The Balanced Scorecard: An Effective Strategy Tool for Corporate Success

In 1992, the Harvard Business Review published an article written by two great researchers of the science of management: Robert Kaplan and David Norton. Over the previous years, their activity had been heavily focused on studying the most successful companies in the world, with the primary scope of identifying the differentiation traits that led them to those uncommon levels of success.

During their research, they stumbled upon a primary evidence, and a quite revealing one at that: among the multitude of companies analysed, each and every one who proved to be highly successful had been working around a very specific, defined and detailed business strategy.

Strategy was at the core of every decision and, ultimately, every step that these companies were taking. Uncertainty was mostly an outside thing, an element that they would put up with as a fact of the business world, but inside the organisation there was absolutely nothing that would recall anything but certainty and clear direction.

Diving further into their studies, Dr. Kaplan and Dr. Norton developed a deep knowledge on the kind of strategy that these companies were revolving around and they found out how deeply connected to action and measurement these strategies were. In fact, even though the common ground of any strategy is a defined vision, these companies were going a lot further:

they were connecting their vision to their reality on a deeper level, by entwining target goals and specific measurements that could provide quantitative information about the existent gap between the status quo and their expected results.

The great outcome of Kaplan and Norton studies on this topic was a very clever scorecard that could contain, in itself, each and every element that a balanced and effective strategy for business success should include. This scorecard was very aptly named as The Balanced Scorecard.

An overlook of The Balanced Scorecard

The scorecard is a representation of the corporate strategy and it's very intuitive in its form: think of four quarters each one containing a defining strategy segment.

First segment: Finance

How do we want to be financially? How do we want to be seen by our shareholders?

  • Financial goal
  • Appropriate measure

Second segment: Customers

How do we want to serve our Customers? Which place do we want to take in their minds and hearts?

  • Customer-centric goal
  • Appropriate measure

Third segment: Internal Processes

How do we want to look on the inside in order to maximise our potential?

  • Organisational goal
  • Appropriate measure

Fourth segment: Learning and Growth

What further knowledge or further skill will serve our growth and expand our vision, in the long run?

  • Growth goal
  • Appropriate measure

As you can see, every quarter should contain one specific goal that the company aims to reach upon that particular perspective and its relative measure of control. The measurement is not at all an optional component, in fact it is essential to provide a reality check to that particular segment of the corporate vision. According to Kaplan and Norton, the question What do we want to achieve? is not enough, it must be followed by another question that needs to be posted frequently and that is:

How far are we from achieving what we want? What is it that we can improve?

Food for thoughts

The balanced scorecard has proved to be an incredibly effective strategy tool and its open structure allows every company, no matter the current size and weight, to adapt it and use it to bring to life a wide range of strategies, from the simplest ones to the most complex, multi-level ones.

Kaplan and Norton approach is still very relevant today: the four segments they identified are still at the core of any company and according to how solid and strategic they are inside the business, they can make the difference between failure and success.

Moreover, if building a vision mainly requires to answer a bunch of correct questions, it's also true that in order to bring a vision to life it's necessary to go the whole hog and periodically track results, with the help of the most proper KPIs.

In some ways, the balanced scorecard takes away some of the usual romance associated with building a business vision, but it does it for good and we're glad it does: companies with big dreams deserves to be shaken and reminded how to actually walk their own walk, from time to time.

Category:

management

Time to Read:

5 min