A Thorough List Of Balanced Scorecard Advantages & Disadvantages

If you’re reading this, you’ve likely been tasked with doing some research to figure out if the Balanced Scorecard (BSC) is the right route for your organization.

Whether you’ve implemented a scorecard before but new leadership is struggling to see it as a viable option, or you’re simply trying to find a solid strategic layout going forward, it’s nice to know the benefits and considerations before you jump in.

With our 20+ years of experience in this area, we’ve seen and heard it all from people who’ve tried it—and we’re passing this information on Balanced Scorecard advantages and disadvantages along to you.

On this note, ClearPoint Strategy enhances the effectiveness of the Balanced Scorecard by providing a comprehensive platform for automating data collection, customizing scorecards, and gaining actionable insights. With ClearPoint, organizations can overcome common pitfalls and maximize the benefits of the Balanced Scorecard framework.

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5 Benefits of The Balanced Scorecard

The Balanced Scorecard offers a range of benefits that can enhance strategic planning and operational efficiency. The Balanced Scorecard can help you:

1. Give structure to your strategy

Unlike financial or HR management, organizations frequently talk about organizational performance (and strategy) in a variety of ways. Thus, there are many different approaches to strategic management.

The Balanced Scorecard is a logical, structured way to help the leaders of your organization ensure that all areas of the organization are covered in an easy-to-understand way. It helps keep your goals at the center, uses specific measurements to track progress, and follows initiatives to track actions—a structure those who use the BSC know and love.

2. Make it easy to communicate your strategy

A strategy map is designed to clearly communicate a strategic plan. It is a clean, simple visual aid used to align every department or division for the purpose of achieving high-level business goals. When implemented correctly, it:

• Gives employees clear goals to keep in mind while working on measures.
• Helps employees identify key goals.
• Allows employees to better understand the strategic elements that need work.
• Enables employees to see how objectives affect one another.

3. It aligns your departments and divisions

When implemented correctly, all divisions and departments should align with a common strategy, and the Balanced Scorecard facilitates this process. With the BSC structure, you can link your critical objectives to the objectives of a parent company or enterprise.

Additionally you can see how your measures may roll up to the enterprise-level measures, how projects link to enterprise-level projects, and more. The BSC also provides the structure needed when large projects are shared across multiple divisions.

4. It helps your employees see how their individual goals link to the organizational strategy

Using The Strategy-Focused Organization framework, the BSC allows individuals to align their goals across the organization. For example, an employee setting regular performance goals for an annual personal review can link their goals to those of their division or department (and from the division up through the entire organization).

Thus, the BSC allows all of your employees to connect what they’re doing to the betterment of the team and the company as a whole.

5. It keeps your strategy front and center of your reporting process

A lot of organizations build strategic plans and put them on a shelf, never to be seen again. The creation of the BSC is predicated on reviewing your strategy on a regular basis—and you can only do this if your strategy is organized.

Regular strategy review meetings on a monthly or quarterly basis, combined with an annual strategy refresh, will ensure you reference your strategy regularly and keep it at the center of your management reporting process. Reviewing your strategy will bring it to life and make it part of the way you manage your organization.

Furthermore, you will know where you are at all times in achieving your goals.

The Disadvantages of The Balanced Scorecard

Despite its many benefits, the Balanced Scorecard is not without its drawbacks. Here are some of the potential disadvantages to consider:

It can be an overwhelming framework

After five books and countless articles, the sheer amount of material on the Balanced Scorecard is a bit mind-boggling. In fact, it’s the largest topic on the Harvard Business Review website—and if you tried to read every single case study, you’d get bogged down quickly.

Additionally, if you try to jump in with with Norton and Kaplan’s fifth book, you’re likely to get overwhelmed with how to move forward.

It can’t be copied precisely from examples

Following what you just read, your strategy and example strategies you’ve read about will be different. You’ll be tempted to copy an example map, but keep in mind your strategy is entirely unique to you.

We highly suggest using templates to get ideas of what other organizations using the BSC have done, but then step away and build something that is unique to you.

It requires strong leadership support to be successful

You may be having trouble with your scorecard because new leadership isn’t convinced that BSC is a viable option—or your existing leadership simply may not like or understand the structure.

It’s important to remember that the BSC requires a total overhaul to the way you manage; it is not a project with a defined end date. If you’re asked to build a scorecard and then return to business as usual, be warned that your scorecarding process isn’t likely to work.

It can be difficult to keep everyone on the same page

Many organizations try to manage their scorecard in Excel or PowerPoint and end up throwing it away. We don’t blame them. Managing a BSC in Excel can lead to accuracy problems, version control issues, and various complexities and formatting troubles.

Furthermore, while Excel is a free tool, there are a number of hidden costs (like the cost of a manual review process, or the cost associated with data entry errors). When these things happen, leaders are likely to see the Balanced Scorecard as the problem instead of the tool used to manage it.

It may appear too rigid for the way you manage

Sometimes transitioning to a Balanced Scorecard process can cause confusion within an organization. Rather than taking time to adapt, some leaders quickly decide to quit the BSC and return to their old ways.

If you find yourself in these shoes—for example, trying to use the exact perspective names that Norton and Kaplan use while people in your organization don’t respond to those terms—you may find the BSC structure more cumbersome than it is worthwhile.

Or, if you’re married to your current strategy review schedule despite a shakeup in management or a major change in strategy, that’s a problem. Organizations that get stuck in a prescribed way of handling the BSC based on a book they’ve read or a certification they’ve obtained will likely run into these issues.

