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How to Implement the Balanced Scorecard (2019 Update)

by Tom Wright, on Aug 29, 2019 10:00:00 AM

The Balanced Scorecard is one of the best known strategy frameworks ever created. It's been used by thousands of organizations since the 1980s, when it was originally devised by Robert Kaplan and David Norton. It's also one of the first things you'll learn about on a business or management degree. But despite its popularity, the Balanced Scorecard is often misrepresented or poorly implemented. In this guide, we'll walk you through how to implement the Balanced Scorecard (and report against it) in a way that drives real business value to your organization.


This is the second in a series of articles where we’ll be diving into different strategic frameworks. The series will explore which frameworks work best for different types of strategies - the articles can be found below:

For a detailed dive into the Balanced Scorecard – read on, or download this guide here!

Download this guide as an eBook!  This step-by-step implementation guide of the Balanced Scorecard is FREE to  download and access immediately! DOWNLOAD eBook!

What is the Balanced Scorecard?

The Balanced Scorecard essentially calls for organizations to create a set of internal metrics that will help them to assess their business performance in 4 key areas (sometimes referred to as 'perspectives'):

Financial

Typical scorecard metrics might include cash flow, sales performance, operating income or return on equity.

Customer

With scorecard metrics such as: % of sales from new products, on-time delivery, net promoter score or share of wallet.

Internal Business Process

This would include measuring things such as: unit costs, cycle times, yield, error rates, etc.

Learning and Growth

Examples of metrics being: employee engagement scores, retention rates of high performing staff, skill increases of staff, etc.

What are the Benefits of Implementing the Balanced Scorecard?

The 4 perspectives of the Balanced Scorecard serve a number of purposes.

Firstly, they require organizations to 'balance' their activities between the main drivers of business success. They also force organizations to assign tangible metrics to each perspective, increasing accountability. Finally, they also serve as a framework for communicating the strategy of an organization to broader stakeholders. E.g. 'We are doing x because it helps us to succeed in the Customer perspective of our scorecard'.

One study showed that approximately 64% of organizations in the US were using the Balanced Scorecard to measure business performance. When we look at the thousands of clients with strategic plans in our own strategy system Cascade, we see a similar level of popularity. Interestingly, we often talk with clients about how they're using the Balanced Scorecard only to discover that they aren't even aware of the fact that they've implemented it. Instead, they've come to their own conclusion naturally that they need to focus their efforts and measures across roughly the same 4 perspectives that the Balanced Scorecard calls for.

Ultimately, the benefit of implementing the Balanced Scorecard is that it forces your organization into a level of focus that spans both leading KPI indicators as well as lagging ones (more on that later).

What are the problems with Implementing the Balanced Scorecard?

As with any popular strategic framework, the Balanced Scorecard has picked up its fair share of critics over the years. The main criticisms of the Balanced Scorecard are that:

  • It takes too much time to set up across your organization.
  • People never fully understand it and therefore fail to benefit from it.
  • It's too rigid and doesn't account for changes in the business landscape. Specifically that it's too focused on financial measures above all else.
  • It's too internally focused, almost completely ignoring macro-economic or competitive aspects of running a business.

The truth is that the Balanced Scorecard is an excellent tool that when properly implemented, and will likely benefit most organizations. Many of the problems with implementing the Balanced Scorecard come from the fact that it is so often viewed as a mere reporting framework rather than a true way of managing your business.

How to Effectively Implement the Balanced Scorecard

Before we dive into the detail of how to implement the Balanced Scorecard for your own organization, we need to take a look at what people so often get wrong.

The Big Mistake that People make when Implementing the Balanced Scorecard

A lot of people look at the Balanced Scorecard as 4 simple perspectives that you simply 'slot your goals' into. When they visualize the Balanced Scorecard, they think of it like this diagram:

balanced scorecard

4 simple perspectives that link together to give you a Balanced Scorecard of your business performance. Each perspective containing a list of Objectives, Projects and KPIs which you then go away and work on. The end goal being to try and balance each perspective and therefore ensuring overall success.

