Decide strategically - with the Balanced Scorecard

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Decide strategically - with the Balanced Scorecard

There are many problems to solve in business. Where do you want your company to be in five years' time - what challenges do you have to overcome? As a decision-maker, you know how important it is to find the right corporate strategy. The Balanced Scorecard is a useful tool that can help you to do this. It helps you to keep an overview and to convince your employees. In the team you develop a efficient and goal-oriented corporate policy - and that puts you on the road to success.

Definition of the Balanced Scorecard

Balanced Scorecard simply explained - this entrepreneurial tool leaves the path of financial key figures and focuses on additional perspectives. That means you don't just look at balance sheets and customer numbers, but create a big picture. Internal and external perspectives complement the concept. On the basis of the Balanced Scorecard, the right strategy can be found and implemented.

Thus, the management tool is an important link between the entrepreneurial goals and the realization. With the scorecard, you document the operational processes. It also helps you to control processes and implement strategies.

An extended version is the Sustainability Balanced Scorecard. This focuses on a sustainable approach and incorporates ecological and social aspects. This is an important point, because in today's world it is about much more than market value and sales figures.

Origin and development of the Balanced Scorecard

The concept of the Balanced Scorecard dates back to a 1990 study. The U.S. Nolan Norton Institute examined the performance and future organization of several companies. The results of the study were followed by a revision of the existing evaluation systems. This resulted in the Balanced Scorecard Example.

Around 2000, economic, ecological and social aspects were added in order to take sustainability into account in strategy development. In this context, there is talk of the Sustainable Balanced Scorecard.

balanced scorecard definition

What can the Balanced Scorecard help with?

On the basis of classic key figure systems, you often end up with confusing tables. The extensive information confuses you rather than helping you. In contrast, the Balanced Scorecard provides a clear line. You can see at a glance which points are important.

The tool helps you to work on small and large projects, to make cross-company decisions and also to organize the line. Whether you are in the executive suite or a member of a small team, the Balanced Scorecard supports you in planning and implementing strategies.

Typical Balanced Scorecard Examples:

  • Development and realization of a new corporate strategy,
  • Organization in multi-project management,
  • Target agreements within management,
  • Monitoring of defined milestones,
  • Presentation of the strategy to shareholders or business partners.

The four perspectives of the Balanced Scorecard

The template combines four perspectives with each other and thus enables a comprehensive analysis.

Financial Perspective

It contains all the important figures on the economic situation. This is about the traditional key figures. They concern the financial success and have an influence on the corporate strategy. In addition, the financial ratios are relevant for the investors or shareholders. The important factors of the financial perspective include profitability, sales, return on investment, gross profit and liabilities.

Customer perspective

From this point of view, market success becomes apparent. What effect does the company have on customers? Customer satisfaction can be used to determine whether a new positioning is necessary. Key figures such as market share, customer loyalty and new customers play a role here. Delivery systems or marketing campaigns can be considered as strategies for improvement.

Process perspective

This perspective looks at performance within the company. The analysis of internal processes often reveals potential for optimization. In addition to ongoing process costs, throughput figures and warehouse utilization, the focus is on adherence to delivery dates, rejects and other key figures.

Development perspective

This is about the assessment of the Potential and of future changes. The topic of further development and future orientation appears in part in the catchword learning and innovation perspective. The important key figures include product innovations, but also Motivation, qualification and fluctuation of employees.

Implementation of the Balanced Scorecard in companies

For the Balanced Scorecard to work, comprehensive coordination within the company is necessary. Only if everyone participates will the tool achieve its goal. This begins with the determination of the key figures for the four perspectives.

Finance, customers, processes and development: The exact composition of the key figures depends on the orientation of the company. Depending on the industry, other success factors move up the priority list. It is important that you consider all strategically relevant points. This is how you define the next steps that will bring you closer to your goal.

The creation alone is not enough: Now it's your team's turn. All employees should understand the perspectives, because this is the only way they can translate the strategy into reality. That's what a strategy map is for: This contains the principle of cause and effect and takes into account the interrelationships of the perspectives.

For example, new methods change the processes and thus the financial side, but have little influence on the development perspective. In another example of the Balanced Scorecard, a larger customer base ensures higher profits.

Application of the Balanced Scorecard in a personal context

With the help of the Balanced Scorecard, you can optimize more than just business processes. It is also worth combining the different perspectives in other areas. The theory serves as a framework to guide you in the practical application.

Your personal goals are a good approach to learning the concept of the Balanced Scorecard. In any case, this direct Learning method very efficient.

A personal balanced scorecard is suitable for various situations:

  • It maps your individual goals - for example, your career path. Taking the most important aspects into account, you can plan your future steps and put them into practice.
  • You can use the Balanced Scorecard to familiarize yourself with the concept. So it becomes part of your Mindmap and accompanies you in many projects.
  • A dedicated employee scorecard helps to keep an eye on the company's strategic direction. It becomes a kind of guideline and ensures that all employees know their role. In the best case, the scorecard also includes individual feedback and the social perspective.

Criticism of the Balanced Scorecard

The Balanced Scorecard management system is designed to link the company's strategy and its implementation. However, not all Strategies realize. Here, there is sometimes a lack of clear targets. In addition, it is difficult in larger companies to take into account the feedback from the many teams and employees. In addition, there is often a lack of resources.

Another point of criticism relates to the neglect of risks. These are difficult to translate into key figures. That is why it is difficult to establish a stable balance between the four perspectives of the Balanced Scorecard.

Critics are of the opinion that the scorecard can only be a supplement to strategy development. It is not precise enough for performance and cost control, and tax aspects are also missing. Also, economic fluctuations and raw material prices usually do not play a role. Thus, it reflects only a part of the important key figures.

Opportunities of the Balanced Scorecard

New projects are on the horizon, the company's orientation is to be changed: This is exactly where the Balanced Scorecard system comes in. It helps to organize and develop entrepreneurial strategies. This increases the chances of success.

With the clear plan you create clear structures. This is relevant for target agreements in the company, for project management and also for the presentation of the company philosophy and strategy. This makes the Balanced Scorecard an important tool.

In the professional business coaching you learn how important optimizations are for the company's success and how you formulate your intentions. This is exactly where the Balanced Scorecard comes in.

Reviewed by Dr. med. Stefan Frädrich

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