Scorecarding is a vital tool used in corporate performance management. Typically referred to as balanced scorecarding, there are various types of scorecards and the information they present depends on the type of scorecard used.
Balanced scorecard is the term used universally to describe all types of scorecards, but understanding the scorecarding, its benefits and how which ones to use will help you garner valuable information about your business.
In this FAQ we will cover what scorecarding is, the benefits of scorecarding, and the various types of scorecards and what they are used for.
What Is Scorecarding?
Originally, balanced scorecards referred to a strategic planning and management system that communicated goals, aligned operations with strategy, prioritized various business activities, and measured and monitored the progress towards targets.
The term refers to the approach of viewing strategic actions along with financial results to garner a “balanced” view of total enterprise performance. Over time, there has been developments in scorecarding and the result is a variety of scorecards that might or might not be balanced.
Balanced scorecarding is considered to give a comprehensive view of the performance of the organization and its alignment with the strategies created by management. It is a powerful CPM tool that offers good insight into how the entire business is performing.
Designing Balanced Scorecards
In order to design a balanced scorecard, there are four steps. The original design was created by Kaplan & Norton, who authored the topic in the latter part of the 1990s.
The design was primarily focused on providing information that pertained to the implementation of strategic initiatives. The four steps that balanced scoring require are:
- Translating vision into goals
- Communicating the vision and aligning individuals with it
- Business planning and index setting
- Feedback and adapting, making adjustments to strategy when needed.
The Four Perspectives Of Scorecarding
One of the benefits of scorecarding is that it provides a view of performance from different perspectives. These perspectives provide context for the information that is provided in the scorecard.
In order to develop an understanding of the different elements of any organization, there are typically four perspectives that need to be taken into consideration.
Perhaps the most obvious perspective that needs to be provided is the financial perspective.
The typical scorecard should always provide information regarding financial performance and other financial-related metrics that are pertinent to the strategy. Every business needs to always consider the impact of its decisions through a financial lens.
The second perspective that needs to be taken into account is that of the customers. Balanced scorecards should present information related to the customers’ behaviors and the market as a whole.
A good scorecard will contain information on customer satisfaction and servicing, market share, and brand recognition. The customer perspective is often a combination of input from sales and marketing teams.
The third perspective is the consideration of internal operating goals and objectives. A well-presented scorecard will usually contain information that will help leaders assess if the current operating environment requires improvement.
Learning and Growth
The final perspective is concerned with human capital management, data management, and organizational capital. While the breadth of information is wide in this perspective, a well-balanced scorecard will make a good attempt at providing relevant information from each category.
The idea of this perspective is to consider some of the less tangible assets of the firm and ensure that those intangibles are growing, performing, and satisfied.
Benefits Of Scorecarding
While there are many benefits to scorecarding its ultimate value rests in its ability to assist with connecting various aspects of the strategic plan together. This provides a holistic view of how the strategies and goals of the organization are being executed. Outside of this is a host of additional benefits.
Helps Promote A Structured Strategy
Scorecarding helps to provide various leaders and departments insight into how their performance affects the performance of the overall firm.
The result is a more structured approach to developing strategies as each department and functional area of the business has a better idea of their role in the end results.
Fosters Better Communication
Scorecarding helps to create more effective communication across different functional areas of the business because it presents information in a way that is universally understandable.
Helps Align The Organization Around Goals And Objectives
Scorecarding provides an easy way for staff and departments to identify their impact on the performance of the business as a whole. This can help boost morale and help leaders create interdepartmental efficiencies.
Both have big impacts on the bottom line as staff engagement and teamwork promote a more efficient and productive work environment.
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