Balanced Scorecard: The Comprehensive Guide

An Exhaustive Balanced Scorecard Example: Upward Airlines

Let’s dive into the nitty-gritty of a Balanced Scorecard, starting with strategy maps.

What is A Strategy Map?

A strategy map clearly visualizes your strategy for everyone to see. It is a one-page graphic that lays out your strategic objectives for you to easily communicate vision to your team. A Balanced Scorecard is more than just a strategy map, but mapping allows you to put your strategy on one page in a “language” everyone can understand.

Reading A Strategy Map

For this example, we’re going to look at Upward Airlines, a hypothetical airline loosely based on Southwest Airlines’ strategy in the early 2000s.

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First, notice the vertical text on the left side of the strategy map. These are the four perspectives of the Balanced Scorecard: Financial, Customer, Internal, and L&G (Learning & Growth). These perspectives make the BSC unique, because traditional reporting frameworks typically only look at the financial perspective.

The 15 bubbles you’re looking at are Upward Airlines’ objectives—they are all filed under one of the four perspectives. Strategy maps are read from top to bottom. The objectives are listed in order of importance. So, you’ll notice that the top goal of Upward is its financial goal, which is Increase Shareholder Value.

Beneath the financial perspective is the customer perspective. This is because Upward leaders believe that the way they’re going to meet their number one goal of increasing shareholder value is by making their customers happy. What makes the customers happy? Well, Very Low Ticket Prices and Frequent Reliable Departures certainly do. And, the cost and experience need to be Comparable To Other Travel, like cars, trains, or buses.

They also know that to meet financial goals and make customers happy, they need to focus on Innovation by offering Fast Ground Turnaround, Good Locations that better serve their customers, and Direct Routes to big cities. They’ll foster good relationships by creating Fun Experiences where everyone is treated well, and emphasize No Elites, because they believe all their passengers are equals.

Finally, they’ll focus on Cost Effectiveness strategies such as No Frills, Standard Fleet, and High Utilization. By not offering fancy upgrades, keeping the planes simple, and filling the flights completely, they’re able to offer affordable flights.  In order to execute all of this, Upward looks at its final perspective, which is Learning and Growth. They believe in offering High Compensation, Flexible Union Contracts, and want to achieve High Employee Ownership of the company.

Each of these perspectives directly relates to the next, offering a ground-up approach to strategy management.

What Is A Balanced Scorecard (BSC)?

To back up a bit from that example, let’s define Balanced Scorecard—often abbreviated as “BSC.” It is a strategy management framework that includes four perspectives of your strategy: Financial, Customer, Internal Process, and Learning and Growth.

Definition Cheat Sheet

• Objectives are high-level, strategic organizational goals. A very general example would be: “Become an internationally recognized brand.” The typical BSC has 10-15 strategic objectives.
• Measures help you understand if you’re accomplishing your objectives strategically. Your measures might change, but your objectives will remain the same. You might have 1-2 measures per objective, so you are aiming to come up with 15-25 measures at the enterprise level of your strategy.
• Initiatives are key action programs developed to achieve your objectives. You’ll see initiatives referred to as “projects,” “actions,” or “activities outside of the Balanced Scorecard.” Most organizations will have 0-2 initiatives underway for every objective (with a total of 5-15 strategic initiatives).
• Action items are small jobs that move you toward completing your initiatives. These items typically arise from review meetings and are tasks delegated to one person or a small team. They are technically not part of the BSC framework, but are part of the management process as a whole.

Why Build A Balanced Scorecard?

The Balanced Scorecard enables you to break goals into measures, measures into projects, and projects into action items. Measures should always tie back to goals, giving you direct feedback around how you’re doing. By aligning actions with strategy—and measuring the outcome of those actions—you gain directly relevant insights on strategic performance.

Comparing it to other frameworks (even the new, trendy ones), the Balanced Scorecard remains a compelling choice after all these years because it...

Allows you to look both backward and forward

The BSC requires using a management system that combines backward and forward-looking measures (with lagging and leading indicators). The system gives you the ability to know today’s performance and predict tomorrow’s performance, as well as demonstrate how your spending on strategic projects today will help improve your impact in the future. The Balanced Scorecard is the closest management tool to a crystal ball as you will find.

Offers a holistic view of your business

The Balanced Scorecard is notable for its deviation from using just short-term financial measures to predict performance; its four perspectives give leaders a balanced, big-picture view of all the elements that impact success. It forces you to think about your organization from a financial perspective, as well as that of your customers, operations, and staff. Some of these factors can be ignored with other approaches.

Nothing about the OKR framework, for example, forces you to take a balanced view of strategy. Your OKRs could all be tied to finances or operations. Having the Balanced Scorecard’s mixture of performance metrics helps managers and decision-makers understand the trade-offs they’re making as part of long-term, strategic decisions.

