How To Implement The Balanced Scorecard Framework (With Examples)

TL;DR

• A balanced scorecard (BSC) is a strategic planning and management framework. It helps organizations communicate their strategy, measure performance, and prioritize the right initiatives at the right time.
• Best for organizations that are committed to transparency and accountability.
• Pros: Supports strategic alignment, provides a high-level view of performance, and can be easily customized to meet specific organizational needs.
• Cons: Top management team support for BSC implementation is critical for its success.

In spite of its popularity, the Balanced Scorecard is often misrepresented or poorly implemented. In this article, we'll walk you through how to implement the Balanced Scorecard Model (and report against it) in a way that drives real business value to your organization.

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What is a Balanced Scorecard?

The Balanced Scorecard, also known as BSC, is one of the most popular strategy frameworks ever created. The model was originally created and published by Robert Kaplan and David Norton in the Harvard Business Review in the 1990s and has been used by thousands of organizations since then.  It's also one of the first things you'll learn about in a business or strategic management course.

The Balanced Scorecard is a management system that helps organizations improve their business performance. This approach is based on creating a set of internal metrics or Key Performance Indicators (KPIs) that helps an organization assess its performance in four focus areas.

What are the 4 perspectives of a balanced scorecard?

The balanced scorecard consists of four key perspectives: Financial, Customer, Internal business process, and Learning & Growing.

Financial Perspective

In this perspective, financial performance measures indicate whether an organization's strategy and execution are improving its bottom line. Typical scorecard metrics might include cash flow, sales performance, operating income, or return on equity.

Customer Perspective

This perspective should focus on measures that deliver value to the customer. These scorecard metrics can include % of sales from new products, on-time delivery, lead time, net promoter score or share of wallet.

Internal Business Process Perspective

In this perspective, you should prioritize internal metrics that could have the greatest impact on customer satisfaction. This would include measuring things such as unit costs, cycle times, yield, error rates, etc.

Learning and Growth Perspective

This area of the balanced scorecard focuses on KPIs that encourage continuous improvement, innovation, and learning. Examples of metrics include employee engagement scores, retention rates of high-performing staff, skill increases of staff, etc.

The Benefits of Balanced Scorecard Implementation

The 4 perspectives of the Balanced Scorecard serve a number of purposes.

• They require organizations to 'balance' their activities between the main drivers of business success.
• They force organizations to assign tangible metrics to each perspective, increasing accountability.
• They also serve as a management framework for communicating the organization’s strategy to broader stakeholders. E.g. 'We are doing x because it helps us to succeed in the Customer perspective of our scorecard'.
• They help you identify your competitive advantage and areas where you should make improvements.

One study showed that approximately 64% of organizations in the US were using the Balanced Scorecard to measure business performance.

When we look at the thousands of clients with strategic plans in our own strategy platform, we see a similar level of popularity. Often, we talk to clients about the Balanced Scorecard and discover they're not even aware that they've implemented it.

However, they have arrived at their own conclusions naturally that their efforts and measures should focus on roughly the same four perspectives that the Balanced Scorecard suggests.

Ultimately, the benefit of implementing the Balanced Scorecard is that it forces your organization into a level of focus that spans both leading KPI indicators as well as lagging ones (more on that later).

The problems with Balanced Scorecard Implementation

As with any popular strategic framework, the Balanced Scorecard has picked up its fair share of critics over the years. The main criticisms of the Balanced Scorecard are that:

• It takes too much time to set up across your organization.
• People never fully understand it and therefore fail to benefit from it.
• It's too rigid and doesn't account for changes in the business landscape.
• It's too focused on financial measures above all else.
• It's too internally focused and almost completely ignores the macroeconomic or competitive aspects of running a business.

A major challenge with implementing the Balanced Scorecard is that it is too often misunderstood as a merely reporting framework and not as a management tool.

The truth is that the Balanced Scorecard is an excellent tool and will benefit most organizations when implemented properly.

How to Implement the Balanced Scorecard

Before we dive into the detail of how to implement the Balanced Scorecard for your own organization, we need to take a look at what people so often get wrong.

Balanced Scorecard Implementation Mistakes

People tend to think of the Balanced Scorecard as four perspectives that you simply 'slot' your goals into. When they visualize the Balanced Scorecard, they think of it like this diagram:

In this diagram, you can see how 4 simple perspectives link together to form a Balanced Scorecard for your business. In each perspective, there are Strategic Objectives, Projects, and KPIs, which you then work toward achieving.

The end goal is to try and balance each perspective and result in improved organizational performance.

This traditional method assumes that each perspective is independent of the others. Nevertheless, this approach to implementing the Balanced Scorecard is fundamentally flawed. Through years of trial and error, it turns out that the way we order them matters. The modern balanced scorecard demonstrates how each perspective builds on the previous one.

The right way to implement a Balanced Scorecard

Balanced Scorecard is not a set of equally weighted perspectives. It's not about working on four perspectives simultaneously. Instead, you should approach the diagram from the bottom and work your way up.

Starting from the Learning & Growth perspective, you progress through each layer to reach Financial Gain. The ultimate goal is to nail each perspective, because once you master each one, you are able to deliver effectively against the next.

As an alternative to the diagram above, you should visualize the Balanced Scorecard from the perspective of strategy mapping:

As you follow the steps in the diagram, you'll see that the ultimate goal of the journey is increased profitability (Financial Gain).

There is also a different way to look at this. As with leading and lagging KPIs, the Balanced Scorecard is a series of leading and lagging perspectives. Learning and Growth, Internal Processes, and Customer will be your leading perspectives, as these perspectives facilitate the delivery of your primary lagging perspective - Financial performance. The reason it's called lagging is that it's the outcome of things you can do with the other three perspectives.

