Balanced Scorecard: what BSC is and how it helps in managing companies
Understanding what Balanced Scorecard (BSC) is is essential to have a strategic vision within any business.
The challenges for those who undertake are many – some known and others that can arise when we least expect it.
You know better than anyone what your company needs to grow and be more and more a reference in the segment in which it operates.
That’s why surrounding yourself with elements that help to have a clearer vision of which path should be followed is so important.
Satisfy customers, manage internal and external teams, stay ahead of the competition, sell more and better…
There are several missions for those who undertake and the margin for error is always small – not to say zero.
It is in this sense that the Balanced Scorecard was created. It is a powerful management tool within organizations. And you need to be aware of this.
In this article, we’ll talk about what BSC is, where it came from, and why it is a powerful ally of companies.
In addition, we will show you how it can be applied so that you can assimilate it better.
Balanced Scorecard: what is it and where did it come from?
The Balanced Scorecard concept starts with a paradigm shift, so to speak. He proposes that companies have a more macro view on important metrics for business evaluation – not just financial.
So much so that the acronym BSC, freely translated from English, can be understood as Balanced Performance Indicators.
That said, its understanding is because it is a set of goals and objectives that provide a clear, comprehensive and also fast vision of the company to all who are in it.
And then, the hierarchical level does not matter (in this, we have already entered into the benefits of this concept). Any employee can and should have this strategic clarity.
The intention is to define them and, from there, start an action plan that aims to better manage the business.
As mentioned, the accounting aspect is just one of the factors to be taken into account to know if the company is doing well or not.
It is, indeed, a good business management practice to use this tool. That’s because he is a facilitator who helps to trace, develop and assess common goals within an organization.
But not just collective goals.
The tool is widely used and managers can use it for performance evaluation, payment of sales commission after setting individual goals, strategic planning and all kinds of insight relevant to the business.
This is how the BSC works, providing specific indicators that help managers to make decisions, reducing the risk of errors.
Description, monitoring and management. Keep these 3 words well.
They are the essential steps for building efficient management that is good for the organizational culture of any company – no matter its size.
Who said that? You’ll see…
The origin of BSC
This tool was created in the United States. More precisely in 1992 at Harvard Business School in an academic article. Although its concept was officially recognized 6 years later.
Are those responsible for it? Robert Kaplan and David Norton who, at that time, were just researchers. They defined the 3 essential steps for efficient management.
Their intention was to show a better practice than current ones at the time, both to measure results and to define individual and shared goals.
The difference between what they launched and what already existed was what you’ve already read in the excerpt above: the presence of several indicators.
The article caused something of a revolution by showing companies how wrong they were to assess success or failure solely on the basis of financial criteria.
The focus on the customer started to appear as a key point at this point. The customer satisfaction and quality in the delivery of the product or service have gained a much greater emphasis.
This article subsequently yielded 5 books. The original concept of the Balanced Scorecard remains, but its application has already taken place in several situations.
It is, therefore, something in constant mutation, even evolution.
The Balanced Scorecard Perspectives
To understand why the BSC is so widely used and why it was and still is so successful, we need to talk about the perspectives it encompasses.
- From finance;
- Of the customer;
- of internal processes;
- Of learning.
1 – Financial perspective
- How do we see ourselves and what should we do to make our shareholders happy?
The first perspective serves as an analysis of the impact of the decisions taken. But, more than that, it is necessary to have long-term financial goals established.
They will thus be connected to an action plan that will encompass: financial process, customer success, assertiveness of internal processes and employees with high motivation for a positive result.
It is important to have these elements clear and well defined so that you can report back to shareholders on what is really happening.
The Balanced Scorecard does not propose to leave out the financial aspect. The difference is that it is presented taking into account the sum of many other relevant variables.
2 – Customer perspective
- How does the customer see our company?
Customer success needs to come first in any business. And it needs to be taken seriously as an important indicator of corporate performance.
It is necessary to know how the company’s presence is in relation to the market. Are your customers satisfied? Are you doing better than the competition?
Understand the share you have within the market segmentation. Knowing how to retain and attract customers, customer satisfaction, and business profitability… all of this is important.
Anyway, what do your customers say about you?
At this point, it is important to have a good relationship with the customer. Wide and long lasting.
Run an NPS search to do if necessary. So you can have the answers you need and focus your efforts on always improving.
3 – Perspective of internal processes
- How to improve our modus operandi?
