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Balanced Scorecard

Since its introduction in the 1990s, the Balanced Scorecard (BSC) has become an indispensable tool in strategic management. Originally conceived by Robert S. Kaplan and David P. Norton, the Balanced Scorecard provides a comprehensive method of measuring an organization's performance not only through financial metrics, but also through non-financial indicators that are critical to long-term success. This article explains the basics of the Balanced Scorecard, discusses its benefits and challenges and presents practical examples of its use.

Balanced scorecard definition: Balanced scorecard simply explained

The balanced scorecard is a management tool that helps companies to measure and manage their performance. It goes beyond traditional financial indicators and also considers three other important perspectives: customers, internal business processes and learning and growth. This holistic view enables companies to clearly define and implement their strategic goals, improve collaboration and achieve long-term success. In short, the Balanced Scorecard offers a balanced method for comprehensively evaluating and managing the success of a company.

Disadvantages and advantages of the balanced scorecard

This table provides an overview of the most important advantages and disadvantages of using the balanced scorecard in strategic management.

Advantages Disadvantages
Holistic view of company performance High implementation effort
Linking of short and long-term goals Requires continuous adjustment and monitoring
Promotes strategic alignment and clarity Can be complex and time-consuming to create
Improves internal and external communication Depends on the quality of the selected KPIs
Increases employee loyalty and motivation Employees may be overwhelmed by too many key figures
Integration of financial and non-financial aspects Risk of neglecting important areas that are difficult to measure
Supports strategic planning and control May be susceptible to subjective interpretation
Promotes continuous improvement and innovation Possible resistance to change within the company

What is the aim of the Balanced Scorecard?

The aim of the Balanced Scorecard (BSC) is to provide a comprehensive and balanced method for assessing the performance and strategic management of a company. In detail, the BSC pursues the following objectives:

  • Holistic performance measurement: The balanced scorecard aims to evaluate a company's performance not only on the basis of financial indicators, but also through non-financial indicators in the areas of customers, internal business processes, learning and growth. This enables a holistic view of the company's performance.
  • Strategic alignment: By translating the corporate strategy into concrete, measurable goals and key performance indicators, the balanced scorecard helps to ensure the strategic alignment of the entire company. All levels and departments are aligned with the common strategic goals.
  • Improved communication: The balanced scorecard promotes communication and understanding of the corporate strategy within the entire organization. It ensures that all employees are aware of the strategic goals and understand how their work contributes to achieving these goals.
  • Continuous improvement: The balanced scorecard supports the continuous monitoring and improvement of company processes and performance. By regularly reviewing key figures and progress, necessary adjustments and improvements can be quickly identified and implemented.
  • Linking short and long-term goals: The balanced scorecard makes it possible to link short and long-term goals and ensure that short-term measures are in line with long-term strategic goals.
  • Employee motivation and commitment: By setting clear targets and measuring performance, the balanced scorecard promotes employee motivation and commitment. It shows how individual performance contributes to the achievement of corporate goals.
  • Better decision-making: The Balanced Scorecard provides sound data and analysis that improves decision-making at all levels of the organization. By taking different perspectives into account, decisions can be made in a more comprehensive and balanced way.

Overall, the balanced scorecard aims to provide a structured and balanced method for strategic management and performance evaluation that takes into account both financial and non-financial aspects. This should ensure that the company can operate effectively and successfully in the long term.

Balanced scorecard perspectives

The Balanced Scorecard (BSC) consists of four perspectives that together provide a comprehensive and balanced view of the company's performance. Each perspective comprises specific objectives and key figures that are linked to each other in order to achieve the company's strategic objectives.

Overview: The 4 Balanced Scorecard Perspectives

The following diagram shows an overview of the 4 balanced scorecard perspectives that exist.

Explanation: The 4 Balanced Scorecard Perspectives

By integrating these four perspectives, the Balanced Scorecard offers a balanced and comprehensive method for evaluating and managing corporate performance.