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4 Useful Balanced Scorecard Tips

Implementing the Balanced Scorecard effectively requires the right solutions and tools. Here, we explore various Balanced Scorecard solutions that can help your organization achieve its strategic goals more efficiently:

1. Start simple and slowly build a high-level framework

If you have exaggerated expectations of what your scorecarding process should look like, pause them. Start by simply building your strategy map. Then you can see if that map does a good job communicating your strategy throughout the organization.

Many of the organizations we’ve worked with in the past profess seeing value in having a strategy map that accurately describes their organization. Finally, when you set your highest level goals, put them into the right perspectives and draw critical cause-and-effect linkages.

2. Start a discussion with upper management

If you’re having issues getting buy-in, consider how your organization is different and the language you actually use and how that compares with the language of the Balanced Scorecard. Your issue may boil down to something that simple.

Otherwise, talk to your CEO or executive director about why you believe the BSC may be the right strategic framework for your organization and hear them out on their concerns. (Some of those concerns may be answered in this article!)

3. Use software to help manage the process

If you’re having trouble keeping everyone on the same page, a software application may be the ticket. It’ll give everyone involved in the strategy one central reference with the most up-to-date strategic information.

We may be biased on what software is best for most organizations, but there is no doubt that using a great software system can help you extract the value from your strategy and scorecard.

At ClearPoint Strategy, we specialize in providing powerful and intuitive software designed to streamline your strategic management and Balanced Scorecard processes. With features like real-time updates, customizable dashboards, and comprehensive reporting tools, ClearPoint Strategy helps you manage your strategy with ease and efficiency.

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4. Be flexible with your scorecard

If you use different names for perspectives or initiatives than those prescribed in the Norton & Kaplan lingo, that’s just fine. In fact, if you need to change the names of your perspective or your strategy becomes irrelevant, you could change your entire strategy map and scorecard in the middle of the year to reflect the new realities of your business. Give yourself some leeway here.

Bringing It All Together

If you already have a Balanced Scorecard and you’re not getting the value you want out of it, start thinking about the reasons why. They may or may not among the five problems listed above—but regardless, see if there are ways you can be more flexible with the framework to address the problem and move forward.

Additionally, if you’re looking at the Balanced Scorecard as the solution to all of your problems, be aware that organizations implement the BSC in different ways. Carefully take into consideration the way your leadership team operates to be certain you move into the BSC at an appropriate pace.

Maximize Your Balanced Scorecard Efficiency with ClearPoint Strategy Software

Are you ready to fully leverage the advantages of the Balanced Scorecard while overcoming its challenges? It may be time to take the next step from your Excel or SharePoint strategy management. ClearPoint Strategy offers a robust platform designed to simplify your scorecard management, providing real-time data visualization, automated reporting, and seamless integration.

Our software ensures that your strategic objectives are consistently met with precision and efficiency. Book a demo today to see how ClearPoint Strategy can enhance your Balanced Scorecard process and drive your organization towards success!

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FAQ:

What are the four perspectives of the balanced scorecard?

The four perspectives of the balanced scorecard are:

- Financial Perspective: Focuses on financial performance metrics such as revenue, profit margins, and return on investment.
- Customer Perspective: Measures customer satisfaction, retention, and market share.
- Internal Processes Perspective: Evaluates the efficiency and effectiveness of internal business processes.
- Learning and Growth Perspective: Assesses the organization's ability to innovate, improve, and grow, including employee training and development.

What are some specific examples of metrics that can be used in each perspective?

Specific examples of metrics for each balanced scorecard perspective include:

- Financial Perspective:
Revenue Growth Rate
Profit Margin
Return on Assets (ROA)
Economic Value Added (EVA)

- Customer Perspective:
Customer Satisfaction Index
Net Promoter Score (NPS)
Customer Retention Rate
Market Share

- Internal Processes Perspective:
Cycle Time Reduction
Quality Defect Rate
Process Efficiency
On-Time Delivery Rate

- Learning and Growth Perspective:
Employee Training Hours
Employee Engagement Score
Innovation Rate (e.g., new product introductions)
Employee Turnover Rate

How can the balanced scorecard be used to improve strategic planning and operational efficiency?

The balanced scorecard can improve strategic planning and operational efficiency by:

- Aligning Objectives: Ensuring that all organizational activities are aligned with the overall strategic goals.
- Tracking Performance: Providing a comprehensive framework to monitor and measure performance across multiple dimensions.
- Identifying Gaps: Highlighting areas where performance is lacking, allowing for timely interventions.
- Enhancing Communication: Facilitating better communication of strategic objectives and performance expectations throughout the organization.
- Fostering Continuous Improvement: Encouraging regular reviews and updates to strategies based on performance data.

What are the challenges of implementing a balanced scorecard?

The challenges of implementing a balanced scorecard include:

- Resource Intensity: Requires significant time and resources to develop and maintain the scorecard.
- Resistance to Change: Employees and managers may resist adopting new performance measurement systems.
- Complexity: Integrating various metrics and aligning them with strategic goals can be complex.
- Data Collection: Ensuring accurate and consistent data collection for all metrics can be challenging.
- Maintaining Focus: Keeping the organization focused on strategic objectives rather than getting bogged down in operational details.

How can the balanced scorecard be used to track progress and measure success?

The balanced scorecard can be used to track progress and measure success by:

- Setting Clear Targets: Defining specific, measurable targets for each metric within the scorecard.
- Regular Monitoring: Continuously monitoring performance data to track progress towards targets.
- Periodic Reviews: Conducting regular reviews to assess performance and make necessary adjustments.
- Visual Dashboards: Using visual dashboards to display real-time performance data for easy tracking and analysis.
- Feedback Mechanisms: Implementing feedback mechanisms to gather insights from employees and stakeholders on performance and areas for improvement.