours in skill development, Percentage of employees trained on the firm’s strategy map and the number of new patents or new products.
Now the question is, how to implement the BSC?
To implement BSC effectively, it should:
- Accurately reflect the organization’s strategy.
- Communicate the organization’s strategy clearly to all managers and employees, who understand and accept the scorecard.
- Have a process that reviews and modifies the scorecard as the changes organization’s strategy, resources and processes for assuring the accuracy and reliability of the information in the scorecard.
- Be linked to reward and compensation systems; managers and employees have clear incentives linked to the scorecard.
- Ensure limited accessibility only to those responsible for the measures, and that the information is also secure.