Should Your Business Use a Balanced Scorecard Approach?

Two business professionals reviewing a document

Choosing the Balanced Scorecard Approach

Businesses around the world have been using the Balanced Scorecard approach for decades, benefiting from the strategic value it provides in measuring performance across an organization. Some MBA college programs will introduce you to this concept and how it gauges learning and growth, business processes, customers, and financial measures. Meanwhile, here is a quick overview to get you thinking “should my business be using a Balanced Scorecard approach?”

What is a Balanced Scorecard?

According to the Balanced Scorecard Institute, it is “a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.”

Why would a company use a Balanced Scorecard?

While financial measures tell part of the story, the Balanced Scorecard offers an overarching view a business’s strategic plan from the executive perspective. This, in turn, provides a framework for the entire organization in terms of guiding performance. Specific reasons that a company would use a Balanced Scorecard might include:

  • Communicate the business vision and strategy.
  • Share objectives that support the business’s vision and strategy
  • Show how these strategic objectives impact long-term goals and budgets.
  • Create goal-based budgeting, tracking, and reward systems.
  • Facilitate organizational changes at the operational level.
  • Compare performance among diverse business units.
  • Tighten up gaps in terms of strategy and performance.
  • Take action to close unfavorable gaps.

What does the Balanced Scorecard measure?

The goal of the Balanced Scorecard is to quantify the various measures by which company performance can be viewed. This encompasses standard financial metrics such as revenue, earnings, return on investment and cash flow, but goes much further to also include:

  • Competitive factors like market share, customer satisfaction measures, and customer loyalty.
  • Performance measures based on productivity rates, quality events, and on-time delivery.
  • Business innovation in terms of new product development, rates of improvement and more.
  • Employee measures such as job satisfaction, turnover rates, professional development, and use of best practices.

If you are interested in learning more about the Balanced Scorecard and other strategies for effective management, we encourage you to consider the MBA online program available at Ohio University.