What are balanced scorecards?

This question has already been answered dozens of times on the internet, so why do it again? Well, things can get technical pretty quickly, and we want to cut through the corporate-speak.

Simply put, balanced scorecards are reports. They focus on big picture strategy and measure what you’re actually doing to make that strategy happen.  The name “balanced scorecard” comes from the idea of looking at strategic metrics in addition to traditional financial metrics to get a more “balanced” view of how you’re actually performing.

Balanced scorecards come in all different shapes and sizes.  You can track them on paper, in spreadsheets, or via specialized software.  A balanced scorecard made for government may look very different from one made for manufacturing.  In spite of these variations, however, there are certain ways in which they’re all alike.

All balanced scorecards break your organization down into several Perspectives.  Usually they are the same four:

• Learning and Growth
• Internal Business Processes
• Customer
• Financial

The idea is that each perspective builds on the previous one.  If you train your employees (Learning and Growth) they’ll make your company run more smoothly (Internal Business Processes).  A better running business takes better care of its customers (Customer), and happy customers buy more stuff (Financial).

Now this is where the tricky part comes in.  The next step in building a balanced scorecard is to come up with several Strategic Objectives for each perspective.  It’s important to choose these carefully because they’re the real meat of your scorecard.

In the simplified example above you can see how this organization’s overall strategy is laid out.  The strategic objectives are grouped by perspective, and we’ve drawn lines to show the cause and effect chain between the objectives.

Does that last graphic look familiar?  It should!  It’s called a Strategy Map and it’s a common way to show a balanced scorecard’s strategic flow.  They’re so important, in fact, that we’ve created an entire page for strategy maps.  We’re not done with balanced scorecards just yet, though!

The final building blocks are Metrics.  Every strategic objective should have one or more things that you measure to determine how it’s performing.  These metrics need goals and should be measured on a regular schedule.

Like we said above, you can track your balanced scorecard data in a variety of ways.  Specialized balanced scorecard software is pretty great, but it’s also common when starting out to just have a spreadsheet like this one:

And that’s really all there is to a Balanced Scorecard.  To summarize:

A balanced scorecard is broken down into four Perspectives.

Each perspective has several Strategic Objectives.

A chart showing the relationships between strategic objectives is called a Strategy Map.

Each strategic objective has one or more Metrics.