By the end of this article, you’ll be a Balanced Scorecard expert. Really.
But if you’ve landed on this page, I’m guessing you aren’t looking for a simple, detail-less, contrite description of what a scorecard is and how to use it. You can find those all over the internet. You are probably wanting less of a simple definition, and more of an easy-to-digest, full and comprehensive example.
So I’ve created one. (Actually, I created seven.) I’m going to break down what a Balanced Scorecard is—from strategy mapping, to initiatives—and describe its intricacies in detail. Let's dive in.
A Balanced Scorecard—often abbreviated as “BSC”— is a strategy management framework that includes four perspectives of your strategy: Financial, Customer, Internal Process, and Learning and Growth. We'll dive deeper into examples of each perspective below.
If you’re just starting to learn about the Balanced Scorecard, you’re going to see the words “objective,” “measure,” and “initiative” used regularly. You’ve probably heard them used before, but here’s a quick refresher course on what they mean.
You have a high-level goal in mind, which is your objective. The measures say, “How will I know that I’m achieving the objective?” (In other words, they allow you to see if you’re meeting your goals.) Then, the initiatives are put in place to answer the question, “What actions am I taking to accomplish the objective?”
And finally, action items help delegate out small jobs that will allow you to complete your initiatives. Keep in mind, you may have multiple initiatives focused on improving your measures and achieving your objective. And, if your projects are not helping you improve in these areas, you may need to rethink your overall strategy.
At its core, the Balanced Scorecard is, of course, well-known for being an effective performance measurement model. Goals tend to be a little fuzzy (“Yeah, it feels like we’re accomplishing that….”), and it’s difficult to actually achieve high-level objectives unless they’re broken down. 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.
But the Balanced Scorecard is more than just a measurement system. Recently, I was interviewing a client at a North American unit of a large international organization as part of a project to help align this unit with the Balanced Scorecard of its corporate parent, when the client shared an interesting comment with me.
“I’ve been spending most of the past year working on the behavioral aspect of alignment within my sphere of control in the organization,” he said. “So the timing of your work is good, we should start measuring now.”
While this person, an executive vice president at the organization, was trying to be positive and encouraging about my project, I seized the opportunity to get on my “soap box” a little regarding the BSC.
“I like your thinking,” I said. “However, I’d argue—and I hope you will start to see—that the BSC is more than just a measurement system. It actually should provide ample support for and reinforce any behavior-based activities you are implementing."
“By defining and communicating strategic objectives and measures, the BSC sends everyone in your organization a signal about what behavior you are trying to promote,” I continued. “Measuring your organization’s performance is only part of it. Driving the desired performance is also key.”
He responded that he hadn’t really thought of it like that, but he saw my point. In fact, I think it helped him provide more effective answers to my interview questions as he thought about not only the strategic vision for his organization for the next three to five years, but also the objectives and measures that would best help to drive strategy execution across the organization.
It’s true: Using the Balanced Scorecard as an approach to performance management offers other benefits beyond simply measuring performance. Comparing it to other frameworks (even the new, trendy ones), the Balanced Scorecard remains a compelling choice after all these years because:
Your team must be able to prove they are delivering certain promised results. To do that, they must be able to explain how you performed this past month, quarter, and year, and how you’re going to perform in the upcoming month, quarter, and year.
This 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.
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.
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, whether you’re looking for examples of how other organizations have used the Balanced Scorecard or further explanation around its practical applications.
The BSC has been adapted in many 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.
Goals are more tactical in nature than objectives. For example, an objective to increase profitability could be accomplished by setting two goals: one, to drive revenue from new markets; and two, to minimize ongoing expenses through technology investments. This additional detail doesn’t affect the overarching themes of the Balanced Scorecard, yet it gives an organization greater flexibility when executing and reporting on strategy.
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. The scorecard framework clarifies your areas of focus, and it becomes easier to track and share the results of your scorecard monthly or quarterly.
The Balanced Scorecard helps with this in two ways:
One, a Balanced Scorecard strategy map (see the next section) 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.
Two, the system becomes even more effective when you cascade the top level of the scorecard down so departments’ and even employees’ 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. This capability for alignment is one of the key reasons for choosing the scorecard system.
You can reap all the benefits above, but not without some degree of effort. Having a strategy inevitably requires tracking and reporting on measures and projects. If those activities aren’t done the right way, strategy execution can be tedious and get in the way of actually doing work. 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. ClearPoint Strategy was designed to relieve the burdens associated with Balanced Scorecard management, including data collection—our tool connects with your various repositories to receive data from them automatically. (See the last part of this article, Understanding Your Scorecard, for more information on how ClearPoint makes strategy reporting clear and simple!) With the right tool, you can combat reporting fatigue—and are more likely to stay the course for the duration of your strategic plan.
