The Balanced Scorecard (BSC) or Balanced Scorecard is the Management tool that allows you to run a Company pro-actively, consolidating the two fundamental aspects of any organization:
- Strategic Management Performance Evaluation
The Balanced Scorecard (BSC) concept provides a methodology to translate the Strategy into operational terms, and accompanies the Vision and Strategy of the organizations with the objectives, measurements, targets and initiatives of the following perspectives:
- Financial of the Client of the Internal Processes of Learning and Growth.
It is based on the configuration of a Strategic Map governed by the Cause - Effect relationship where each perspective must work in a related way.
Strategic vision
The Balanced Scorecard requires, first of all, that the Directors analyze the market and the strategy to build a Business Model that reflects the interrelationships between the different components of the business.
The exercise of developing a Business Model requires Management not only to agree on the strategy, but also to have a joint vision of how to get to execute that Strategy.
For example:
It may be that there is consensus in the management team about the importance of growth. But for some people growth means geographic expansion, while for others it means expansion of the product line.
The Management is in charge of translating the "Strategy of its Business Unit" into "Specific Strategic Objectives".
The success of its implementation lies in the fact that the Management Team dedicates time to the development of its own Business Model.
Driving with financial information only results in reactive management (it's like driving with the rearview mirror). Financial results are just results and not causes. To lead proactively, you have to act on the causes and not on the consequences. For this reason, cause-effect relationships are the engine of the Business Model.
Business model: Basic scheme.
Financial results
The Financial Results are the consequence of the company's performance in the Market (Customer Service).
Customer service
If the company manages to achieve the Customer Service objectives, value creation will continue as a consequence. On the other hand, if the Customer Service indicators begin to deteriorate, sooner or later it will be reflected in a bad Financial Result.
The Customer Service indicators are called Advanced Indicators, since they provide earlier information and allow you to react earlier to changes.
Processes
Customer Service depends on the correct execution of Internal Processes, both Operational and Strategic.
The Operating Processes generate short-term value. For example: process of production of goods and services.
The Processes Strategic generate long - term value. For example: development of new products.
If the processes malfunction, sooner or later you will suffer Customer Service and then value creation (financial result).
Means
For Internal Processes to work well, you need physical resources and trained people.
If the company invests so much in the selection, development and training of its personnel, and in the acquisition of goods, the internal processes will stand out above the competition, and by logical consequence will make it possible to highlight customer service, which will translate into value creation.
Strategic Alignment and Planning.
The concepts of Planning and Management Control are accompanied, since Planning allows knowing where you want to be (strategy), and from where you are and how the relevant variables are expected to evolve, what actions will allow you to achieve that future state.
The circuit closes its feedback with Management Control (what is the degree of compliance with what has been planned over time).
It should be borne in mind that Management Control is effective only when appropriate, that is, that decisions can be made that modify what is happening when there is still time.
The Vision (long-term goal to be achieved) is the driving force behind the Strategy (long-term action plan).
There must be a fair balance between the Outcome Indicators (Financial and customer perspectives) and the Outcome Inductors (Perspectives of internal processes and learning and growth).
- Cause - Effect Relationship, Learning and Growth
Employee Satisfaction Incentive Plans
In the area of Learning: Growth, the company could initially establish a series of Incentive Plans as an Objective, so that employees are more satisfied with their work and are more efficient.
Internal processes
Quality of Service: In this way the Quality of Service would be increased, being this a key objective of the Internal Processes area.
Client
Customer satisfaction
Loyalty: All this leads to greater customer satisfaction, which usually leads to customer loyalty, this being a very careful aspect in the Customer area.
Financial:
Profitability Growth: Finally, greater sales are generated, which increases profits, influencing the growth strategy of the company, which leads to higher profitability and significant value creation, a significant aspect of the Financial area.
Strategic map.
The Strategic Map is the basic element of the Balanced Scorecard and its configuration requires a good analysis by the Management of the objectives that are to be achieved and that are in tune with the strategy to be implemented.
The relationships established are between objectives, not between indicators.
Learning and growth
This is the perspective that supports the others.
Continuous Improvement Programs, through innovation and improvement, are the key.
So is the organizational infrastructure that requires:
- Adequately use the technological means available to the organization. Maintain an optimal organizational climate. Implement training programs for staff in order to request their functions and tasks. Strong HR management according to needs.
All this contributes to giving quality in terms of efficiency and effectiveness to the company's processes, fully entering the concept of the value chain.
The performance of the staff is reinforced by motivating agents who stimulate their interests towards the Company.
In this perspective, the following are measured:
- The capabilities of employees. The capabilities of information systems. The organizational climate to measure the motivation and initiatives of staff.
Internal processes
Value chain management: with a good methodology we can eliminate activities and / or processes that do not contribute to said chain, analyzing the production process in detail and applying ABC / ABM (Activity Based Costing / Activity Based Management), a method for precise calculation of costs of an organization and its way of operating.
Doing the right thing leads to increased quality and productivity.
Client
Generate Value for Clients: on the Client side, with a good company image, excellent prices and quality, good post-sales service and an extraordinary relationship, make them variables that derive from excellence in processes and activities of the company, which generates significant loyalty.
The Client's perspective reflects the positioning of the company in the market or, more specifically, in the market segments where it wants to compete.
Financial
Generating value for shareholders: Its primary objective is to increase Profitability that can be obtained by growing the business or reducing costs.
The Financial perspective, Incorporates the vision of the shareholders and measures the creation of value of the Company.
Number of Indicators.
They must be at most 7 per perspective.
Measurable and objective.
Objective indicators are less susceptible to bias due to organizational political considerations.
They must respect the Business Model.
We should not be tempted to choose available indicators even if they do not respect the Business Model. An effort must be made to design indicators that reflect the Model. It may happen that well-formulated strategies fail due to lack of information.
Indicators - Goals.
Each indicator must have associated values that represent the Goals to be met. In this way we can establish the degree of compliance with them using the Traffic Light technique, so that with a quick glance, we can know the situation of the company.
Red = Minimum
Yellow = Satisfactory or Alarm System
Green = Outstanding
Balanced Scorecard: How it should be used.
Traditional Control System.
If the Management Team is sure of the Company's Vision, Strategy, Business model and the role of each person in the Organization.
Learning Tool.
In growing companies or in uncertain and changing environments where strategy is evolving, knowledge is dispersed and Management wants to stimulate new ways of doing business and take advantage of people's creativity without losing the reins of the organization.
Information system.
Finally, a fundamental aspect that must be taken into account is that the information that feeds the Command Board must be Reliable. If the information source (Database) is not carried out correctly, the scheme will not work, since over unreliable numbers it is highly unlikely that management will be effectively controlled.
Internal Systems Audit is a key area to monitor the reliability of the information.
Bibliography
New control tools: The Balanced Scorecard. Antonio Davila
Entrepreneurial Development Manual. Daniel V. Figueirido and Fernando L. Desanto.
Different articles from the Command Board Club, Director, Prof. Mario Héctor Vogel.
