Business Efficiency: What is Balanced Scorecard? - dummies

Business Efficiency: What is Balanced Scorecard?

By Marina Martin

Balanced Scorecard was developed as a more effective strategy of implementing business efficiency — instead of focusing on financial measurements, Balanced Scorecard is a more holistic system of metrics across four equally weighted quadrants. While methodologies like Six Sigma and Agile may have mutually exclusive viewpoints on the right way to manage a project, Balanced Scorecard plays nicely with most other systems.

Balanced Scorecard in a nutshell

The key differentiations of Balanced Scorecard strategy include:

  • Focus on knowledge growth: Few organizations measure, let alone give balanced weight to, internal knowledge and growth — but Balanced Scorecard brings these metrics front and center.

  • Multi-level viewpoints: Scorecards look at the same data on three levels: long-term, short-term (3–5 years), and immediate (today) to keep your eye simultaneously on the big picture and the here and now.

  • Compatibility with other methodologies: You can use scorecards to measure progress towards goals when using any (or no) formal efficiency-enhancing methodology.

The four scorecard quadrants

A balanced scorecard includes measurements across four key areas:

  • Financial: Revenue, net profits, expenses, payroll, and other routine monetary metrics.

  • Knowledge and Growth: How are your employees growing in their skills and knowledge? This question is carefully considered and answered by a knowledge scorecard.

  • Productivity: In effect, how efficient is your internal organization? This scorecard measures productivity in hard numbers.

  • Customers: Not just how many customers you have, but retention rates, satisfaction numbers, and other customer-focused figures.

Balanced Scorecard is best for every organization that measures itself and companies primarily composed of knowledge workers.