In the past, we used maps; today, we use GPS—but either way, it’s unthinkable to set out on a new path without one of them. The same applies at the level of a company or organization; without a strategic-level map We won't be able to tell whether we're on the right track or not; and that is the worst thing that can happen to a company.
After extensive research, Robert Kaplan and David Norton presented their findings in an article for the Harvard Business Review of 1992, the concept of the balanced scorecard or Balanced Scorecard; and today it remains one of the most widely used methodologies in business management. The Balanced Scorecard is a monitoring methodology for business management at the strategic, tactical, and operational levels; in other words, a kind of map that shows the way and lets us know if we've strayed from it.
The idea behind the balanced scorecard is to map out the the company's strategic hypothesis and serve as a strategic learning tool for executives. The strategic change process must enable this by integrating with the Balanced Scorecard management system. The success of strategy implementation depends on the effective execution of strategic initiatives, which, in turn, depends on maturity and experience in project management.
The Four Pillars of the Balanced Scorecard
Before embarking on the process of developing a CMI, it is necessary to understand its four fundamentals, which in turn together form a comprehensive view of the company or the organization. These four pillars are:
Customer or User
This perspective answers the question: What is important to our customers and Stakeholders? With the goal of building a brand image and reputation, attracting new customers, projecting trust, and, above all, increasing customer satisfaction.
Finance
Before the CMI, finance was the only major pillar for a company, and although that is no longer the case, it remains a very important factor when assessing a company. Financial statements allow us to see, in numbers, how past decisions have impacted the company’s well-being.
Internal Processes
It focuses on ensuring the smooth operation of the company’s internal processes. And it must answer the following question: How can internal processes be improved to increase efficiency and effectiveness?
Learning and Growth
In this regard, the company is evaluated based on its human capital, culture, infrastructure, and added value. The focus is on the growth, training, and well-being of employees and how this translates into added value for the company.
Building a Balanced Scorecard
Once you have internalized these four pillars, the steps to follow to create a CMI are as follows:
1. Identify the strategic objectives: It involves setting specific goals for each of the perspectives or pillars we mentioned earlier. For example: “Lead in innovation,” “Build customer loyalty,” “Increase sales profits.”.
2. Create a strategic map: This diagram illustrates the relationship between the objectives outlined in the previous step. Arrows are commonly used to show a clear flow between the different objectives.
3. Establish monitoring indicators: This final step involves defining the metrics that will be used to measure progress toward the objectives. For example, if the objective is “To lead in innovation,” one way to measure it is to track the number of new products launched each year.
At first glance, these seem like three simple steps, but it’s important to define the Balanced Scorecard correctly, since, as we mentioned at the beginning, it serves as a roadmap for a company’s growth and development. To learn more about this topic, we invite you to check out our post “Example of a Balanced Scorecard for a Hotel.”.
