If you ask a business professional about the Balanced Scorecard, then in 95% of the cases you will hear that it is about “balancing” Key Performance Indicators within 4 perspectives. With these misleading ideas, people start implementing the framework, fail to do this, and come to the conclusion that the Balanced Scorecard is not for them.
Here is a compilation of the most frequently asked questions about Balanced Scorecard and KPIs, hopefully our answers will help one to get on the right track with the framework.
What is a Balanced Scorecard?
A short answer is: it is a strategy execution framework. Having said that we need to understand that there is no universal agreement either about what strategy is, or about the ways to track its execution.
Sometimes the Balanced Scorecard is defined as a means to articulate strategy, translate it to the line level employees, and ensure that those ideas are executed successfully.
Is it “Balanced Scorecard” or “balanced score card?”
Correct spelling is “Balanced Scorecard” or “BSC.” Wrong spelling: balanced scorecard (lower case), Balanced Score Card, BSc, bsc.
Who are the authors of the Balanced Scorecard?
The idea was first suggested in the early 1990s by Drs. Robert Kaplan and David Norton. The website of Balanced Scorecard Institute is a must-visit reference point for historical information, as well as for practical advice on BSC.
Who use it?
Any organization has a strategy, even small businesses and individuals, so with some modifications the Balanced Scorecard can be used by any organization, including non-profits. According to a study by Gartner Group, over 50% of large organizations have adopted the Balanced Scorecard.
Why businesses use it?
The root of the problem is that the strategic picture in the minds of top managers is not the same as a picture in the minds of line-level employees. Studies by the Balanced Scorecard Collaborative report show that more than 95% of employees don’t understand an organization’s strategy. This leads organizations to a less effective and efficient execution.
Balanced Scorecard supposes to help fix this problem by aligning top level goals with line level actions, and thus make the strategy execution process more trackable.
Here we have more facts about the Balance Scorecard that shed light on how widely it is used and what problems it solves.
Is it about Key Performance Indicators?
In its earlier versions it looked more like performance measurement framework where measures (not necessary the key performance indicators) played a significant role. Now the measures are responsible for tracking strategy execution, but I’d say that the main part is a strategy map with business goals connected by cause-and-effect links. Metrics are still there, but they are not the main goal of the game.
What are the key principles of the Balanced Scorecard?
I’m simplifying, but for my opinion these are 3 most important principles:
- Cause-and-effect relationship between objectives
- Showing how customer value is created and how it is linked to the organization’s goals
- Aligning measures and initiatives with objectives
Find a more detailed review in this article.
What is the Balanced Scorecard process?
What if a company has a Balanced Scorecard with many KPIs, but without strategy map?
Balanced Scorecard is a buzz word. As with any buzz word some confusions are inevitable. A set of 100+ KPIs is not a Balanced Scorecard, it is KPI scorecard. It would be more correct to call those business tools a dashboard or simply a scorecard. Here the difference between a dashboard and a scorecard is explained.
Are the any approaches similar to the Balanced Scorecard?
Business executives always use a combination of several tools. There are frameworks that address the problem of strategic planning and execution: Hoshin Kanri, 7-S, OKRs, Business Model Generation (see the book by Yves Pigneur and Alexander Osterwald). And for sure there are many more supporting tools like SWOT, gap analysis, risk assessment, etc. In practice there is always a mix of different business tools.
Do I need a software to work with the Balanced Scorecard?
For my opinion the answer is “yes.” Otherwise you are at risk to spend more time on the design and might face motivation problems. Check out our shopper’s guide for the strategy execution software.
A common sense note: before getting to the automation tools you need to be sure about your strategy and business goals.
What’s the biggest challenge about the Balanced Scorecard? How to solve it?
According to our informal surveys the biggest challenge is motivation to start using and keep using the Balanced Scorecard. In this article we discussed how to solve the problem. Another big challenge is to find proper performance measures (see the next question).
How to find the right KPIs for the scorecard?
First, it is a good idea to understand the difference between metrics, measures, KPIs. The biggest mistake would be to take performance indicators from some list on the Internet. Instead, focus first on the business goals, and indicators will appear naturally. Here is the process for the KPIs that we recommend.
What does Balanced Scorecard cascading mean?
The idea of cascading (in the case of the Balanced Scorecard is also called “alignment”) is about translating top level objectives down to the lower levels (and vice versa). The key idea is that cascading is done by business goals, not by KPIs. Here you will find examples of some typical approaches to the cascading.
How to use Balanced Scorecard for …?
There are no specific rules for specific business niches. The guiding ideas that strategists use for a retail company are similar to the ideas that one will use for a hotel business. Still, having some examples is always a good idea. We have some here.
Do you have more questions? Feel free to ask in the comments. Balanced Scorecard experts are welcome to add their thoughts in the comments.