Framework library · Strategic planning
Balanced scorecard
A balanced scorecard tracks a strategy through four perspectives: financial results, what customers experience, the internal processes that produce that experience, and the people, systems and data underneath. Financial measures report what has already happened; the other three are there because they move first. A scorecard is balanced only when each objective has a measure, a baseline, a target and an owner.
Use it when
- A strategy has been agreed and the monthly management pack still reports only revenue and margin.
- Managers are measured on numbers that pull against each other, such as cost per connection and installation quality, and need one shared set.
- You need to show a board or investor how operational measures connect to the financial plan.
- A business is moving from building a network to filling it, and the measures that mattered during the build no longer do.
Avoid it when
- There is no agreed strategy yet. The scorecard measures a strategy; it does not choose one. Settle the choices first, then draw a strategy map.
- You want quarterly stretch goals for teams. Use objectives and key results (OKRs), which are built for that rhythm.
- The measures cannot be produced reliably. A scorecard built on estimates becomes an argument about data rather than performance.
- You plan to add measures to every perspective for completeness. Twenty measures is a dashboard, not a scorecard.
How to run it
Start from the strategy, not the measures
Write down the three or four choices the strategy rests on. Every objective on the scorecard should serve one of them.
Set two or three objectives per perspective
Write them as outcomes: "retail providers order through the portal", not "portal". Financial at the top, learning and growth at the bottom.
Choose one measure for each objective
A number that moves when the objective is met and can be produced every month. Prefer measures that move before the financial results over ones that repeat them.
Record the baseline and set the target
Today's value from real data, and the value the strategy needs by a date. Progress is worked out from the two, so a measure can fall or rise towards its target.
Name the initiative and the owner
The piece of work that will move the measure, and one person who answers for it.
Review monthly and read from the bottom up
If learning and process measures are moving but customer and financial ones are not, the strategy's logic is wrong, not its execution.
Work through it
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Mistakes to avoid
- Filling each perspective with whatever is already reported. The scorecard then describes the business as it is, not the strategy.
- Setting targets that restate the budget. A target should be the level the strategy needs, which may be well above budget.
- Treating the four perspectives as boxes to fill rather than a chain of cause and effect. Draw the strategy map to check the links.
- Leaving the learning and growth perspective to measures such as training hours, which rarely connect to anything above them.
Where it comes from
Robert S. Kaplan and David P. Norton, "The Balanced Scorecard: Measures That Drive Performance", Harvard Business Review, January to February 1992, based on a 1990 multi-company study at the Nolan Norton Institute that drew on the corporate scorecard used at Analog Devices. Developed into a strategic management system in "Using the Balanced Scorecard as a Strategic Management System" (Harvard Business Review, January to February 1996) and The Balanced Scorecard: Translating Strategy into Action (1996). Source.
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