Balanced scorecard: definition and types

Published on 05/04/2024

Balanced scorecard: definition and types

Published on 05/04/2024
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An essential business management tool is the Balanced Scorecard to keep your business strategy optimized by measuring its evolution and results. In this post, we explain how it works and what types of dashboards exist.

Balanced scorecard: definition and types

As a concept, the Balanced Scorecard has relatively few years of life, as it was introduced as a model in 1992 by David Norton and Robert Kaplan in the Harvard Business Review. Before delving into what it consists of more widely, what factors come into play, and what types of dashboards exist, let’s first look at the correct definition of a Balanced Scorecard.

In summary, we’ll say that the Balanced Scorecard is a tool for proactively managing companies in both the short and long term. They are one of the most useful tools we can use to achieve business success.

What is a Balanced Scorecard?

The Balanced Scorecard (BSC) is a management model or administrative system that encompasses, in addition to the financial perspective, more perspectives in companies’ decision-making processes.

It can be said that the main value that the Balanced Scorecard provides is that it breaks with traditional organizational evaluation systems, which until now only took into account the financial and economic aspects, to determine whether the company is on track to meet its objectives or not, as well as facilitating the decision-making process.

Within a Balanced Scorecard, we can differentiate four visions or perspectives that measure a company’s business performance:

  • Customer perspective: Defining our customers’ perception of our company. What can we improve to better meet customers’ needs?
  • Financial perspective: Based on the company’s accounting. It is the perspective that interests shareholders the most. What perception do shareholders have of our company?
  • Internal perspective: Analyzing internal processes that are key to satisfying our customers. In what areas of the company should we improve?
  • Learning and growth perspective: Our company is not static and must continue to grow, learn, and develop. What should we do to continue improving and creating value?

Types of Balanced Scorecards

Now that we know what a human resources Balanced Scorecard is, as well as the different variables and questions we should consider when creating it, let’s see what types of Balanced Scorecards we can find.

Since there are many criteria that can be mixed when preparing a Balanced Scorecard, below are the ones we consider most important:

  • Economic criteria
  • Responsibility criteria within the company
  • Time criteria
  • Criteria by departments or business areas

Additionally, a Balanced Scorecard can be:

  • Operational: Daily monitoring linked to specific areas or departments of the company with the mission of correcting wrong measures.
  • Managerial (short term): Allows, in the short term, controlling the company’s results and focuses on analyzing the internal indicators that we have previously defined.
  • Strategic (long term): Provides, in the long term, internal and external information to know the company’s status, achievement of objectives, and global positioning.

And of course, the one we are dealing with, the Balanced Scorecard, which includes the previous three with the aim of having a global and comprehensive view of the organization.

Analyzing and Managing a Balanced Scorecard

It is essential that the departments and teams involved in the preparation of the Balanced Scorecard define their processes and value chain beforehand to find the necessary information that translates into valid indicators to incorporate into the Balanced Scorecard.

 

Balanced scorecard: definition and types

Currently, due to the large number of variables and perspectives that we can add to our Balanced Scorecard, there is no single true management model. In fact, many times we can talk more about a dashboard than a Balanced Scorecard, made up of KPIs or indicators that the company considers critical to know and analyze in depth.

Among the software tools that allow us to create Balanced Scorecards, we can highlight large-scale ERPs such as:

Within the Business Intelligence tools, which allow automating processes, we highlight those that facilitate comprehensive reporting and monitoring of data both analytically and graphically:

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