This approach to implementing the Balanced Scorecard is however fundamentally wrong

The Balanced Scorecard is not a series of equally weighted perspectives. It is rather a process whereby, starting at the bottom, you work your way upwards through each perspective with a view to delivering the topmost - Financial Gain.

Each perspective unlocks your ability to deliver effectively against the one above it. So instead of the diagram above, you need to visualize the Balanced Scorecard more like this:

balanced scorecard

If you follow the steps in the diagram, you'll see that the ultimate end of the journey is to increase profitability (Financial).

Another way to think about the Balanced Scorecard is as a series of leading and lagging steps (similar to leading and lagging KPIs, though broader as it also applies to your Objectives and Projects). Learning and Growth / Internal Processes / Customer - these are your leading steps, as they will facilitate the delivery of your one and primary lagging step, which is your Financial performance.

Indeed, this is one of the major criticisms of the Balanced Scorecard, that it essentially 'ends' at making more money. It's argued that the scorecard wouldn't suit organizations such as Google and Facebook who claim their objectives go beyond financial returns alone. 

Why this Approach to Implementing the Balanced Scorecard Makes Sense

Let's work through the theory behind implementing the Balanced Scorecard as a series of 'steps'.

Your ability to learn and grow will directly dictate your ability to better manage your internal processes. In turn, as your internal processes improve, this will have a positive impact on your customers as well as directly reducing your costs. The combined benefit of this lower cost/higher customer engagement in your product (essentially sales) will lead to your end goal, increased profit and financial return.

The Balanced Scorecard isn't really about distinct perspectives, it's about the layers of a pyramid. The pyramid when built up in the right order, leads to success. When implemented in this way, the Balanced Scorecard can be immensely powerful in helping your organization to:

  • Create a tangible road-map from the 'current state' to a more successful 'future state'.
  • Identify major roadblocks and areas where you lack the critical competencies to proceed to the next stage.
  • Articulate how your goals will directly help the organization to move upwards through the stages.
  • Prioritize business activities in the order they need to be tackled to allow the most rapid progression through the stages.

Specifically, the main benefit of the Balanced Scorecard is likely to come less from the creation of the perspectives themselves (which are fairly natural and obvious categorizations for most businesses), but rather from the strategic management process using the perspectives as stages.

Download this guide as an eBook!  This step-by-step implementation guide of the Balanced Scorecard is FREE to  download and access immediately! DOWNLOAD eBook!

Implementing the Balanced Scorecard for your Business

We're going to break down the process of implementing the Balanced Scorecard into two key areas. In reality there are lots of micro-steps in between, but this should give you a pretty good starting point.

Implementing the Balanced Scorecard in Strategic Planning

One of the most effective places where you can implement the balanced scorecard is in your strategic planning process. Arguably this is the first and most important step in full implementation of a Balanced Scorecard methodology, since it sets the foundation stones for everything that your organization will do going forward.

There are two ways that you can implement the Balanced Scorecard from a strategic planning perspective:

Method 1: Using Focus Areas

This Balanced Scorecard implementation methodology essentially involves orienting your whole strategic plan around the Balanced Scorecard.  You'll set each of the 4 perspectives as one of your strategic Focus Areas and then add Objectives, Projects and KPIs directly underneath each perspective. You'll end up with a plan that looks something like this:

balanced scorecard method

(view larger version)

The benefit of this method is simplicity and total commitment to the Balanced Scorecard methodology. By setting your Focus Areas as each of the perspectives, you're stating very clearly that your strategy is geared around the Balanced Scorecard and you'll likely drive a better understanding of the methodology throughout your organization.

This implementation methodology is best suited to organizations who want to keep their strategy fairly simple, or who consider themselves slightly less mature from a complex strategic planning side of things. Organizations who are more mature in their strategic planning processes might want to consider method 2.

