Tamara Wilhite is a technical writer, industrial engineer, mother of two, and published sci-fi and horror author.
What Is Balanced Scorecard?
Balanced Scorecard includes financial, customer, and internal perspectives, as well as an innovation and learning perspective. Balanced Scorecard (BSC) offers a straightforward method of linking collected metrics to stated company goals.
There are advantages and disadvantages of using the BSC to define business goals. Here's what you need to know.
- Balanced Scorecard presents organizational goals in a single-page chart broken down into relatable areas.
- It allows companies to bridge the gap between mission statements or overarching goals and how day-to-day activities support the company's mission or objectives. A BSC goal of pleasing the customer can be tied to improving technical support performance according to the Service Level Agreement or exceeding the SLA.
- BSC raises innovation and process improvement methods such as six sigma and lean manufacturing to a corporate goal. It also ensures that the voice of the customer is equally important.
- It does not exclude other methods of business reporting or process improvement. Six sigma projects naturally fall under the "learn and innovate" section. Financial standards like Sarbanes Oxley are simply used by the financial department when meeting financial scorecard goals or implemented by the financial department to meet a financial scorecard goal.
- Balanced Scorecards can provide a visual means of demonstrating how different goals are related. Increased sales improve the profit or sales goals under the financial section. Improved customer service meets the “voice of the customer” goal.
- BSCs are straightforward enough to be used by many managers after gaining familiarity with the concept. Advanced training isn’t required to implement a simple version of BSC.
- Balanced Scorecard performance is subjective. Unlike quality levels, it cannot be quantified except by surveys or management opinion. Mandating a specific number of training hours per year to meet a “learn and innovate” doesn’t necessarily mean all employees take courses that help them in their jobs or that attending classes to fill in the quota is better than working on the assembly line. Demanding high employee morale can hurt managers since morale is not always a manager’s purview. Setting a goal of high morale along with layoffs to save money is counterproductive.
- It does not include direct financial analysis of economic value or risk management. Goal selection under Balanced Scorecard does not automatically include opportunity cost calculations.
- Because BSC can add a new type of reporting without necessarily improving quality or financial numbers, it can seem to be an additional set of non-value-added reporting or, worse, a distraction from achieving actual goals.
- Overly abstract BSC goals are easy to reach but hard to quantify.
- When a company is failing to meet its Balanced Scorecard goals, the goals may be re-interpreted to the current state of affairs to meet success or avoid failure. Altering the acceptance criteria for a good scorecard is easier than altering the acceptance criteria for mechanical parts and hence the reject rate.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Questions & Answers
Question: Who will benefit most from the Balanced Scorecard?
Answer: Any business trying to juggle multiple metrics.
Tamara Wilhite (author) from Fort Worth, Texas on January 21, 2012:
The irony of goal setting by managers is ensuring they meet the goals they have - regardless of financial impact, the drain on morale or simply adjusting goals to say they met the latest interpretation of the official mandated goals.
Tony from At the Gemba on January 17, 2012:
You should always make your objectives measurable, never accept a subjective measurement! Balance scorecards are fine if implemented correctly but too many managers see it as just another initiative and the disconnect still exists between what they do and the overall goals of the company.