The smooth running of internal processes is something that cannot be ignored. Even because, how to get good results working badly?
Or, how to get grow, sell more and better, the productivity in day to day work falls short of the desired?
Focus on the quality of the processes performed and how this can be improved. The objective here is to satisfy customers and shareholders.
The digital transformation is something important for companies to produce more while reducing costs.
The focus is on constant improvement and there are 3 characteristics for that, according to Kaplan:
- Innovation – focused on meeting the needs of the business persona, always with a vision for the future;
- Operation – improve the tools and resources available to employees in their daily work;
- After-sales – customer success is essential for the company’s reputation: what to do for the customer to have the best possible experience?
4 – Learning Perspective
- How will we grow and deliver value?
Investing in people is equally important. Coaching, training, courses… where is the bottleneck that prevents us from going further?
The learning perspective concerns what is essential for employee satisfaction.
Financial aspects are important and cannot be ignored. But, it is important to reflect beyond it:
How to overcome lack of motivation, for example? How to promote a change in attitude at work?
It takes engaged people to be successful in all relevant perspectives.
More than that, having an environment that is positive, that contributes so that people are able to give their best to the company.
Therefore, look for actions to:
- reduce employee turnover;
- qualify professionals in all areas;
- Having satisfied and engaged employees.
BSC in practice in 4 steps
Now that you understand what Balanced Scorecard is and how it works, let’s understand how to take it out of paper and put it into practice.
The focus you know very well what they are: better management that delivers value to customers, shareholders and employees.
Therefore, we have separated 4 steps to take the BSC from theory to practice.
This way, you will understand how it is possible to create this set of goals and draw an action plan from there.
But first, we need to alert to an important point:
- The Balanced Scorecard is a means, not an end. What does that mean?
It is an aid to the implementation of the strategy, not the solution to the problem. It is from there that the points will begin to be corrected.
That said, let’s go ahead:
1 – Make the company’s strategy clear
The first thing is to be clear about the company’s strategies – not only for managers, but especially for employees.
It is essential for everyone to be aware of what is at stake.
Understand: planning what to do is based on the BSC – this needs to be clear to you.
These actions can and should be defined collaboratively. Also because it is essential to listen to professionals who have technical knowledge in their areas.
It’s a much more assertive way to successfully reach all 4 perspectives.
With a clear vision, with everyone in agreement, a plan that makes sense within the company’s mission, vision and values, it is possible to be successful in practice.
2 – Communicate to engage
During the process, communication is essential. Managers – who will be in charge of the actions, obviously – need to communicate with their employees.
This is completely essential to engage and keep teams motivated in pursuit of goals.
Without being horizontal, without having an effective communication, what was thought will not have the necessary effect?
Guard yourself to always communicate about new steps, advances, problems, among others.
Do you want people to “wear the shirt” of the company? So show that they are also a fundamental part of the strategy, not just the operation.
3 – Plan the action and follow the plan
Success is – and a lot – in the discipline with which things come out of the paper and begin to happen.
Planning is important and needs to be done carefully and taking into account all aspects. Yes.
But it will be of no use if a schedule of actions is not defined and not complied with.
Control the budget as well – after all, the company will certainly need to spend an amount of money to achieve what it envisioned.
Ensure there is funding for the resources needed, reallocate funds if it makes sense. Have control to be able to monitor and gradually grow.
4 – Monitor, improve and report
Monitoring. So important to understand if what you’re doing works. It is necessary to have this perception as soon as possible to not even lose money.
The feedback is also essential to tell, who is in operating, how aligned or not your work is with the company’s expectations.
Improve and report.
Only by being close to the employees is it possible to be successful in achieving the goals.
The board needs to be committed – it is the mirror for whoever is hierarchically below.
Leadership has to be positive and by example so that everyone’s engagement and understanding is true.
This is how change is promoted. With control, discipline, collaboration and appreciation of everyone in the company.
If that happens, you can be sure that your business will be much closer to thriving than to failing.
So, how can we help you?
Enjoy and read two articles that can help your business be better every day.
The first talks about an equally important management tool, the 5w2H.
The second is about how the Ishikawa Diagram makes companies identify and correct their defections.
Understanding what Balanced Scorecard (BSC) is is essential to have a strategic vision within any business. The challenges for those who undertake are many – some known and others that can arise when we least expect it. You know better than anyone what your company needs to grow and be more and more a reference in…