Process Perspective

  • Objective: To evaluate the efficiency and effectiveness of internal workflows and processes.
  • Typical key figures:
    • Throughput times
    • Error rate
    • Process costs
    • Productivity rates
    • Innovation rate

Development Perspective

  • Goal: To promote the ability to innovate and the development of employees and the organizational infrastructure.
  • Typical key figures:
    • Employee satisfaction
    • Employee turnover
    • Number of training and development courses
    • Innovation rate (e.g. number of new products)
    • Time to market launch of new products

Summary of the Perspectives

  • Financial Perspective: This perspective focuses on the financial targets and key figures that measure the company's financial success. It answers the question: “How do our financial results contribute to the achievement of our strategic goals?”
  • Customer Perspective: This perspective evaluates how the company is perceived by its customers and how it serves the market. It answers the question: “How do our customers see us and how can we meet or exceed their expectations?”
  • Process Perspective: This perspective focuses on the efficiency and effectiveness of internal processes that contribute to value creation. It answers the question: “Which internal processes do we need to optimize in order to satisfy our customers and shareholders?”
  • Development Perspective: This perspective evaluates the company's ability to continuously improve and innovate. It answers the question: “How can we strengthen our ability to change and improve in order to achieve our long-term goals?”

Important terms for
Balanced Scorecard explained

Terms for Balanced Scorecard explained

Term Explanation
Balanced Scorecard (BSC) A strategic management system for measuring and controlling corporate performance.
Perspectives The four dimensions of the BSC: finance, customers, internal business processes, learning and growth.
Financial perspective Assesses the financial performance and profitability of the company.
Customer perspective Measures customer satisfaction and loyalty as well as the company's market position.
Internal business processes Analyzes the efficiency and effectiveness of internal workflows and processes.
Learning and growth Evaluates the ability to innovate and the development of employees and systems.
Key figures Specific metrics used to evaluate performance in the various perspectives.
Targets Specific performance targets to be achieved within each perspective.
Measures Actions or projects that are carried out to achieve the set goals.
Cause-effect relationship The relationship between the objectives and measures of the different perspectives.
Strategy map A visual tool that depicts the strategic objectives and their interrelationships.
Strategy A long-term plan for achieving the company's goals by aligning the perspectives.
KPI (Key Performance Indicator) Important key figures for measuring progress and success in the various perspectives.
Balanced The balance between the financial and non-financial aspects of the company's performance.

This table provides an overview of the central terms of the Balanced Scorecard and their meaning in strategic management.

What are lagging and leading indicators in the balanced scorecard?

The balanced scorecard combines leading and lagging indicators to enable a comprehensive and balanced assessment of the company's performance. Leading indicators help to identify and correct potential problems at an early stage, while lagging indicators measure actual successes and failures and thus evaluate the effectiveness of the measures taken.

Lagging Indicators

Lagging indicators measure the actual results and performance of a company in the past. They are retrospective and provide information on how successful previous strategies and measures have been. Lagging indicators are often financial indicators that reflect the success or failure of a company.

Examples of lagging indicators:

  • Financial perspective: Turnover, profit margins, return on investment (ROI), cash flow.
  • Customer perspective: Market share, sales per customer, customer lifetime value.
  • Internal business processes: Error rate, production costs, number of complaints.
  • Learning and growth: Number of patented innovations, employee productivity, sales growth through new products.

What functions does a balanced scorecard have?

By integrating both financial and non-financial indicators, the balanced scorecard offers a balanced view of the various aspects of a company. This holistic approach makes it possible to translate the corporate strategy into concrete goals and measures, ensure strategic alignment and improve internal communication. In addition, the BSC promotes the continuous monitoring and improvement of company processes, motivates employees through clear targets and supports well-founded decision-making processes.

Overview: Functions of a Balanced Scorecard

The following diagram provides an overview of the functions of a balanced scorecard.

Explanation: Functions of a Balanced Scorecard

The following functions of a balanced scorecard are well known and provide new perspectives and insights for companies.

Alignment and Motivation of Employees

  • Alignment of employee goals with the corporate strategy.
  • Increasing motivation through clear targets and performance measurements.

Resource Allocation

  • Effective allocation and use of resources to achieve strategic goals.

Control and Adjustment of the Strategy

  • Regular review and adjustment of the strategy based on the insights gained.

Who creates a balanced scorecard?

Creating a balanced scorecard (BSC) is a collaborative process that involves multiple levels and functions within an organization. Here are the key players that are typically involved in the creation of a BSC:

Actor Role Contribution
Management and Management Board Definition of the overarching corporate strategy and vision. Sets the strategic goals and priorities that form the basis for the BSC.
Strategic management team Translates the corporate strategy into concrete goals and key figures. Develops the structure of the BSC, defines the perspectives and ensures that the targets and KPIs are in line with the corporate strategy.
Head of department and division Identifies department-specific targets and key figures. Contributes expertise from the respective departments and ensures that the BSC objectives can be integrated into daily operations.
Controller and Finance Department Provision of financial data and key figures. Develops the financial lag indicators and ensures that financial performance is monitored and analyzed.
Human Resources (HR) Focuses on the learning and growth perspective. Develops metrics and targets for employee development, training and innovation capability.
IT department Supports data collection and reporting. Implements systems to collect and analyze KPIs and supports the automation of BSC reporting.
External consultants (optional) Support with methodology and implementation. Brings in external expertise, especially if the company is new to using the BSC.
Employees Implement the measures to achieve the objectives. Actively participates in the achievement of the defined indicators and provides feedback to improve the BSC.

The success of the balanced scorecard depends heavily on collaboration and communication between the different levels and departments of the company. Regular meetings, workshops and feedback sessions are crucial to ensure that the BSC is not only created, but also effectively implemented and adapted.

Who uses a Balanced Scorecard & where can it be used?

The Balanced Scorecard is used by executives, managers, employees, controllers and project managers. It can be used in a variety of organizations and industries, including commercial enterprises, public administrations, non-profit organizations, healthcare and educational institutions. The BSC helps these organizations to define, communicate and implement their strategic goals and to comprehensively monitor performance.

Where can the Balanced Scorecard be used?

  1. Business enterprises: The Balanced Scorecard is used in companies of all sizes and industries to measure performance and implement strategy. This includes large multinational corporations as well as small and medium-sized enterprises (SMEs).
  2. Public administration: Government agencies and public organizations use the Balanced Scorecard to improve the effectiveness and efficiency of their services and to monitor the achievement of their strategic goals.
  3. Non-profit organizations: Charities and other non-profit organizations use the Balanced Scorecard to achieve their mission, measure the efficiency of their programs and maximize the impact of their activities.
  4. Healthcare: Hospitals and other healthcare organizations use the balanced scorecard to improve the quality of patient care, increase operational efficiency and achieve strategic healthcare goals.
  5. Educational institutions: Universities, schools and other educational institutions use the Balanced Scorecard to improve the quality of education, increase student satisfaction and enhance organizational effectiveness.

Balanced Scorecard
opportunities and risks

balanced scorecard opportunities and risks

Opportunities Risks
Improvement of strategic alignment Implementation effort and complexity
Increasing transparency and clarity Risk of neglecting important but difficult to measure areas
Promotion of internal communication and collaboration Resistance to change within the company
Supporting decision-making through clear key figures Overburdening employees with too many key figures
Strengthening customer orientation Dependence on the quality and selection of key figures
Increasing the ability to innovate and adapt Risk of misinterpretation of data and key figures
Promotion of continuous improvement Requires continuous maintenance and adjustment
Better allocation of resources and efficiency Possibility of focusing on short-term goals

This table provides an overview of the potential opportunities and risks associated with the implementation and use of the Balanced Scorecard.

How do you create a balanced scorecard?

The creation of a balanced scorecard (BSC) follows a systematic process that involves several steps. Here is an overview of the typical steps:

  1. Preparation and planning
    • Define objectives: Clarify the company's strategic goals.
    • Putting together a team: Forming an interdisciplinary team representing different areas of the company.
  2. Strategy translation
    • Create strategy map: Visualizing the strategic goals and their interrelationships.
    • Define perspectives: Determining the four perspectives (finance, customers, internal business processes, learning and growth).
  3. Define goals and key figures
    • Set targets: Defining specific goals for each perspective.
    • Develop key performance indicators: Determine key performance indicators (KPIs) to measure progress and results for each objective.
  4. Plan measures
    • Develop measures: Plan specific actions and projects to achieve the defined goals.
    • Assign responsibilities: Determining who is responsible for implementing and monitoring the measures.
  5. Collect data and set up systems
    • Determine data sources: Identifying the sources for collecting data for the key figures.
    • Implement systems: Implement IT systems for continuous data collection and reporting.
  6. Implementation and communication
    • Rollout of the BSC: Introduction of the Balanced Scorecard throughout the company.
    • Training and communication: Informing and training employees about the objectives, key figures and measures of the BSC.
  7. Monitoring and adjustment
    • Regular review: Continuous monitoring of progress based on the defined key figures.
    • Feedback and adjustment: Collecting feedback and adjusting the BSC as required.
  8. Reporting and analysis
    • Preparation of reports: Regular reporting on results and progress.
    • Analysis of results: Analyzing data to assess performance and identify opportunities for improvement.