Is (likely) familiar to your people

Having been around for more than 30 years, the Balanced Scorecard is familiar to most high-level business executives. Lots of people have experience with it and understand its concepts. Plus, there are an abundance of helpful resources available should you need them.

Adapts to your organization

The BSC has been adapted in different ways over the years, with organizations putting their own personal twist on it. One recent development we’ve seen among our customers is the addition of a goals layer, which are more tactical in nature than objectives. For example, an objective to increase profitability could be accomplished by setting a goal to drive revenue from new markets. This adaptation gives an organization greater flexibility when executing and reporting on strategy.

Gives structure to your tracking and reporting

Organizations often have an overwhelming amount of data to sift through, but if you’ve built your scorecard correctly, you have a more focused way of gathering, collecting, and reporting on the data that’s most important to your strategy.

Helps align employees’ work with organizational goals

The Balanced Scorecard helps communicate the long-term plan so everyone understands what you’re trying to achieve and how. Employees will also know how they contribute to the strategy—each department and individual should be able to see how what they do impacts the various initiatives, measures, and goals that are being reported at the top level.

Also, the system becomes even more effective when you cascade the top level of the scorecard down, so department and even employee goals feed into the overarching organizational scorecard. As a result, every level of the company is in alignment, supporting the organization’s mission and vision.

Think of it like this: There will always be an infinite amount of work, but having a strategy ensures people are doing the right work.

When you go into this process, consider how you’ll simplify data collecting and reporting. With more and more data becoming available, it’s easy to drown in it. Done right, the BSC makes you choose the set of metrics that are important to your business, as opposed to collecting everything.

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7 Balanced Scorecard Strategy Map Templates

The seven strategy maps below are hypothetical and for educational purposes only—but they can serve as a kind of scorecard template as you work on building your own.

1. Bank Balanced Scorecard

Naturally, any for-profit financial institution scorecard will list financial objective statements at the top of its strategy map. It’s worth noting that even though the departments, divisions, and territories of financial institutions may have different strategies, they should all tie to one common organizational strategy. Some organizations have one map for all departments and divisions and others have a separate map for each.

2. Manufacturing Balanced Scorecard

Manufacturing companies are primarily concerned with operational efficiency—both increasing their output and decreasing production costs. Manufacturers also typically place a large emphasis on safety, and so implement many related goals and metrics. Innovation is common in manufacturing strategy maps today, but it is not included in the example above.

3. Software Balanced Scorecard

In the software example above, the customer and internal perspectives are combined. This highlights what the customer is looking for and how the company is responding. There are three areas focused on the customer relationship, market leadership, and operational excellence. The company also split their “Learning and Growth” perspective into two sections: Industry Expertise and Talent.

This is a nice example strategy map because it shows that you don’t have to have a perfect Norton Kaplan scorecard; you can be flexible with a map as long as it lays out your organization’s strategy in a clear way.

4. Local Government Balanced Scorecard

You’ll notice how this municipal strategy map has five internal process categories. Some city officials refer to these as “key areas of focus” or “pillars of excellence.” Whatever you call them, these groupings of objectives are based on the areas deemed critical for the city, and should tie back into how your city officials relate to your citizens.

For example, this strategy emphasizes safety, a strong economy, and a creative culture, among other things.

5. Hospital Balanced Scorecard

This strategy map begins with a purpose statement. Not all organizations do this, but this may be helpful for healthcare organizations who need to place additional emphasis on what is most critical to them and what they’re trying to achieve.

Additionally, note that this scorecard positions customer (i.e. patient) and financial goals together at the top of the strategy map. This is because hospitals (and nonprofits) need steady financing to operate. Remember, the map is a flexible framework for healthcare and other industries, and can be built to meet your needs.

6. Nonprofit Balanced Scorecard

Mission-driven organizations often restate their mission above their strategy map to stay focused on their goal. With all nonprofits, understand there are situations they have direct control over and situations they have very little control over. (For example, providing job placement services is challenging during an economic meltdown.)

Therefore, those in this industry have to do their best to determine realistic measures, initiatives, and goals that will help you make an impact where you can.

7. Education Balanced Scorecard

Higher education institutions typically emphasize student and faculty concerns in an attempt to improve the learning experience, which is a primary performance measure. Note that not every school chooses to put financial objective statements at the top; others use different perspectives and place them differently on the map. Some, for example, prefer to create objectives for things like academic excellence, diversity, outreach, engagement, and other areas.

Understanding Your Scorecard

At this point, it’s important to note that there are several ways you can put together a BSC; you can use a program like Excel (more information here), Google Sheets, or PowerPoint, or you can use reporting software. For the sake of example, we’re going to show you a BSC in ClearPoint:

What you’re seeing in the image above is what you’d call a “scorecard view.” It is less visual than the strategy map, but provides more detail into the measures and initiatives that are tied to each objective.

