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The 4 Balanced Scorecard Perspectives: An Overview For Managers
Managers: Everything you’ve wanted to know about the four Balanced Scorecard perspectives—and their variations—is in this article.
What would you say if I told you that you have likely been following Norton and Kaplan’s Balanced Scorecard perspectives in your organization for a very long time? (Really, you have.) Allow me to explain.
Management practices have traditionally been handled in siloes.
- Someone has always managed your company finances.
- You’ve had a strategy focused on how to better understand your clients, customers, or constituents.
- You focus on both creating internal processes and handling operations management.
- There are some practices in your company around human resources.
Each of those bullet points makes up one of the four Balanced Scorecard perspectives (a term mentioned for the first time in Robert S. Kaplan and David P. Norton’s first book, “The Balanced Scorecard: Translating Strategy Into Action.”) But the trick is getting everyone in an organization to see and fully understand how these areas are conjoined to one another—and that’s where a strategy map comes in.
More On Strategy Mapping & Perspectives
The strategy map—the visual representation of your scorecard—became popular after Norton and Kaplan’s third book, “Strategy Maps: Converting Intangible Assets into Tangible Outcomes.” The belief, importance, and power of the strategy map is that you can tell a story of your organization on one page—and it has a long list of benefits:
- It provides a simple, clean, visual representation of your strategy that is easily referred back to.
- It unifies all of your goals into a single strategy.
- It gives your employees a clear goal to keep in mind while they accomplish tasks.
- It identifies your key, high-level goals.
- It helps you better understand which elements of your strategy need attention or work.
The benefit of using perspectives and linking them together in your strategy map lies in seeing how these four unique areas interrelate as it is relevant to your strategy.
In other words, perspectives help an organization see how different goals and objectives affect different areas of the business and how all of those things are tied back to a unified strategy. When looking at a strategy map, you can literally see which objectives are the most critical, and how the success or failure of these objectives will affect the entire strategic ecosystem.
Traditional For-Profit Balanced Scorecard Perspectives
- Finance: “How will we expand our revenue and keep our costs down?”
- Customer: “What are the key differentiators between our organization and our competition that we can showcase for our customers?”
- Internal: “What are we doing inside our organization to contribute to making customers happier and gaining more profit?”
- People (or “learning and growth”): “How do we nurture our staff’s culture, capabilities, and skills?”
These can be thought of as a strategic story from the top down or from the bottom up. When you read it from the top down, it may look something like this:
“The ultimate outcome for a for-profit organization is financial returns and profits. You get those by meeting the needs of your customers. In order to make your customers happy, you need to do certain things in your organization well. And in order to do those things well, you need to have the right people on the team.”
From the bottom up, this might read:
“If we have the right people with the right capabilities on our team, we’ll be able to do the right things in our organization. These things will in turn make our customers happy, which translates into a profitable organization.”
See Also: 5 For-Profit Sample Strategy Maps
But, of course, not all groups are for-profit organizations. And while the Balanced Scorecard was originally created for profit-based businesses, it has since been adapted for nonprofits, charities, NGOs, government-funded organizations, and more. Below, we’ve reorganized what your perspectives may look like if your organization falls into one of these categories.
Nonprofits, Charities, & Non-Governmental Organization Balanced Scorecard Perspectives
- Mission: “How will we achieve our mission?”
- Beneficiaries or recipients—tied with finance: “What are the needs that we are servicing?” and “How will our financial sustainability strategy allow us to provide the most benefits?”
- Internal processes: “What are we doing inside our organization to service our clients and contribute to our financial sustainability?”
- People: “How do we nurture our staff or volunteer culture, capabilities, and skills?”
Anything that falls into this category is not driven by financial gain, but by the achievement of their mission. In order for the mission to be accomplished, you must think about those you are serving—the beneficiaries or recipients of the services you are offering. (Some organizations will have the finance and modified customer section side-by-side here to signify that they must raise the proper funds to care for a specific group of people.) The internal processes that drive these things likely deal with fundraising or financial management, so the organization can continue to be healthy. And finally, you must have the right people with specific skills in place to carry these things out.
Government-Funded Organization Perspectives
There are so many types of government funded organizations, for this example, let’s imagine a secondary school or university.
- Mission (or “strategic outcomes”): “How do we produce productive members of society who are both career- and education-ready?”
- Customers (or “stakeholders”): “How can we benefit the students and the community at large?”
- Internal processes: “What are we doing inside our organization to improve education outcomes? (I.e. curriculum, teaching, efficient operations, etc.)”
- People: “How do we nurture the culture, capabilities, and skills of our professors, faculty, staff, and administrators?”
- Finances: “What amount do we have to work with and are there other sources we can tap?”
If you’re a government-run or government-funded organization, your finances are already known. For the sake of the example above, let’s say you run a state-sponsored community college. The college gets funding directly from the local government in an earlier agreed-upon amount, so it’s a given. Working from the bottom up, you have to then take those finances and invest them into the professors, faculty, staff, administrators, and facilities you have. When the college staff is well-equipped and the finances are in order for all internal processes, the students (and families in the community) all benefit. And when the all of these moving parts are working well, the college is able to achieve its strategic outcome of, say, producing productive members of society that are both career- and education-ready.
Miscellaneous Perspective Changes To Keep In Mind
- Learning and growth (“L&G”): This is what Norton and Kaplan use to describe the “people” perspective we have listed above. This doesn’t make sense to a lot of people, so many change it to “employees,” “people and capabilities,” or “skills and culture.”
- Customer: As mentioned above, customers are sometimes “stakeholders,” “beneficiaries,” or “clients.”
- Internal processes: These are occasionally referred to as “do wells”—as in, “the things we need to do well.”
- Regulated organizations: Some regulated organizations have an entirely separate perspective called “regulatory.” Others just make sure they have a theme in their internal processes called “regulatory.”
The bottom line is that your strategy map needs to be flexible enough to tell the story of your strategy for your organization! The most important thing isn’t that your strategy map fits strict Norton and Kaplan criteria, but that it is relatable inside of your organization.
Remember: The purpose of the strategy map is to tell the story of your strategy, in one page, through-and-through—so be thoughtful about the components and the language that works well for you. This is the best way to ensure that executing your strategy is a success.