Balanced Scorecard FAQs
|What is the Balanced Scorecard?|
|What are the applications of the Balanced Scorecard?|
|What is the Balanced Scorecard value proposition?|
|What are the benefits of the Balanced Scorecard?|
|What is the relationship of the Balanced Scorecard to core competencies?|
|How often do scorecards and strategy maps change?|
|Do I need to have a strategy before I build a BSC?|
|Cause and Effect Relationship|
|Balanced Scorecard (BSC)|
What is the Balanced Scorecard?The Balanced Scorecard is a powerful framework to help organizations rapidly implement strategy by translating the vision and strategy into a set of operational objectives that can drive behavior, and therefore, performance. Strategy-driven performance measures provide the essential feedback mechanism required to dynamically adjust and refine the organization's strategy over time. The Balanced Scorecard concept is built upon the premise that what is measured is what motivates organizational stakeholders to act. Ultimately all of the organization's activities, resources, and initiatives should be aligned to the strategy. The Balanced Scorecard achieves this goal by explicitly defining the cause and effect relationships between objectives, measures, and initiatives across each perspective and down through all levels of the organization. […].
What are the applications of the Balanced Scorecard?Since the concept was introduced in 1992, the Balanced Scorecard framework has been adapted to meet a variety of organizational needs. […] Common applications include:
What is the Balanced Scorecard value proposition?There are four basic categories of opportunity that the Balanced Scorecard can addres
What are the benefits of the Balanced Scorecard?Organizations benefit from the use of the Balanced Scorecard in the following ways:
What is the relationship of the Balanced Scorecard to core competencies?Core competencies and the resource-based view of business strategy call upon companies to leverage certain critical capabilities, resources, or competencies to achieve sustainable competitive advantage. This approach can be reflected in the scorecard, typically in the internal perspective, by identifying the objectives for specific internal processes that will enhance critical capabilities or leverage the strategic resources. The scorecard extends the ideas by adding the objectives and measures for the markets and customer segments that the company expects to succeed in with its core capabilities and critical resources. Or the core competencies might be leveraged to lower costs and increase asset productivity in which case the linkages would go from the internal perspective to objectives and measures in the BSC's financial perspective
How often do scorecards and strategy maps change?Both scorecards and strategy maps will continue to evolve as the thinking around the company's strategies and goals evolves. In fact, planning strategy is a continual process, constantly revisited and always improved.
Do I need to have a strategy before I build a BSC?Strictly speaking, the Balanced Scorecard is a strategy implementation tool. For organizations that already have an explicit strategy, the Balanced Scorecard can help them implement their strategy faster and more effectively […]. Some management groups initially believed that all their members concurred with an existing strategy. While building the initial scorecard, however, they discovered that each member of the team had a quite different interpretation about the strategy. They disagreed about who were the targeted customers, what was the differentiated value proposition, and what role would innovation and shared services play in the strategy. The process of building the scorecard forced clarification and consensus about exactly what the strategy was and how it could be achieved. Organizations without any explicit or shared strategy have used the process of building a scorecard as the mechanism to develop a strategy for the business unit. The scorecard stimulates an intense management dialogue to define the strategy, providing a common language and architecture for strategy that did not exist before. Strategy maps and templates provide a framework for strategic discussions. Having an explicit strategy that everyone truly understands and agrees to will shorten the time required to build the initial Balanced Scorecard. But organizations don't have to defer the building of a scorecard until they have achieved consensus about a strategy. They can use the process of building the scorecard as a mechanism for a simultaneous process that creates the strategy.
Lag IndicatorMeasures to determine the outcome of an objective that indicate company performance at the end of a period. These are results-oriented and do not reflect a process. Examples include: Year-end Sales, Cycle Time, and Market Share. Lag indicators often appear in the BSC’s outcome-oriented Financial and Customer perspectives.
Lead IndicatorMeasures that indicate progress against a process or behavior. These measures are helpful in predicting the future outcome of an objective. Examples include: Hours Spent with Customers, # of Meetings with Cross-Functional Representation, # of Process Reworks, etc. Lead indicators tend often appear in the BSC’s process-oriented Internal and Learning & Growth perspectives.
Cause and Effect RelationshipIn the context of the BSC, a cause and effect relationship identifies the initiatives, responsibilities or activities (causes) necessary to achieve an objective or target (effect).
MeasureStatement of how success in achieving an objective will be measured and tracked. Measures are written statements of WHAT we will track and trend over time, NOT the actual targets such as direction and speed. A measure should include a statement of the unit to be measured ($, headcount, %, rating). Example: “Year over Year Sales ($)” (Financial), “Customer Satisfaction Rating” (Customer), “Service Error Rate (%)” (Internal), “Strategic Skills Coverage Ratio” (Learning & Growth)
Strategy MapA visual representation of an organization’s strategy and the processes and systems necessary to implement that strategy. A strategy map will show employees how their jobs are linked to the organization’s overall objectives
TargetThe level of performance or rate of improvement required for a particular measure. Targets are stated in specific units ($, #, %, Rating, etc.), and should include time-based segments (annually, quarterly, etc.) as appropriate. Targets should be observed over time to determine important trending behavior, so that corrective action can be taken as needed. […]
Balanced Scorecard (BSC)A tool that translates an organization's mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system.