Objectives

When you click on an objective in Balanced Scorecard software—say you’re looking at High Compensations in the L&G section—this is what you’ll find:

Here are a few of the elements you’re looking at:

• Owner: You’ll notice that Lawrence Zito is responsible for this objective.
• Description: This is the company-specific description of how Upward Airlines plans to achieve the objective.
• Average Wage: If you click on the chart, you’re able to drill down into the details of the measure and see progress.
• Divisions: Here we can see how the divisions (or child scorecards) align to this objective.

Measures

Measures help you understand if you’re accomplishing your objectives strategically. The measure tied to High Compensation is Average Wage.  Here’s a look at the measure-view in ClearPoint:

You’ll notice some similar fields and some that are different. Once again, you have an “owner” and a chart analyzing the target and actual numbers for average wage to better understand whether goals are being met.

Here, you’ll also see a section for “Measure Data.” This is important because without data, an organization’s measures can’t be, well, measured. (Note: If you’re creating a BSC using a reporting software, it will likely harvest data both automatically and manually.)

There are two key things I think about when selecting Balanced Scorecard measures.

1. Have several indicators – to paint a picture and allow you to understand the relationships and determine what is affecting the outcome you want to achieve.
2. Have a mix of output and outcome indicators – output indicators give you something to manage on a day-to-day basis. You have to look at where you are and be able to predict where you’re going. Outcome indicators show you where you’ve been – what your past actions resulted in. Outcome indicators are drivers – they give you direction and help you figure out what it is you actually want to accomplish and if you are accomplishing it.

“See” Your Measures In ClearPoint

It’s no secret that charts are the best way to visualize quantitative data; that’s why any management reporting software worth its salt should have a variety of chart types you can use to show the status of a measure.

ClearPoint has all the standard chart types as well as three additional chart features that organizations often find helpful to tell the story of their strategy execution efforts:

• Year-over-year trend charting to compare last year’s data to the current period without having to create an additional series.
• Plot bands to highlight certain regions in the background of charted data to show the upper and lower limits associated with specific criteria.
• Trendlines to show the direction of a data set. Depending on the type of data you have, you can choose a linear, exponential, logarithmic, power, or polynomial trendline.

Once you’ve created a chart, you can embed it into your website, a PDF report, or anywhere else with ClearPoint embed codes. Whenever you update your numbers inside ClearPoint, you can update every chart, everywhere it appears, with just one click.

Initiatives

Remember that initiatives are key action programs or projects developed to achieve your objectives. One of the initiatives tied to the Average Wage measure and High Compensation objective is “Redesign Employee Satisfaction Survey”:

Aside from some of the fields you’ve already been familiarized with, there are several additions here:

• Description/Analysis & Recommendation
• Start & End Date
• Milestones
• Milestone Gantt Chart

Track Your Initiatives and Projects In ClearPoint Strategy Software

ClearPoint includes a Project Evaluation tool that allows you to track quantitative data specific to project-based elements such as milestones, action items, or project budget management. It enables you to:

• Link projects directly to your strategy (so you know they’re contributing to your organization’s larger goals);
• Track progress with regard to budget, percent complete, and quality.
• Evaluate project status automatically based on your predetermined indicators, such as budget targets, percent complete, start/end dates, etc.
• Include qualitative details and attachments to help explain the project’s status or progress, such as background information and relevant documents.

Getting (& Seeing!) Results

You can see how every objective listed on the strategy map above is only going to be met when measures, initiatives, and action items are delivered correctly and accurately.

The Balanced Scorecard is only useful if you report on it

Simply having a scorecard doesn’t help you execute your strategy—you have to actually put it to work. This requires gathering data regularly, considering leadership feedback, reporting on a consistent basis, and making adjustments as needed. When you integrate the scorecard throughout your entire organization, you’ll see great things happen.

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How To Make The Most Of The Balanced Scorecard

Just by virtue of creating a Balanced Scorecard means your strategic planning process is underway, and that’s good news. Think of the Balanced Scorecard as a kind of “North Star,” setting the direction your company wants to go. From there, you can use it to:

• Guide your resource usage. Linking budget to strategy allows you to use your resources as efficiently as possible in pursuit of specific goals.
• Effectively evaluate potential projects. To decide whether to take on certain projects, measure them against your Balanced Scorecard.
• Create departmental business plans. Extend the strategic planning process by having departments create their own Balanced Scorecards, which tie into the organization’s overall goals.
• Manage employee performance. Cascade strategy down even further by using the Balanced Scorecard to set employee goals. Connecting employee goals to organizational goals both creates accountability and also helps motivate employees to perform at their best.

The Balanced Scorecard is extremely versatile. By applying it in all the above scenarios, you can make strategy a continual process and create a competitive organization that is well-positioned to achieve its objectives.

Transform Your Balanced Scorecard with ClearPoint Strategy Software

Ready to optimize your Balanced Scorecard process and drive strategic success? ClearPoint Strategy offers a comprehensive platform to streamline your scorecard management, providing real-time data visualization, automated reporting, and seamless integration with your existing systems.

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