Often, business owners and executives fall prey to the allure of setting too many financial or strategic planning goals. Or their goals are exclusively financial. Thinking too much about the financial side of business detracts from the other reasons they’re in business, such as employing people, contributing to their communities, or providing a needed product or service. Enter the Balanced Scorecard.
In the early 1990s, the Balanced Scorecard (BSC) was introduced by Robert Kaplan, a Harvard Business School professor, and David Norton, the founder and president of Balanced Scorecard Collaborative, Inc., as a new way to work with business strategy. Today, more than half of the Fortune 1,000 companies in North America use the BSC, which has become the hallmark of a well-run organization.
To have a balanced and holistic strategy, organizations must have goals that feed off each other:
The “Financial” perspective indicates whether the company's strategy is contributing to top- and bottom-line improvement.
The “Customer” perspective is focused primarily on creating value and differentiation when acquiring, retaining, or servicing the customer. This driver deals primarily with gaining and growing customers and market share.
The “Internal/Operational Processes” perspective focuses on the systems and processes that are critical to creating value and, ultimately, customer loyalty. Positive long-term results rely on defining the competencies needed to maximize the effectiveness of those internal systems.
The “People/Learning” perspective focuses on a company’s commitment to its greatest resource — people. This area focuses on creating value by developing an environment that fosters learning, innovation, and prioritizing on its “human asset”. The premise is that people drive the other three elements to achieve the company’s goals.
Take Yogurt Beach, a company with a top-line financial goal to increase the revenue by 10 percent annually: How will the owner achieve her financial goal? Sell more yogurt.
In order to sell more yogurt, she must have a great product that’s different from the competitor down the street and provide outstanding customer service. And what does she need to do to deliver great customer service? Have efficient processes that deliver yogurt quickly. To excel at quick delivery, she has to have well-trained, friendly employees.
For each perspective, develop at least one long-term strategic objective but no more than five. If you develop too many at the beginning, your plan may become unwieldy. Look at your short lists of external and internal priorities you developed in the previous section. Note which priorities fall where and note the link to other priorities. If you’re short in any area, consider developing additional priorities to have a balanced strategy.
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