Let’s dive into the nitty-gritty of Balanced Scorecards, starting with strategy maps.
One of the more powerful elements in the Balanced Scorecard framework, a strategy map, clearly visualizes your strategy for everyone to see. A strategy map 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 the strategy map is an important element. Essentially, mapping allows you to put your strategy on one page, in a “language” that everyone can understand.
For this example, we’re going to look at Upward Airlines, a hypothetical airline loosely based on Southwest Airlines’ strategy in the early 2000s. I like to use Upward Airlines as a teaching example, because most people have flown on an airplane (and thus understand the objectives listed in the map).
Reading a strategy map isn’t at all complicated, but if you haven’t done it before, it’s good to know where to start and what you’re looking at!
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 aforementioned 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. So 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 of 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.
So as you can see, each of these perspectives directly relates to the next, offering a ground-up approach to strategy management.
Now that you know how to interpret a strategy map, let’s take a look at a few examples. Reviewing strategy maps from both inside and outside your sector is critical, as it will give you a good idea of what other organizations are doing to ensure their success. 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.
In studying them and reading more about what makes each unique, you’ll have a better idea of how to make your strategy map the cornerstone of your strategic execution.
Naturally, any for-profit financial institution scorecard will list financial objective statements at the top of its strategy map. As you can tell from this map, this bank wants to be certain it can both support its clients and grow the business simultaneously. 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.
Manufacturing companies are primarily concerned with operational efficiency—both increasing their output and decreasing production costs. Some of the ways they can achieve these goals are by creating correctly-priced goods, ensuring their products can be easily obtained by customers, and manufacturing the right assortment of goods, among other things.
Manufacturers also typically place a large emphasis on safety, and so implement many related goals and metrics. Innovation is fairly common in manufacturing strategy maps today, but it is not included in the example above.
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 around 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.
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.
If you’re in municipal government, figure out which areas of focus are critical to your city through citizen and leadership input, and then group your objectives beneath those categories.
Unlike the other examples above, 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, this is another good example of how you can structure a strategy map to tell your story. The map is a flexible framework and can be built to meet your needs.
Mission-driven organizations often restate their mission above their strategy map to stay focused on their goal. Many nonprofits have trouble connecting their daily activities with their mission, so putting their objectives on the same map as their mission statement is a great way to make that connection.
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.
Higher education institutions typically emphasize student and faculty concerns in an attempt to improve the learning experience, which is a primary performance measure. This particular strategy map includes objectives such as creating more distinctive programs, increasing learning delivery formats, improving student satisfaction, and retaining qualified faculty and staff.
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.
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.
Notice that in the scorecard view and in the strategy map, there’s either a red, yellow, and green indicator next to the objective, measure, or initiative. Green typically indicates that everything is going as planned, while yellow and red indicate that there are various degrees of trouble with whatever is being looked at.
Now that you know how to decode a strategy map, this scorecard view requires little explanation. Now, we’re going to break down the details of an objective, measure, and initiative.
As previously mentioned, objectives are high-level organizational goals. That is why they are listed on the scorecard. They are typically the 10-15 strategic goals that your company would like to see achieved.
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:
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, saving you time and effort in the long run.)
Remember to measure what matters: what gets measured gets done. Choosing the right strategic measures drives performance and provides direction, but how do we determine what to measure? There are two key things I think about when selecting Balanced Scorecard measures.
Initiatives, as I mentioned earlier, are key action programs developed to achieve your objectives. They are often referred to as projects outside of BSC circles. 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:
ClearPoint includes a Project Evaluation tool that allows you to track quantitative data specific to project-based elements such as milestones or action items. It enables you to:
This process has now come full circle. 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.
What I mean is, 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.
Just by virtue of creating a Balanced Scorecard means your strategic planning process is underway, and that’s good news—planning where you want to go is the first step to getting there. And while the BSC is an excellent framework for pursuing your organization’s main priorities, its usefulness doesn’t have to stop there. The Balanced Scorecard is an incredibly flexible tool that can provide guidance in other areas as well.
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:
The Balanced Scorecard is extremely versatile; it can be used at any level and in any type of organization. By applying it in all the above scenarios, you create a strategy-focused organization that is well-positioned to achieve its stated objectives.
There are three options at this point: