How to Use a Balanced Scorecard to Improve Business Performance.
A balanced scorecard (BSC) is a strategic management tool that helps organisations translate vision and strategy into actionable goals. It works on two core principles: understanding the management cycle that connects strategy with operations, and knowing which tools to apply at each stage of that cycle (Kaplan and Norton, 2008).
What is a Balanced Scorecard and Why Does it Matter?
In the 1980s, research by Kaplan showed that relying solely on financial measures was not enough to guide a company to long-term success. Traditional accounting methods focused on past performance but offered little insight into future growth potential.
Businesses create lasting value by improving customer relationships, delivering high-quality products or services on time, and ensuring employees have the skills and support they need. Focusing only on short-term financial gains, such as reducing maintenance costs without improving processes, risks alienating both customers and staff.
Continuous Improvement: The Key to Long-Term Success
Regular maintenance and incremental improvements can be far more cost-effective than waiting for breakdowns. This approach aligns with the Kaizen philosophy, which emphasises small, consistent improvements to build reliability, efficiency, and trust—ultimately increasing customer value.
Kaplan proposed that organisations should use a broader set of performance indicators that capture all aspects of value creation. Financial metrics remain important, but they must be complemented by measures that reflect customer satisfaction, internal processes, and organisational learning.
Real-World Example: Simplifying the Balanced Scorecard
One major UK retailer streamlined its balanced scorecard after using it for more than 20 years. Originally containing over 40 performance indicators, the company refined it down to just six key measures. This clarity helped employees align with the company’s vision, understand priorities, and focus on what truly drives results.
Too many metrics can be a weakness. Over-detailed or ambiguous indicators can slow down decision-making and dilute focus (Simons, 2000). The most effective scorecards are clear, concise, and directly linked to strategic objectives.
Four Key Steps to Implement a Balanced Scorecard
A balanced scorecard can boost team performance when leadership communicates and implements it effectively. The process typically includes:
Clarifying and translating the vision – Turn the organisation’s vision into specific, measurable objectives and identify the drivers for achieving them.
Communicating and linking goals – Ensure every employee understands high-level objectives and how their role contributes to them. Align local goals with the overall strategy.
Planning and setting targets – Establish clear performance targets and align strategic initiatives with them.
Using feedback for improvement – Monitor results, learn from them, and adjust strategies as needed to stay on track.
Balanced Scorecard Benefits Beyond Financial Metrics
A balanced scorecard is not just about producing a product or delivering a service for financial return. It encourages businesses to view every action through both the customer’s and the employee’s perspective, continually setting and achieving new objectives.
When these improvements are sustained, they lead to stronger brand reputation, higher customer loyalty, increased sales, and long-term profitability. Financial rewards follow naturally when value is consistently created for customers and the organisation.