Why It is Important to have Balance Score Card tool in the organisation?
BSC takes an organization’s strategy, separates it into quantifiable goals and then measures whether the goals are being achieved. It gives not only birds eye view but also provide insights at micro level
Since 1990s, BSC is in practice as a successful tool for keeping a grip on implementation of Strategy. Apparently as per Harvard Business Review, this model has been first published by Robert S Kaplan & David Norton in 1992.
Why it is called Balanced, because mainly it ensures the balance between different functions in the organisation.
As a result, Balance Score Card takes into account the following areas:
- The Financial Perspective
- The Customer Perspective
- The Business Process Perspective
- The Learning & Growth Perspective
- The Financial Perspective:
How do we provide financial information to the shareholders or stakeholders?
The financial information of the company is very critical as it is very important for the shareholders and management to know where the company is heading up to.How it is performing it needs to be provided through the financial data or information including return on investments, working capital, cashflow position, debt-equity ratios etc.
It informed us what has happened to the organisation but may not be in a position to clarify what is happening in the company currently. Your past performance may not guarantee future results.
- The Customers Perspective:
How do we look after customers?
The customers satisfaction is very important in business growth and success. As a result, it is vital to measure customers performance. Measurement here include customer satisfaction, customer retention rates, response rate and retention.
KPIS for customer service dept is also prepared to look after BSC.
- The Business Process Perspective:
How effective and strong we are internally?
This is inward looking and deep dive approach to analyse internally. This measurement includes to review important processes internally including excellence, quality, time, product launch and inventory management etc.
We need to know what we must excel at.
- The Learning & Growth Perspective:
How We transform, Improve and Grow?
The answer to this question lies in the fact that we need to invest in the development of organisation’s people through training and development. We need to invest in Research and development for the product and people for sustainable growth.
The link between measurement and strategy comes in the choice of what gets measured.
BSC does not stop at measurement. The point of measurement is to allow managers to see the organisation more clearly and to manage operations more effectively and to take the better decision with more clarity.
In today’s competitive world this BSC is being used widely in large organisations to have a timely accurate measurable information to take the decision on time with full confidence.
Izhar Khan – Author is the FCA- CA ANZ, Business Consultant based In Melbourne Australia associated with Business Consultancy Firm having more than 20 years’ experience including Blue Chip MNCs like 3M and Stanley Black & Decker internationally.
Disclaimer: The contents of this article is for information only and is not offered as advice. Readers are encouraged to consult a suitably qualified professional adviser to obtain advice tailored to their specific requirements.