In today’s business world, it can often seem as if the employees simply do not understand the overall company vision. This is where the balanced scorecard comes into play. The balanced scorecard is a business management tool that incorporates strategic business goals into performance measures that provide rewards for management teams that are successful in meeting the set performance measures.
Benefits of Balanced Scorecards
Strategic business goals are generally viewed from the financial perspective. However, these numbers do not provide the entire picture of the innovations and quality measures that lead to those financial outcomes. The balanced scorecard allows the company executives to better understand the success of departmental managers in meeting both non-financial and financial measures, while also helping managers and employees better understand the functions that lead to business success.
Perspectives Used in Balanced Scorecards
There are four essential perspectives that go into the balanced scorecard, allowing managers to focus on the most important key measures, rather than trying to focus on a wide range of cost and accounting measures. These perspectives are not based in financial outcomes, but are drivers that lead to the success of the actual financial outcomes. The balanced scorecard perspectives require the answers to four questions, which are:
- Financial – How does the organization looks to the shareholders?
- Customers – How do the customers view the organization?
- Internal Business Process – In what area does the organization most excel?
- Innovation and Learning – Can the organization continue to improve to successfully add value?
The answers to each of these questions allow managers to help their employees gain a better understanding of how their actions influence the strategic goals of the company. Using these goals to determine more efficient business management practices allows managers to correlate the employee level actions with the strategic goals and vision of the organization.
Another important aspect of the balanced scorecard in business management is the incentives. These rewards are provided for managers that meet or exceed the performance measures of the balanced scorecard, providing a greater incentive for them to ensure that the performance of their employees allows the organization to meet their strategic goals. Together, the performance measures, coupled with the incentives, provide management with the tools they need to improve business management practices. In return, these improvements allow the organization to reach their overall goals and vision, creating better financial outcomes.