Definition: A balanced scorecard is metric that measures a business’ performance and is used to implement an organizational mission or strategy. In other words, it’s a system that analyzes how internal functions of a company influence or affect the overall performance of the company. By evaluating internal processes and measuring their results, management can change its strategy to accomplish its goals.
What Does Balanced Scorecard Mean?
This is a well-rounded system that does not simply focus on profitability. The whole basis of the scorecard is to give management a tool to measure how well employees, departments, and the entire company perform. Simply looking at the bottom line of the income statement won’t tell you what operations are efficient and what areas need to be improved. Likewise, it won’t tell you how satisfied customers are and how likely they are to return.
That’s why the scorecard focuses on four key areas of business that are crucial for success: financial, customer, internal business processes, and learning and growth.
Example
The financial section focuses on the finances of the company and whether the company is on track to reach its revenue and profitability goals for the period.
The customer section tracks customer interaction by looking at how customer inquiries and complaints are treated.
The internal business processes section focuses on operations inside that company and ways to improve them. For example, it might look at how quickly products are being manufactured and if orders are being delivered to customers timely.
Finally, the learning and growth section looks how employees are trained and if they are learning and growing in their positions and within the company.
Each one of these sections can be useful on its own, but the true power of the balanced scorecard combines each of these metrics to focus on improving the company. For example, as employees learn more and grow inside the company, they will be able to produce more efficiently and productively. This in turn results in better customer satisfaction because customers get their orders on time. With more regular customers, the business’ revenue will continue to grow.
The purpose of the balanced scorecard is to create metrics that can measure the results of multiple combined processes to meet the financial goals of the company. In other words, continual improvement.