Method 2: Using 'Goal Types'

The second method of implementing the Balanced Scorecard gives you the flexibility to define your own Focus Areas separately from the Balanced Scorecard, and instead requires you to 'categorize' your activities using a custom field for each of your Objectives, Projects and KPIs. It will give you a strategic plan that looks something like this:

balanced scorecard

(view larger version)

As you can see, the Focus Areas (on the left) are not directly related to the Balanced Scorecard perspectives, and instead, the perspectives are denoted on the right of the page.

This is a slightly more sophisticated way of implementing the Balanced Scorecard as it allows you to mix and match how you group your goals. That can be a good thing or a bad thing depending on how mature your organization is with regard to strategic planning.

Add Objectives, Projects and KPIs for each Perspective

Regardless of which method you choose, you'll want to ensure that each of your perspectives has a good mix of Objectives (overall outcomes), Projects (specific things you're going to do) and KPIs (measures of success). You might find that your financial perspective has more KPIs than say your learning and growth perspective, and that's totally fine, but don't let any perspective be completely devoid of any of these types of goals! Here's a quick reminder of the strategy model that we suggest using as a starting point:

cascade-strategic-planning-model

Remember, the Balanced Scorecard is a Process, not a Simple Categorization Exercise

Whichever method you choose to implement the Balanced Scorecard, you need to ensure that your goals have a sense of linear time-based progression that build towards the delivery of your financial outcomes. That means that when you visualize your strategic plan as a gantt chart, you need to ensure that your learning and growth, internal process and customer goals are done first (and ideally in the order listed in this sentence) - and that either your financial goals are towards the end of the gantt chart, or more likely that they stretch across the entire time period of your strategic plan. This makes sense, since the better you deliver against the first 3 perspectives, the better it will be for your financial perspective.

Implementing the Balanced Scorecard in Strategy Tracking

OK so we've covered the strategic planning side of implementing the Balanced Scorecard, now let's look at the other half of the picture - how to actually track and reporting against your strategic progress using the balanced scorecard.

Regardless of which strategic planning method you've used, you'll want to create a couple of different reports to help you track your progress.

Create a Balanced Scorecard Dashboard

The best place to start to set up your strategic reporting for the Balanced Scorecard is to create a Balanced Scorecard Dashboard. The dashboard can be pretty simple, but should essentially show a score for each of your 4 perspectives, along with a summary of the progress of key Objectives, Projects and KPIs that fit within that perspective. It should look something like this:

balanced scorecard dashboard

(view larger version)

You'll want to keep your dashboard fairly high level. If your strategy has many different layers or connected plans, you might want to create a version of this Balanced Scorecard dashboard for each of your individual strategic plans. In the video at the top of this page, we go into the detail of the dashboard in much more depth, so be sure to check that out.

Create Balanced Scorecard Snapshots

Dashboards are great for giving you an 'at a glance' view of your progress in each of the perspectives. However when it comes to the detail, you'll need to change up to a different type of report. We'd recommend setting up a more 'tabular' style of Snapshot report that allows you to display additional information such as commentary and progress updates, grouped by each perspective. Your report should look something like this:

balanced scorecard

(view larger version)

This type of Snapshot report is great for running team meetings on a weekly or monthly basis.

Serious About Implementing the Balanced Scorecard?

If you're liking the sound of the Balanced Scorecard and want to give it a try for your business, you'll seriously want to think about investing in a software tool to help you not only plan your Balanced Scorecard strategy, but also implement it.

This is where platforms like Cascade really come into their own - and of course all of the screenshots and videos in this guide came directly from the platform. If you'd like to find out more about how Cascade can help you to implement the Balanced Scorecard, start a free trial or jump on a demo with our team and we'll walk you through everything you need to know.

Remember you can download this guide here!

Download this guide as an eBook!  This step-by-step implementation guide of the Balanced Scorecard is FREE to  download and access immediately! DOWNLOAD eBook!

Topics:Creating Your Strategy

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Download this guide as an eBook!  This step-by-step implementation guide of the Balanced Scorecard is FREE to  download and access immediately! DOWNLOAD eBook!