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Improve Your Strategy Game with Balanced Scorecards

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We get it. Feeling like we’re not in complete control of our company’s performance is stressful—unnerving even. But that’s our cue to go back to the drawing board. The key to regaining control of our company strategy is a long-term plan for success, and that’s exactly what the balanced scorecard approach is all about.

Balanced scorecards can help us with the following:

  • Establishing long-term performance goals.
  • Identifying target performance areas that we can effectively monitor.
  • Incorporating performance management tools to complete goals.
  • Implementing actionable plans for meeting those goals.

Who doesn’t agree with that? But the approach goes a step further by narrowing down those performance areas that matter most. To help illustrate, let’s explore the effective 4-point methodology of the balanced scorecard approach.

Considering the Customer Experience

Where would we be without our amazing customers? The balance scorecard theory agrees, and that’s why gauging the customer perspective is one of four major “perspectives” balanced scorecards calculate. Think about it; we preach about customer service in our company mottos, so it’s imperative that we meticulously track our performance with customers. To help, balanced scorecards separate customer matters into four distinct categories:

  1. Lead time gauges how long it takes us to address our customers’ needs; for example, the length of time between when a product is ordered and shipped.
  2. Quality is measured by how customers perceive the quality of our products. Even slow delivery time can impact how they perceive quality.
  3. Like the quality metric, performance is measured by how a customer themselves perceive our company’s performance. Case in point: empty shelves can lead customers to speculate that a shop may be going out of business.
  4. The service metric reveals whether or not customers believe we’re putting our money where our mouth is. This is a great way to see if our customer service strategy is adding any real value to the customer experience.

Monitoring the four points of customer perception gives us a clear image of who our customers are, what they want, and what they expect from us. Moreover, the balance scorecard theory asks us to set goals for achieving benchmarks for improved lead time, quality, performance, and service.

Measuring Our Internal Business Processes

Now that we have our customers out of the way, it’s time to look inward. The internal business perspective is the second point of the balanced scorecard theory; specifically, this perspective measures those processes that have the greatest impact on our customer base. Therefore, measurable data points may differ depending on our company’s industry. Performance areas we’re likely to measure include cycle time, product quality, skills, and productivity.

To help us make the internal changes we need to improve our customer experience, the balanced scorecard approach asks us to consider the following questions:

  • What are our company’s central capabilities and skills?
  • What technologies and tools are we using to stay competitive?
  • What specific areas do we need to improve internally to improve customer satisfaction?
  • What measures will help us achieve our internal business goals in a timely manner?

Once we identify internal goals and create actionable plans, a completed balanced scorecard can be an instrumental tool for managers to communicate those goals downline. The Harvard Business Review explains further in the following video:

Understanding Our Value to the Industry

Every company is in a constant state of change, regardless of its industry. If we don’t routinely improve and introduce innovative products and services, our industry value decreases. How we grow and retain our employees also impacts our company value as well.

A balanced scorecard approach looks deeply into our current state of innovation, improvement, and learning processes, to help us make long-term improvements. Performance areas that are often measured during this phase include, but are not limited to:

  • Technical support
  • Employee training processes
  • Employee turnover
  • Level of knowledge and specialty skills
  • Rate of product improvement
  • Rate of new products introduced over time

What’s Behind Our Bottom-Line?

For those of us with company shareholders, the term bottom-line holds particular meaning. When our shareholders open their statements, they want to feel confident about their investment. This fact brings us to our fourth, and final, balanced scorecard point of interest—the financial perspective.

The financial perspective assesses whether or not our overall strategy, actionable plans, implementation, and results are positively impacting our bottom line. Financial accounting plays an important part in this, as assets and debt are calculated to measure stockholder equity. When crafting a financial balanced scorecard, consider the following performance areas:

  • Cash Flow
  • Profitability
  • Sales Growth
  • Market Share
  • Return on investment (ROI)

We can definitely take back control of our performance strategy. Balanced scorecards help us see through the fog to discover which performance areas need improvement so we can stay on top of customer happiness, internal productivity, innovation, and our bottom-line. The best part is that we can incorporate balanced scorecards right away! Sit down with your team now to start developing your goals with this effective 4-point framework.

Have other ways that you’ve been successful controlling your organization’s long-term plan for success? Share your comments and ideas in the comment box below.

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