March 11, 2023
The Balanced Scorecard (BSC) is a business framework used for tracking and managing an organization’s strategy.
The BSC framework is based on the balance between leading and lagging indicators, which can respectively be thought of as the drivers and outcomes of your company goals. When used in the Balanced Scorecard framework, these key indicators tell you whether or not you’re accomplishing your goals and whether you’re on the right track to accomplish future goals.
With a Balanced Scorecard, you have the capability to:
In 1992, Drs. David P. Norton and Robert S. Kaplan started a working group to examine the challenge of reporting only on financial measures. In for-profit organizations, financial measures provided a lagging report (i.e. they told you what happened last month, quarter, or year), but they were not able to look forward. Norton and Kaplan wanted to specifically look at what measures that look forward in time and act as leading indicators might look like and how that could affect an organization’s strategy.
If you build a Balanced Scorecard, you’re going to hear the words “objective,” “measure,” “initiative (or project),” and “action item” frequently. Here’s a quick cheat sheet to explain what they all mean.
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.
Throughout the process of creating the BSC, Norton and Kaplan realized an organization must first begin with goals that can be broken down into four distinct perspectives that are uniquely connected:
Over time, the concept of a strategy map was created. A Balanced Scorecard strategy map is a one-page visual depiction of an organization’s scorecard. It has the ability to show the connections between all four perspectives in a one-page picture. If you want some examples in your industry, download one of our free ebooks:
A Balanced Scorecard is most often used in three ways:
The Balanced Scorecard has been proven to be applicable in all industries—for-profit, nonprofit, government, healthcare, and more—and for organizations of all sizes.
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Typically it’s used by leadership teams either at the executive level of the organization or at the division or department level. One of the keys to an effective scorecard is having leadership buy-in. That might seem obvious at first glance, but it’s easy to get enthusiastic about the scorecarding concept, see that it is relatively simple to implement, and move forward without the true buy-in and understanding from the leadership team you need.
The reason this can be such a struggle is because in order to make the BSC work in your organization, you have to change the way you’re currently managing. You will have to stop the weekly KPI reports or weekly leadership meetings and integrate any strategic management tactics into your scorecard. Of course, if your leadership team doesn’t buy into this concept, they’re not going to be obliged to change the way they handle their strategy and management.
Note: The Balanced Scorecard has made it very easy to communicate the way you talk about your strategy—but having a strategy and discussing it is only one piece of the puzzle. For your scorecard to be effective, you need to be able to execute your strategy—which includes managing it, making decisions around it, measuring it, and implementing it. If you want to get started quickly, take a look at the Strategy Execution Toolkit. It’s a free 42-page guide that walks you through how to write a purpose statement, build a change agenda, create a strategy map, and more.
Below are just two examples of the many ClearPoint customers who have successfully executed their strategies with the help of the Balanced Scorecard.
When Richard Koubek became Dean of the College of Engineering, he devised an ambitious five-year strategic plan that would promote growth and provide Louisiana employers with first-rate engineers.
Armed with data from SWOT and gap analyses, he came up with eight areas to focus on:
Each area had its own strategy, including specific goals, measures, and projects that were clearly aligned.
Then, with the help of ClearPoint, all of the College’s departments began tracking their performance. They developed simple red/amber/green status indicators that reflected the success level of their metrics, initiatives, and strategies. This simple classification helped people focus their performance discussions on areas of strategic importance. And the transparency of the tracking system overall proved to be motivational, too—when people could easily see the results of their efforts, they worked harder to do their part.
The Balanced Framework kept the College focused on strategy execution for the duration of the five-year period. As a result, they were able to accomplish most of the key elements in their strategic plan. At the end of the five-year period, the College and its staff members had:
Fort Lauderdale launched its first-ever strategic plan in 2012 and adopted the scorecard framework at the same time. Called Press Play Fort Lauderdale 2018, the plan was created as a vehicle to bring the city’s vision statement, Fast Forward Fort Lauderdale 2035, to life. Citizen satisfaction went up as a result of its successful execution; the city also won the National Civic League’s All-America City Diversity and Inclusiveness Award for its community-based problem solving and civic engagement efforts.
