Dr. Robert Kaplan and Dr. Robert Norton are two brilliant strategy masters out of Harvard University. The Balanced Scorecard is a framework that the two created to aid management professionals with strategic and day-to-day planning. The premise behind this framework is that it breaks down an organization into 4 holistic aspects that every business experiences.
These four components include: financial, customer, internal processes, and people (i.e. learning and growth).
Kaplan and Norton argued that when one or more of these aspects of a business is out of alignment with organizational objectives, the entire business is impacted. This is because although these 4 aspects of a business are different, they are connected in achieving the success and/or failures of the organization. Meaning, that when one aspect is off, all aspects are impacted.
Say if the financial perspective is off, may impact hiring the right talent needed for the job, which may impact customer service, internal processes, and may come back to harm the financial aspect of the firm even more. Simply put, what started with a finance issue creates a trickle down effect of other issues within an organization. Kaplan and Norton argued interconnections exist within these areas, and as such, creating a framework that encompasses these interconnections will aid management in becoming more effective with their vision, mission, strategy, and initiatives to meet organizational objectives. Therefore, the remainder of this post will summarize the financial, customer, internal processes, and people aspects of the Balanced Scorecard.
Financial: Here, management hone in on essential aspects impacting the financial side of the firm. This can include: financial performance (i.e. revenues, expenses, profits, cash, receivables), return on investment, return on capital, and other financial activities within the firm.
Customer: The focus within this aspect is the customer. Specifically, management narrow in on essential factors to attract, convert, retain, and grow it’s customer base. This information is pivotal to the root cause of the customer lifecycle, delivery, retention, and referral aspects related to customers internally and externally within the firm.
Internal Processes: There are some organizations in which the internal process is one of the most valuable aspects of their entire business model, i.e. McDonald’s thrives on it’s operational internal processes. Within this aspect of an organization management direct their attention to process design, analysis, alignment / lack of alignment, productivity (i.e. inputs / outputs), bottlenecks or other wasted aspects of an internal process(es). This analysis is paramount to evaluating the operational, project management, and quality management aspects of a firm.
People: This aspect is also known as the learning and growth perspective. Here, managment weigh-in on recruitment, training and development, career planning, retention, job satisfaction, and talent management. The idea is the people side of an organization is fundamental to employee recruitment, retention, training, and performance that aligns with organizational objectives. If we don’t have great people working for us, then what are we? We should hire the best. We should inspire, engage, train, and grow our employees.
The Balanced Scorecard provides management with an extensive birds-eye view of an organization. This view helps management to identify specific areas of improvement that are interconnected to the entire organization. Through simple organization of holistic aspects of an organization, management focuses in on that particular areas of an organization. Specifically, management uses this framework to analyze the what, why, how, when, and by whom aspects within these areas. This is seen through the “scorecard” side of the planning tool. Here, the scorecard is compartmentalized to organize key organizational objectives that tie into resolve, minimize, or perhaps grow one or more goals that was forged via the analysis process. The scorecard side simply aid management to organize the fundamental objectives, measurements (i.e. key performance indicators to aid management to identify whether or not the initiatives are on track), target outcome, and the initiatives needed. In essence, the Balanced Scorecard is one of many tools that management can use to become more effective within aligning organizational objectives to specific needs in the organization. This requires a significant understanding of the business mission and strategic vision to assist with crafting additional alignment of initiatives within each of the fundamental aspects of an organization. In doing so, management can use this framework to improve customer, financial, internal processes, and the people-side of an organization.
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by Katie Doseck, MBA, Ph.D.
Chief Visionary and Strategic Ace Up Your Sleeve | Viral Solutions LLC