By systematically following these steps, companies can introduce, develop and implement an effective balanced scorecard that helps them achieve their strategic goals and comprehensively monitor their performance.

balanced scorecard example: How is the Balanced Scorecard structured?

Here is an example of a balanced scorecard (BSC) for a fictitious company operating in the consumer goods industry. The BSC includes the four perspectives: Finance, Customers, Internal Business Processes, and Learning and Growth. Specific goals, key figures, target values and measures are defined for each perspective.

Structure of the Balanced Scorecard

The Balanced Scorecard consists of four perspectives, which together provide a comprehensive and balanced view of the company's performance. Each perspective comprises specific objectives, key figures, target values and measures.

  • Four perspectives: Finance, customers, internal business processes, learning and growth.
  • Goals: Specific, strategic goals for each perspective.
  • Key figures: Measurable indicators (KPIs) to evaluate progress and results.
  • Target values: Concrete target values to be achieved.
  • Measures: Concrete actions and projects to achieve the targets.

By systematically applying these steps and following a structured approach, companies can develop and implement an effective balanced scorecard that helps them to achieve their strategic goals and comprehensively monitor their performance.

Balanced Scorecard Application Example: The 4 Perspectives & the Balanced Scorecard Key Figures

This table provides an overview of the specific objectives, KPIs, target values and measures of the four perspectives of the balanced scorecard in the example. The example shows how a company can use the balanced scorecard to define and measure its strategic goals and achieve them through targeted measures.

Perspective Target Key figure Target value Measure
Financial perspective Sales increase Sales growth 10% per year Introduction of new products
  Cost reduction Operating cost ratio < 20% Process optimization in production
  Profit increase Net profit margin 15% Efficiency increase through automation
Customer perspective Increase in customer satisfaction Customer satisfaction index 90% Improvement in customer service
Increase customer loyalty Repurchase rate 80% Loyalty programs and discount campaigns
Expansion of market share Market share 25% Marketing campaigns and market research
Internal business processes Improvement of product quality Error rate < 1% Implementation of a quality management system
Increase in process speed lead time -15% lean management initiatives
Increase in innovation Number of new products 5 per year Investment in research and development
Learning and growth Increase in employee satisfaction Employee satisfaction index 85% Training programs and employee benefits
Increase in employee qualifications Number of training days per employee 5 days per year Continuous education and training
Promotion of innovation Number of suggestions for improvement submitted 100 per year Innovation workshops and promotion of creativity


Is the Balanced Scorecard a Controlling Instrument?

Yes, the balanced scorecard is a controlling instrument. It enables companies to define, measure and manage their strategic goals by integrating financial and non-financial indicators. As a result, it provides a comprehensive and balanced view of the company's performance and supports management in making well-founded decisions and ensuring the long-term direction of the company.

Is the Balanced Scorecard a System of Key Figures?

Yes, the balanced scorecard is a system of key performance indicators. It uses a variety of metrics from different perspectives such as finance, customers, internal business processes, learning and growth to comprehensively measure and manage a company's performance. By integrating these metrics, the Balanced Scorecard provides a structured method for evaluating and monitoring corporate goals.

Which Key Figures can Controllers plan on the basis of the Balanced Scorecard?

Controllers can use the balanced scorecard to plan key figures such as sales growth, profit margin and return on investment (ROI) for the financial perspective. For the customer perspective, they can define key figures such as customer satisfaction, customer loyalty and market share. In the internal business process perspective, key figures such as throughput times, error rate and process costs are relevant. For the learning and growth perspective, you can plan key figures such as employee satisfaction, number of training days and innovation rate.

What is the Balanced Scorecard Model?

The balanced scorecard model is a strategic management tool that helps companies to comprehensively measure and manage their performance. It integrates financial and non-financial key figures from four perspectives: Finance, Customers, Internal Business Processes and Learning and Growth. This model enables a balanced assessment of company performance and supports the implementation and monitoring of strategic goals.

What are the Challenges of a Balanced Scorecard?

The challenges of a balanced scorecard include the high implementation costs, the complexity of creating it, continuous maintenance and adjustment as well as the risk of overloading it with too many key figures. It also requires close cooperation and communication within the company to ensure that all employees understand and implement the objectives and key figures.

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