One of the major criticisms of the Balanced Scorecard is that it essentially aims to maximize profits.

There have been arguments that Balanced Scorecard wouldn’t suit organizations such as nonprofits, government organizations, and even Google and Facebook which claim their objectives go beyond financial returns.

Why this modern Approach to Implementing the Balanced Scorecard Makes Sense

Let's work through the theory behind implementing the Balanced Scorecard as a series of 'steps'.

Here’s an example. A company's ability to learn and grow directly impacts its ability to manage its internal processes effectively. Therefore, as you improve your internal processes, you will be able to provide a better service to your customers and directly reduce your costs. As a result of the lower cost and increased customer engagement in your product (essentially sales), you will attain your goal of increased profit and financial return.

A Balanced Scorecard isn't about distinct perspectives, but rather layers in the pyramid. And success comes from building the pyramid in the right order. When implemented this way, the Balanced Scorecard can be immensely powerful in helping your organization:

• Create a tangible strategic roadmap from the 'current state' to a more successful 'future state'.
• Identify major roadblocks on the path to driving better financial performance.
• Articulate how your goals will directly help the organization to move upwards through the stages.
• Prioritize business activities in the order they need to be tackled to allow the most rapid progression through the stages.
• Visualize, identify, and understand cause-and-effect relationships between different strategic objectives.

Specifically, the main benefit of the Balanced Scorecard is likely to come less from the creation of the perspectives themselves but rather from the strategic management process using the perspectives as stages.

Tip: Don't blindly follow the suggested Balanced Scorecard structure and measures. Adapt the measures to your company's capabilities and challenges. You're more likely to get buy-in from stakeholders and get the results you want.

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Balanced Scorecard Example

Your Balanced Scorecard should be integrated into two main phases of the strategy lifecycle: strategic planning and strategy tracking. Although there are many micro-steps between, this is a pretty good place to start. We will show you these examples using Cascade's strategy execution platform, but you can also use your existing tools or an Excel spreadsheet.

Balanced Scorecard For Strategic Planning

One of the most effective places where you can implement the Balanced Scorecard is in your strategic planning process.

As the first and most important step in implementing a Balanced Scorecard methodology, this will lay the foundation for everything your organization will do in the future.

Here’s how you can implement the Balanced Scorecard from a strategic planning perspective with Cascade's balanced scorecard template in 2 steps:

Step 1: Use Focus Areas as your perspectives

This Balanced Scorecard implementation methodology involves orienting your whole strategic plan around the Balanced Scorecard. You will set each perspective as a strategic Focus Area and then align Objectives, Projects, and KPIs directly underneath it. You’ll end up with a strategic plan that looks something like this:

Your Focus Areas set represents each of the perspectives, indicating that your strategy is geared towards the Balanced Scorecard and you'll likely generate a better understanding of the system within your organization.

A major advantage of this method is its simplicity and commitment to the Balanced Scorecard concept.

📚 Recommended reading: The Only Balanced Scorecard Software You’ll Ever Need (2023)

Step 2: Add Objectives, Projects, and KPIs for each Perspective

The implementation doesn’t stop with the setup of your focus areas. You need to make sure each of your perspectives has a good mix of:

• Strategic objectives (overall outcomes)
• Projects (specific initiatives)
• KPIs (measures of success)

It's totally fine if your Financial perspective has more KPIs than your Learning and growth perspective, but don't let any perspective go without any of these types of goals!

Remember: The Balanced Scorecard is a Process, not a Simple Categorization Exercise.

Whatever Balanced Scorecard approach you use, make sure your goals progress in a linear manner toward achieving your financial goals.

In other words, when you visualize your strategic plan as a Gantt chart, you need to prioritize learning and growth, internal processes, and customer goals first (ideally in the order indicated in this sentence) - and either your financial goals are at the end of your Gantt chart or they span the entire strategic plan period.

Hence, the better you do against the first three perspectives, the better you'll do from a financial perspective.

Balanced Scorecard For Strategy Tracking

Now that we've covered strategic planning, let's dig into the other half of the picture - how to track and report strategic progress using a Balanced Scorecard.

This is a crucial element of every strategy execution. You need to infuse your balanced scorecard into your strategy rhythm, into your monthly team meetings, or into your board updates.  

In order to track your progress, you'll need to create a few different reports, no matter what method you use for strategic planning.

Create a Balanced Scorecard Dashboard

Start by creating a Balanced Scorecard Dashboard for your strategic reporting.

In the dashboard, you should see your score for each of the four perspectives and a summary of your key objectives, projects, and KPIs for each perspective. It should look something like this:

You'll want to keep your dashboard fairly high level. If your strategy has many different layers or connected plans, you might want to create a version of this Balanced Scorecard dashboard for each of your individual strategic plans.

Create Balanced Scorecard Snapshots

The dashboard gives you an overview of your progress in each of the perspectives at a glance.

When it comes to the details, you'll need to switch to a different type of report. We recommend setting up a more 'tabular' style of Snapshot report that allows you to display additional information such as commentary and progress updates, grouped by each perspective. Your snapshot report should look something like this:

This type of Snapshot report is great for running team meetings weekly or monthly.

Balanced Scorecard + Strategy Execution Software = 🚀

If you're liking the sound of the Balanced Scorecard and want to give it a try for your business, you'll seriously want to think about investing in an operational information system or a digital tool to help you not only plan your Balanced Scorecard strategy but also execute it.

This is where platforms like Cascade really shine - and, of course, all of the screenshots in this guide are taken directly from this platform.

If you'd like to find out more about how Cascade can help you to implement the Balanced Scorecard, start for free or jump on a demo with our team and we'll walk you through everything you need to know.

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