A Balanced Scorecard (BSC) looks different from a conventional plan. It's brief, and this puzzles many people. Each BSC Strategy Map covers one page and the supporting BSC, two to three pages. The BSC provides a comprehensive and thorough approach for dealing with strategy and for using it on a daily, weekly and monthly basis. Established businesses which are serious about fast growth, use it. With it they focus on the strategic and on number of major objectives which will make a difference if executed and achieved.
The aim of this page is to provide a brief overview of the Balanced Scorecard and its four perspectives. The quickest way to learn the BSC is to draw the four perspective on a flip chart and to explain it to a team member.
Business plan
Traditional business plans are mainly used to market a business to, for instance, a bank or loan institution or when seeking an equity partner. While business plans have great value they are not useful for doing and revising monthly and weekly planning. (Most business plans are developed and shelved untill the next annual planning session.)
All of my clients have converted from traditional business plans to Balanced Scorecards. ABPLAN rarely facilitates the development of a conventional business plan.
The main planning components of a Balanced Scorecard (BSC)
The Strategic Plan (the top block with Mission, Vision, Core Values) leads to the development of two different-looking but complementary Strategy Maps. These maps are expanded into a Balanced Scorecard in table format, containing details in the vertical columns which stand for objectives, measures, start date, end date, person responsible and tasks/initiatives. Important areas of focus (e.g. marketing) would become strategies. Important objectives would become projects.
Human capital and intangibles - the crucial role of people
The Learning and Growth Perspective is the most important perspective of the four as it highlights the people of an organisation. The entire Balanced Scorecard should be understood with the crucial role of people and intangibles in mind. Remove people and what is left?
Four Perspectives
The Balanced Scorecard has four perspectives each containing targets or objectives aimed at setting out what has to be achieved in manifesting your vision:
Financial Perspective
"The financial rewards we want." Here we measure the ultimate bottom-line results as, face it, without revenue you cannot pursue your mission and vision. Shareholder and Stakeholder Value is represented by the oval. Revenue Growth is represented by the left block and Financial Productivity (cost savings) by the right block.
This perspective is linked to the other three perspectives which are the building blocks on which the financial perspective rests. Without success in them, a company's financial future would not be assured.
This perspective displays the targets, the financial rewards for consistently doing the right thing with flair and professionalism.
Client Perspective
"What clients and stakeholders expect." Clients provide the financial means to a company for pursuing it's mission.
Under this perspective the target is measuring client satisfaction, client acquisition and client retention (the three elongated blocks) and collecting data which reveal trends in these three areas of measurement.
Note that action needed to define clients and position one's company is taken under Client Management Prosesses of the next perspective, the Internal Businesses Processes Perspective. You would define not only the needs of clients but of all stakeholders who have a keen interest in the success of your company - everyone who benefits from the existence of your company. This includes investors, suppliers, regulators, and especially your employees. All stakeholders are important - with employees being the most important by far.
The needs of the client is established by developing a Client Value Proposition (CVP) with its components symbolised by the 5 ovals. (Visit Marketing for further details.)
Internal Business Processes Perspective - your company
"Processes in which we have to excel in order to satisfy others." This perspective focuses attention on the performance of key internal processes driving the business. Here the interface between the company and the client and others is very important. What company processes delight the client? What irritates the client? Are you easy to do business with; a pleasure or a pain?
Many companies have shown that an improvement in internal processes and systems is a key lead indicator of financial success in the future.
This perspective covers four main areas of process, symbolized by four blocks: Operations management processes; client management processes, innovation processes and regulatory and social processes.
The objectives of this perspective and of the Learning and Growth Perspective are the drivers of change. The results or outcomes are measured in the Client Perspective and in the Financial Perspectives.
Learning and Growth Perspective - your people
"Our personal ability to constantly change and improve in order to achieve our vision." This perspective is the foundation of the BSC. It directs attention to the people within your company, their talents, knowledge and skills, their ability to continiously learn, their ability to do research, think and contemplate, to apply their thinking - the company's Human Capital (the left oval).
It also covers technology skills and the maintenance of your company's highly valuable intellectual capital which can to a large extent be captured on your computer databanks as Information and Intellectual Capital (the middle oval).
Linked to Human Capital, we believe that probably the most important indicator of future success is a company's Organisation Capital (the right oval) which consists of its culture and climate, leadership, employee alignment, teamwork, and change management.
Many companies neglect their intangibles
Companies neglecting the Learning and Growth Perspective and its intangibles, ensure that they are doomed to remaining average. The growth required to move a company from being average to great is contained in its human potential, in the growth potential of a company's human capital. Neglect culture and climate, in creating optimal conditions for accelerated personal human learning and growth and it is unlikely that your company will reach commanding heights.
Accelerated organisational growth (and profits) is totally depended on accelerated human growth. Start by appointing the right people. To paraphrase Jim Collins, the acclaimed author of Good to Great, "start by getting the right people on the bus, get them in the right seats, and get the wrong people (without valued character traits and innate abilities) off the bus."
You cannot determine where to drive to if you do not have the right people on the bus. Collins observes:"People are not your most important asset. The right people are." In other words, only people with strategic strengths who are deployed in roles which require their specific strengths become real assets. Your strategic plan and Balanced Scorecard have to be executed by people and if the right human capital is not in place you will experience difficulty in execution.
Focus on building your human capital
Every organisation needs a culture and climate which:
- nurture the growth in each individual of a resonant emotional engagement
- encourage teamwork between individuals and departments
- foster open, robust communication based on trust and active support of each other
Please visit scorecard intangibles, performance measures and building agreement.
Also visit strategy workshops and meetings, as meetings are a means for getting things going.
For information about the types of companies that favour the Balanced Scorecard see scorecard users.
The Good to Great framework developed by Jim Collins is remarkable. For more information about the six steps, go to good to great.
For information about the two publications Strategy Maps, and Good to Great, please go to worth reading.
Last modified: 30-08-2009