The Scorecard is a management tool that helps businesses to communicate what they are trying to accomplish, align the day-to-day work activities towards the strategy, prioritize projects, products, and services.
A balanced scorecard is a performance metric used in strategic management to identify and improve a business's various functions and their resulting outcomes. The data collection is crucial for organizations to provide quantitative results, gather feedback from customers, and make better decisions. For these various reasons, it is essential to choose a structured framework to get a wider perspective of the business environment.
What is the purpose of a Scorecard?
The scorecard functions as the cornerstone of a company’s current and future success. Companies can easily identify factors hindering business performance and outline strategic changes tracked by future scorecards. The balanced scorecard is used to reinforce good behavior in an organization by isolating four separate areas: learning and growth, business processes, customers, and finance.
The Four Legs of a Balanced Scorecard
- The Financial perspective-The key objectives that are related to the company’s financial health and performance are based on cost-effectiveness and savings, profit margins and revenue resources.
- The Customer perspective-The aim is to drive customer satisfaction through quality, price, and availability of products or services.
- The Internal Process perspective-It focuses on process improvement, quality optimization, and capacity utilization.
- The Learning and Growth perspective- How well information is captured and how effectively employees utilize the information to convert it to a competitive advantage over the industry.Human capital(skills, talent, and knowledge) Information capital(databases, information systems, networks and technology infrastructure) Organisational capital(culture, leadership, employee alignment, teamwork, and knowledge management).
The key benefits of using a Scorecard include:
- Better Strategic Planning-The Balanced Scorecard provides a powerful framework for building and communicating strategy. With this approach, both performance outcomes, as well as key enablers of future performance (such as the intangibles), are identified to create a complete picture of the strategy.
- Improved Strategy Communication-Companies have the privilege to communicate its strategy internally and externally. With this wider overview, organizations can easily engage staff and external stakeholders in the delivery and review of strategy.
- Better Management Information-The Balanced Scorecard approach forces organizations to design key performance indicators for their strategic objectives. This ensures that companies are measuring what matters.
- Improved Performance Reporting- This structured approach helps companies to report performance and communicate the deliverables to the management team.
- Organizational Alignment- Organizations need to ensure that all business units and support functions are working towards the same goals. By using a Balanced scorecard they can align the structure with the strategic objectives more effectively.
- Process Alignment- Scorecards can help organizational processes such as budgeting, risk management, and analytics to be aligned with strategic priorities.
Types of Scorecard
The different market situations, product strategies, and competitive environments require different scorecards. Business units devise customize scorecards to fit their mission, strategy, technology, and culture. In MyDraw's Templates, you will find some of the most commonly used examples of scorecards.
