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Balanced scorecard: definition, benefits and practical examples

Yvonne Wicke | 17. October 2024

The most important facts in brief:

The Balanced Scorecard (BSC) is a strategic management tool that helps companies to translate their strategies into concrete goals and measurable key figures. It is based on four central perspectives - the financial perspective, the customer perspective, the internal process perspective and the learning and development perspective. These help to manage a company holistically and ensure its long-term success. Developed by Robert S. Kaplan and David P. Norton, the Balanced Scorecard is used worldwide in various industries and companies as a tool for corporate management and strategy implementation.

What is a balanced scorecard? - The definition

The balanced scorecard is a strategic management system that facilitates the implementation of a corporate strategy by linking targets, key figures and measures. The concept was developed in the 1990s by the two professors Robert S. Kaplan and David P. Norton. The basic idea behind the balanced scorecard is that the company's success is not based solely on financial indicators. Instead, both financial and non-financial aspects are included in corporate management.

The balanced scorecard structures a company along four perspectives:

  1. Financial perspective - focus on financial targets such as sales, profit and cost reduction.
  2. Customer perspective - consideration of customer satisfaction, customer loyalty and market reach.
  3. Internal process perspective - optimization of internal processes in order to work more efficiently and effectively.
  4. Learning and development perspective - promoting employee development and the ability to innovate.

This tool provides a comprehensive overview of a company's performance and offers the opportunity to monitor the strategic orientation at all levels of the organization.

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The four perspectives of the Balanced Scorecard

The Balanced Scorecard is based on four fundamental perspectives, each of which measures different but interrelated aspects of the company's performance. This structure enables a holistic view of the corporate strategy and its implementation.

1. financial perspective

  • This perspective focuses on how the company is perceived by its owners and investors. Typical targets and key figures include sales growth, cost reduction, profit and profitability.
  • Exemplary key figures: Return on investment (ROI), profit margin, cash flow.

2. customer perspective

  • This is about how customers perceive the company. The objectives often include improving customer satisfaction, customer loyalty and market penetration. This perspective helps to align the needs and expectations of customers with the corporate strategy.
  • Exemplary key figures: Customer satisfaction, market share, customer loyalty.

3. internal process perspective

  • This perspective is concerned with the efficiency and quality of internal business processes. A company must ensure that its internal processes are optimized in such a way that they meet customer requirements and contribute to the achievement of financial targets.
  • Exemplary key figures: Throughput times, error rates, production costs.

4. learning and development perspective

  • This perspective focuses on the company's ability to improve, innovate and promote the knowledge and skills of its employees. Companies that want to be successful in the long term must continuously develop their employees and strengthen their innovative power.
  • Exemplary key figures: Employee satisfaction, further training measures, innovation success.
The four perspectives of the Balanced Scorecard

Benefits of the Balanced Scorecard for companies

Clear overview of corporate goals

The balanced scorecard structures the objectives of a company in the four perspectives, which leads to a better understanding of the strategic direction. It shows how individual measures and processes contribute to achieving the overall objectives.

Measurability of goals and results

By using concrete key figures, companies can accurately track the progress of their goals. This makes it easier to review and adjust strategies to ensure that they are implemented effectively.

Improved internal communication

As the balanced scorecard provides a clear structure, all departments and employees can better understand how their work contributes to strategy implementation. This leads to a stronger alignment of the entire organization with the defined goals.

Focus on long-term success

In contrast to purely financial management tools, the balanced scorecard also focuses on non-financial factors such as customer loyalty or innovative capacity. In this way, it helps companies to ensure not only short-term but also long-term success.

Flexibility and adaptability

The balanced scorecard can be used flexibly and can be adapted to the specific requirements of a company. Regardless of whether a company is focused on growth, increasing efficiency or innovation - the balanced scorecard can be modified accordingly.

Better monitoring and controlling

By linking key figures and targets, the balanced scorecard offers an effective tool for monitoring company performance. Managers can regularly check the status of the various areas and make well-founded decisions to make improvements.

A team discusses business strategies based on the balanced scorecard on a laptop while analyzing documents and diagrams.

Balanced scorecard examples from practice

The application of the Balanced Scorecard is extremely versatile and is used in various industries and company sizes. Here are some examples of how companies use the strategic management system in practice:

Example 1: Production company

A large production company uses the balanced scorecard to implement its strategic goals on several levels. In the financial perspective, key figures were defined to reduce production costs, while in the customer perspective, customer satisfaction was to be increased through faster delivery times. With the help of the KPI system, the company was able to achieve a significant increase in efficiency and customer loyalty.

Example 2: Service sector

In a large service company, the balanced scorecard is used as a tool to improve internal processes. In the process perspective, key performance indicators were defined to reduce errors and increase service quality. This led to a stronger alignment of the entire organization with the corporate strategy and improved long-term corporate management.

Example 3: Public administration

The balanced scorecard is also used successfully in public administration. Here, the tool is used to improve the efficiency of internal administrative processes and at the same time increase citizen satisfaction. In the learning and development perspective, processes are defined to promote employee skills, while the customer perspective aims to increase transparency and service quality.

These examples illustrate that the balanced scorecard is a versatile tool that can be used in various sectors. It helps companies and organizations to systematically implement their strategy and measure success on the basis of clear key figures and concepts.

How to create a balanced scorecard

Creating a balanced scorecard is a structured process that involves various steps. With the right approach, companies can use this tool to implement their strategy effectively and achieve measurable success.

