What Are Balanced Scorecards?

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The increase in available data sources and increasingly sophisticated analytics gives rise to data-driven businesses. Yet businesses often recognize that intangible factors play a role in their success that is crucial but difficult to define. Balanced scorecards originally provided a way to articulate and measure these intangibles. Since its introduction, the balanced scorecard has evolved into a full-fledged strategic management tool. Balanced scorecards typically take the form of either a template with targets and progress or a strategy map.

Balanced Scorecards

  • The balanced scorecard provides companies a means for articulating and clarifying strategic objectives while providing concrete steps that help align organizational activity with those objectives. According to Bain & Company, the current incarnation of the balanced scorecard addresses five major performance categories: financial, process, employee, customer value and innovation. This approach helps businesses identify performance weaknesses that require more attention or additional oversight. For example, middling employee performance because of low job satisfaction can undercut innovation. Unhappy employees are unlikely to spend time thinking about how to improve the company and less likely to share their insights.

Considerations

  • As with other performance-enhancing management systems, the balanced scorecard doesn’t work without support from the top. Robert S. Kaplan, one of the creators of the balanced scorecard, stresses that executive support is a major cause of the failure of balanced scorecard initiatives. The balanced scorecard provides limited value to businesses that lack a clear vision or objective. Startups often find it necessary to revise their objectives, ideal customer profiles and even core product several times in the first few years, which makes it impractical to deploy a balanced scorecard.

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  • Photo Credit Stephen Vanhorn/Hemera/Getty Images
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