The city’s current plan, Press Play 2024, builds on the momentum that began in the earlier years, and continues to use the scorecard framework as a mechanism for achieving the vision.
The 2024 plan has six focus areas:
In accordance with the vision statement, which was developed as the result of a massive community outreach effort, it includes a total of eight goals (one for each focus area and two for both Infrastructure and Internal Support), 35 objectives, and 35 performance measures. The plan emphasizes cross-departmental collaborations, with teams working in concert so their objectives, measures, and initiatives are in sync. Cross-functional teams also meet regularly to address issues, solve problems, and discuss how to implement initiatives.
The City has used ClearPoint since the beginning to monitor performance. It serves the city’s need to facilitate data input, simplify reporting, and improve transparency both internally and externally, with city residents. (You can see its 2024 public-facing dashboard here.)
ClearPoint also supports Fort Lauderdale’s PerformanceSTAT model of performance review meetings (based on the CitiSTAT model developed by Baltimore in 2000), which it has branded FL2STAT (for Fort Lauderdale, FL). Because data can be displayed in numerous ways, departments have been able to streamline reporting outputs, expanding their capacity for more strategic work. Progress with the commission’s action plan initiatives, for example, is monitored and reported from ClearPoint, eliminating the need for any duplicate reporting to elected officials. Thanks to its strong leadership, dedicated staff, and a little help from ClearPoint, Fort Lauderdale is well-positioned to see its vision come to life.
We’ve seen everything from pen and paper, Excel, PowerPoint, numerous scorecard-specific applications, and business intelligence tools used to track Balanced Scorecards. Aside from pen and paper (which we do not recommend for obvious reasons), there are pros and cons to each:
See Also: How To Create A Balanced Scorecard In Excel
You may have noticed that scorecard management is in many ways “hard” for both the Excel/Powerpoint and BI solutions above—that’s the primary reason why organizations using those tools are less likely to execute their strategies. Not only do tracking and reporting become a burden, but it’s also more difficult to see how your daily activities contribute to the big picture.
Many organizations experience these problems eventually and turn to a scorecard-specific application.
See Also: The 6-Part Scorecard Software Checklist
Take a look at this sample strategy map:
Here’s how you can “read” this map:
This company—a chain of fruit stands called “Kosmo’s”—will invest in culture and build an employee training program in order to partner with local and organic produce suppliers to “find the new kale.” This will help match their offerings to hipsters’ needs and attract the hipster crowd. They’ll also invest in emerging neighborhoods and create a dynamic pricing system that will drive revenue. By carefully managing costs, they’ll drive overall profitability.
As stated previously, an objective says, “What are we doing?” A measure says, “What are we doing well?” And a project says, “How will we close the gap?”
One of Kosmo’s objectives in the “Process” perspective is to partner with local and organic produce suppliers. So, a corresponding measure may look at “The number of organic farmers signed up.” And a corresponding project (also called an initiative) may be using the Local Hudson Valley outreach program.
To learn more about measures and projects, check out A Full & Complete Balanced Scorecard Example.
This Q&A section is built to provide easy, quick answers to the most-asked questions about the Balanced Scorecard. For more in-depth responses, scroll up to the preceding article or click on the links within each answer below.
The Balanced Scorecard perspectives mimic the priorities of a traditional for-profit organization. The four perspectives are:
If you’re not a for-profit organization, your perspectives may change to reflect the priorities of your organization.
The perspectives should also link together in a logical way, demonstrating the need to have the right people, doing the right things that will make your customers happy and lead to positive financial results.
The Balanced Scorecard (BSC) offers organizations a useful framework for tracking and managing their strategies. The approach identifies leading (driver) and lagging (outcome) indicators that are essentially barometers of success—these indicators will signal whether you’re accomplishing your goals.
An organization uses a Balanced Scorecard for five main reasons:
Take these five proven steps to build your scorecard:
If you are just getting started with the Balanced Scorecard, this Excel template can help get you started immediately. You may find sooner than later that you’ve outgrown this template and you need to look at scorecard-specific applications to manage your strategy—but this free template will get you headed in the right direction.