Finding an efficient way to carry out strategic planning that helps achieve goals and objectives is a challenge for many organizations. However, I have a secret to share with you: the Balanced Scorecard, also known as the BSC, can be a valuable tool for achieving success in your business.
The BSC is an essential model that helps companies to understand their environment, set clear objectives and define the strategies to achieve them. By measuring the business's performance and improving its weaknesses, it is possible to accelerate the desired results.
If you'd like to learn more about the subject, we invite you to read our blog and discover how the BSC can boost your business towards success. Happy reading!
But what is BSC anyway?
Actio’s Balanced Scorecard is a term that stands for "Balanced Performance Indicators" and is also a methodology widely used around the world to facilitate the execution of strategic planning and measure business performance in a balanced way.
The model was developed by Harvard University professors Robert Kaplan and David Norton in the 1990s as a response to the inadequacy of existing methods for measuring company performance during the Industrial Revolution, which focused mainly on financial indicators.
However, the prominence of the BSC was due to its innovative approachThe BSC is a framework for evaluating and improving business performance. Thus, in addition to being known for helping organizations align their mission, vision and values, the BSC goes beyond financial analysis and adopts a comprehensive view of the company, considering all aspects of the business from a 360° perspective.
It's important to note that rather than just measuring short-term profit or loss, the BSC also evaluates the company's progress in relation to long-term goals, transforming them into objectives, indicators and strategic initiatives. As a result, this management model makes it possible to tolerate some losses in the present in order to guarantee future prosperity.
How does the Balanced Scorecard work?
The Balanced Scorecard (BSC) is a strategic approach based on four fundamental strategic components: objectives, targets, indicators and initiatives. These components are mainly applied in conjunction with the four BSC perspectives: financial, customer, internal processes and learning and growth. Now, let's understand in more detail what each one represents.
What are the 4 strategic components of the BSC?
To ensure the correct application of the Balanced Scorecard perspectives, it is essential to understand how to define strategies based on the fundamental components of the BSC. These are:
Objectives:
The objectives establish what the organization wants to achieve in each strategic perspective. For example, in the Marketing perspective, an objective might be to increase market share. Each perspective will have its own specific objectives, aligned with the organization's vision and challenges.
Indicators:
Indicators are measures that show performance according to each chosen objective, as they provide quantitative or qualitative information on progress towards the objectives. For example, for the objective of increasing market share, indicators could include sales, lead generation, website traffic, among others.
Goals:
Targets represent the desired level of performance for each indicator. They establish the quantitative or qualitative results that the organization wants to achieve. For example, a target related to the sales indicator might be to increase sales by 10% in the next quarter.
Strategic initiatives or projects:
Initiatives are the actions and interventions that must be carried out in order for the company to achieve the defined performance targets. They represent the projects, activities and investments needed to implement the strategy. For example, if you want to increase market share, the initiatives could involve producing content, digital marketing campaigns, training the sales team and implementing a CRM system.
By separating the objectives into indicators, targets and initiatives, the Balanced Scorecard details each strategy down to the operational level, providing clarity on the actions needed to achieve the desired objectives.
But remember: it is essential to measure each result in order to assess the progress and impact of the strategies implemented. The proper definition of indicators, together with their regular review, makes it possible to identify whether efforts are being used correctly and whether results are being achieved.
After following all these steps, the BSC, with its components (objectives, indicators, targets and initiatives), is applied to the four perspectives of the Balanced Scorecard.
What are the four perspectives of the BSC?
The perspectives are the first organizational units of a Balanced Scorecard. They are mainly responsible for defining the main themes that should be addressed when analyzing a company's strategy.
The standard perspectives of the Balanced Scorecard are:
Economic-Financial:
This perspective focuses on the financial and economic aspects of the organization. It also includes objectives related to profitability, revenue growth, operational efficiency, cost management and the use of financial resources.
Customer:
The customer perspective highlights the importance of meeting customer needs and expectations. Objectives in this perspective can involve customer satisfaction, customer loyalty, acquiring new customers and the quality of the products or services provided.
Internal processes:
This perspective focuses on the internal processes that are essential to the functioning of the organization. In addition, objectives can involve improvements in process efficiency, error reduction, innovation, product/service quality and response time to customers.
Learning and growth:
This perspective concerns the continuous development of the organization and its employees. The objectives can include training and empowering employees, creating a culture of innovation, acquiring knowledge and skills, and aligning the organizational culture with the strategy.
Each of the Balanced Scorecard's perspectives must be associated with specific strategic objectives. Performance indicators are then selected to measure progress against these objectives. Finally, targets are set for each indicator, thus completing the strategic planning.
There is a significant cause and effect relationship between the perspectives of the Balanced Scorecard, which can be seen more clearly by looking at the structure from the bottom up in the figure below:
In addition, it is important to bear in mind that the term "balanced" in the Balanced Scorecard derives from the fact that all perspectives must be balanced, with a balanced distribution of relevant objectives aligned with the purpose of the business. This means that all key areas of organizational performance must be considered in a balanced way to ensure the overall success of the strategy.
How to apply the BSC using the strategy map?
The strategic map in the Balanced Scorecard (BSC) is a graphic representation of the path the company needs to take to achieve its strategic objectives, set out in the four BSC perspectives, which are interconnected.
Creating a strategy map involves some fundamental steps that facilitate the development process:
Medium and long-term direction:
Determine where the company wants to go in terms of its main objectives, taking into account its mission, vision and values. This sets the strategic direction for the organization.
Value proposition:
Identify the company's value proposition, i.e. what makes it unique and competitive in the market. This involves understanding the needs and expectations of customers and how the organization can meet them in a differentiated way.
Financial strategies:
Establish the strategies and objectives related to the financial perspective of the BSC. In addition, include financial goals, such as increasing revenue, reducing costs and maximizing return on investment.
Customer strategies:
Determine the strategies and objectives from a customer perspective. This involves understanding customer needs, identifying target market segments and defining how the organization will attract, satisfy and retain its customers.
Internal process strategies:
Establish the strategies and objectives related to the internal processes perspective. Above all, identify the key processes that drive the company's performance and define how they should be improved to achieve the desired results.
Learning and growth strategies:
Finally, determine the strategies and objectives related to the learning and growth perspective. This involves developing staff competencies and skills, creating a culture of innovation and continuous improvement, and the effective use of technology and information systems.
Once all this information has been gathered, the BSC strategy map can be created. management software or spreadsheets. When creating the map, it is important to establish the connections between the information using arrows, in order to visualize the cause and effect relationship between the defined objectives. This helps to understand how progress in one perspective impacts the others and how they are all interconnected in the search for the organization's strategic success.
How can technology help you apply the BSC in your company?
If you're finding it difficult to centralize all your company's results in a single place due to the use of spreadsheets and the use of different management methodologies in each area, it's time to consider hiring specialized management software, such as Actio Strategy Management
Actio’s Actio Strategy Management It's a complete software, from ActioThis is a tool that centralizes all the company's needs, both in terms of development and in terms of monitoring performance and results. It offers different methodologies, such as BSC, OKR, PDCA, ESG and others, so you can choose the one that best suits your organization's needs.
With Actio Strategy ManagementWith this platform, it is possible to boost the performance of all teams, seeking excellence, success and quality in processes. After all, the platform makes it possible to boost results based on data and methods that make management more strategic.
Also, now with the integration of ChatGPT into our solutions, the Actio Strategy Management Count on a virtual consultant through artificial intelligence to guide you in identifying causes, ensuring results and methodological coherence in your processes. Don't forget to follow Actio Instagram, Linkedin and Facebook.