A step-by-step approach is explained below:

1. clear definition of the corporate strategy

The first step is to clearly define the company's strategy. This comprises the long-term goals that the company wants to achieve. The balanced scorecard helps to translate this strategy into concrete goals.

2. identification of the four balanced scorecard perspectives

The next step is to define the four balanced scorecard perspectives: Financial Perspective, Customer Perspective, Internal Process Perspective and Learning and Development Perspective. Each perspective is used to measure and manage different aspects of the company's performance.

3. definition of key figures and targets

Specific key figures and targets are defined for each perspective to measure progress in this area. These key figures should cover both qualitative and quantitative aspects and help to implement the strategy at all levels of the company.

4. development of action plans

Once the KPIs and targets have been defined, measures must be developed to achieve these targets. These are concrete steps that are implemented in the various areas of the company to improve performance in each of the four perspectives.

5. regular review and adjustment

The balanced scorecard is not a static system, but requires regular review and adjustment. Companies should evaluate the process regularly to ensure that the strategy continues to deliver the desired success and that the key performance indicators are suitable for measuring performance.

Criticism and challenges in the application

Despite the widespread use of the balanced scorecard, there are some critical voices and challenges when implementing this management system. One of the main points of criticism concerns the complexity of the approach. Small and medium-sized companies in particular are often confronted with the high level of effort required to introduce and maintain comprehensive KPI systems. Collecting and analyzing data from four different balanced scorecard perspectives can be time-consuming and resource-intensive. For many companies, this leads to the question of whether the benefits justify the effort.

Another problem is the overemphasis on key figures. Although the balanced scorecard offers a structured system for measuring performance, not all of a company's goals can be expressed in clear key figures. As a result, there is a risk that qualitative aspects of the corporate strategy, such as innovative strength or corporate culture, are not given sufficient attention. However, these aspects are crucial for the long-term success of a company, but are difficult to depict in rigid KPI systems.

In addition, the balanced scorecard faces challenges in certain sectors. In fast-moving or highly innovative sectors, the model can appear too inflexible. Although the four predetermined perspectives are a good basis, some companies find it difficult to fit all strategically important aspects of their business into this grid. As a result, they may not be able to fully implement their strategy or important factors may not be taken into account.

Finally, there is also criticism that, despite its holistic approach, the balanced scorecardsometimes focuses too strongly on achievable short-term goals. A long-term vision and strategic goals can be overshadowed by the urge to measure short-term success in key figures. Companies must therefore find a way to pursue their long-term strategy and short-term goals in a balanced relationship.

Is the balanced scorecard still up to date?

The question of whether the Balanced Scorecard is still a modern management tool today is one that concerns many companies. Since its introduction in the 1990s, the economic environment has changed considerably. Technologies, markets and business models are developing rapidly, which often requires strategies and management systems to be adapted. Despite these changes, the balanced scorecard remains a widely used tool for corporate management that is successfully employed in many companies.

A key reason for the continued relevance of the balanced scorecard is its flexibility. Although it is based on fixed principles - such as the four balanced scorecard perspectives - these can be adapted to the specific needs of a company. This makes it possible to integrate not only classic but also modern strategic approaches. Many companies use the balanced scorecard in conjunction with other management methods, such as the strategy map, to pursue their vision and long-term goals in a structured manner.

Another factor that speaks for the relevance of the balanced scorecard is its ability to link financial and non-financial indicators. Particularly in times when companies are paying increasing attention to sustainability and social responsibility, the balanced scorecard offers the opportunity to integrate these aspects into strategic management. The tool has also established itself as a robust strategic management system that can be useful for both traditional companies and innovative start-ups.

However, it must also be taken into account that the balanced scorecard is not ideal for every company. In very dynamic or highly digitalized industries, it may appear too rigid as it is based on a fixed structure of key figures and targets. In such cases, it might make sense to combine the balanced scorecard with more agile methods in order to better meet the requirements of the modern business world. Nevertheless, practice shows that the balanced scorecard still plays a central role in corporate management in many companies and is considered an effective tool for strategy implementation.

Make an appointment and find out more

If you would like to find out how the balanced scorecard can be used specifically in your company to successfully implement your strategy and achieve the desired goals, we will be happy to assist you. Our experts will support you in implementing customized KPI systems and help you to define the right processes and content.

Arrange a no-obligation consultation today to discover the benefits of the Balanced Scorecard for your company and achieve sustainable success. Let's take the right steps together to optimize your company management.

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Frequently asked questions

What is Balanced Scorecard simply explained?

The Balanced Scorecard is a strategic management system that enables companies to implement their strategy using measurable key figures. It helps to structure financial and non-financial goals into four perspectives: Financial Perspective, Customer Perspective, Internal Process Perspective and Learning and Development Perspective. This translates a company's vision into concrete measures.

What are the components of a scorecard?

The Balanced Scorecard consists of four central perspectives: the financial perspective, the customer perspective, the internal process perspective and the learning and development perspective. Each of these perspectives contains specific key figures and targets that monitor and control the company on the way to achieving its strategy.

What are BSC goals?

The objectives of a balanced scorecard, also known as BSC objectives, are specific, measurable goals that are defined in each of the four perspectives. These objectives serve to implement the corporate strategy and are measured using key figures. They include both financial and non-financial targets that are intended to put the company on the desired path to success.

Is the balanced scorecard still relevant?

Yes, the balanced scorecard is still a widely used tool for corporate management. Although it was developed in the 1990s, it remains a flexible and adaptable tool that is successfully used in both traditional and innovative industries. Its structure and focus on key figures enable companies to implement their strategy effectively.

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