Balanced Scorecard (BSC): Learn how to define the best indicators for your company
Updated: Nov 28, 2022
The Balanced Scorecard (BSC) is intended to help companies have metrics that are really relevant to survival and growth. Companies often follow different metrics, making it difficult to understand what is really relevant to be evaluated, the purpose of the Balanced Scorecard is precisely to reduce this problem.
The Balanced Scorecard is divided into four perspectives, for which specific objectives and goals must be defined:
1) Customer: How do customers see us?
From a customer perspective, managers need to translate the main points of customer value addition into metrics. Customer concerns are often in one of these dimensions:
Time: Measures the time the company takes to meet the customer's needs. For existing products a metric could be the lead time since the order was placed. For new products, the time from the product definition stage to the moment when its commercialization begins could be used.
Quality: Measures the quality perceived by the customer. Metrics can be used such as: Defect level of the product perceived by the customer, Rate of deliveries made on time, Accuracy in forecasting deliveries.
Performance and Service: These are metrics that seek to understand how much the product or service delivers value to the customer. It is essential to understand which aspects or characteristics are most relevant to customers, many companies hire companies to carry out this type of research.
Price: Evaluates the price established by the product or service in exchange for the added value for the customer.
2) Internal processes: What do we need to excel at?
The objectives from the perspective of internal processes must translate the main processes that the company needs to stand out to meet the expectations of its customers, such as points related to delivery time, quality, employee skills, productivity, key competencies and critical technologies for the business .
To achieve the objectives and goals established in this perspective, it is important that they be broken down to the operational level, so that the lower hierarchical levels of the organization have clear goals and can make decisions in ways that impact the process improvement objectives that are more important to the organization.
An area that handles data is essential and enables the analysis of indicators and understanding of the reasons, areas, regions for a given indicator to be below expectations. Data ideally should be tracked in real-time and easily accessible for managers to analyze at very granular levels.
3) Innovation and learning: Can we keep improving and creating value?
Great competition is a factor that makes continuous innovation and learning necessary for a company, so that it is always launching new products, new features or improving the quality of existing ones.
The intention is to continuously add value to the customer through innovations, which will consequently bring greater penetration in markets, growth and better margins for the company, in addition to increasing the perceived value of shareholders in relation to the organization.
One metric that can be used for this perspective is the rate of new products sold. Through it, it is possible to assess whether the company is having the expected return on its new portfolio and, if not, to assess the reasons, which may be linked to the product design as to the marketing and sales strategy used, for example.
4) Financial: How do shareholders see us?
The financial perspective aims to assess whether the organization's strategy, implementation, and execution is achieving expected financial health. The goals are usually linked to profitability, growth and shareholder value perception. Financial breaks related to:
Survival: Cash Flow;
Success: Revenue and EBITDA growth;
Prosperity: Growth in market share by segment.
Some critics question the strong focus on financial metrics because they often fail to translate the added value of the organization's most recent actions, such as those aimed at increasing customer satisfaction, employee motivation or productivity.
They believe that carrying out actions with these objectives are the ones that will consequently bring the expected result in the future, but this is not always true. A company may not improve its financial indicators if, after improving productivity, it does not carry out actions that make the best use of this qualification, whether by reducing staff or space or increasing revenue through an increase in marketing and sales.
To go deeper into the topic, we recommend reading the article written by Robert Kaplan and David Norton, creators of the Balanced Scorecard. It details the methodology developed to assist in the strategic management of organizations, through examples and reasons why they chose each of the perspectives.