What is a Balanced Scorecard (BSC)? How to apply BSC to benefit businesses?
Base Resources– Surely you’ve heard of BSC (Balanced scorecard) – a management tool used by many businesses of different types. In fact, BSC has many remarkable achievements as follows:
Proven and voted one of the most influential business ideas ever presented in the Harvard Business Review
Adopted by more than 50% of large US companies (According to Gartner Group) and more than 60% of Fortune 500 companies (According to Bain & Co Research)
Rated at extremely high and very high efficiency by 73% of businesses (According to 2GC’s global survey)
This article will help you get the right understanding of this model before you want to implement or implement any plans around the BSC.
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What is a Balanced Scorecard (BSC)?
Balanced scorecard in Vietnamese means roughly “balanced scorecard”. This is a strategic management model at the most basic level, orienting businesses throughout the process of setting up, implementing, monitoring and measuring the results of the set strategy. In addition to financial factors, BSC focuses on three other non-financial measures that affect business performance: customers, internal processes, and learning & development.
The “balanced” meaning of the model is reflected in the balance between short-term and long-term goals, financial and non-financial factors, input and output indicators of results, activities that are socially directed and those that are carried out internally.
Balanced scorecard (BSC) model structure
The Balanced Scorecard (BSC) model includes four factors that are considered four measures of business performance. They are arranged in a certain order and influence each other from bottom to top according to a predetermined plan.
A schematic sample of the BSC (Balanced scorecard) model
Specifically:
1. Financial measure
Financial measures include factors such as fixed costs, depreciation expenses, return on investment, profit earned, revenue growth rate, etc. Not all factors are easy to measure right after. when performed, but they are late confirmation of the operation’s effectiveness.
In the past, businesses used a single metric to evaluate performance, which was the amount of money earned. This large number means that the business is doing well, and a difficult financial situation means the risk of business collapse.
But in the era of modernization, finance is no longer the only metric you need to consider. They represent only one piece of the whole picture. This means that businesses can earn a lot of money but still have great risks of bankruptcy. Therefore, you need to pay attention to the remaining 3 measures of BSC for easy long-term orientation.
2. Customer metrics
Customer satisfaction is an indicator of business success, because it directly affects current and future revenue. This measure aims to answer the question: How are customers seeing the business? From there, it will be easier for you to set goals and implementation plans that focus on customer satisfaction.
To get the most accurate assessment of the customer’s point of view, you can base it on the following questions: Is that really your target customer? Are they interested in your product/service? What is their % feedback after using the product/service? In which, how many % are positive and negative? How do they compare you to your competitors?
3. Measure the internal operation process
Obviously, no business can boast of its achievements without actions to prove it. Assessing how well a business is doing is like self-assessment and self-criticism.
Signs of a smooth running business are gathered from many small indicators such as the growth rate of scale, the percentage of employees who are engaged, the percentage of time to process tasks is shortened, etc. It is necessary to review the internal processes of the company to classify what is doing well and what is not. Then make the task of fixing internal operational gaps a strategic business goal.
4. Measures of learning & development
Paying attention to the quality of human resources and working support tools is a decisive factor to the foundation of business development. The special thing is that there is no exact number and the highest limit for this measure, but all criteria can be improved in parallel with the continuous progress of science and technology.
Consider tools, actions and policies related to the capacity and productivity of employees in your business. You will get a satisfactory answer to the question: How can businesses improve productivity and create value?
If learning & development metrics return good results, you are strong in employee training and know how to apply effective work tools. Such businesses will have a competitive advantage in the market, be more adaptable to changes and more up-to-date with new things, especially with current 4.0 software.
5. The relationship between the measures in the BSC (Balanced scorecard) model
In the early days of the BSC model being built, the 4 health measures mentioned above were independent of each other and the business had the choice to implement or ignore some of them. However, reality has proven that they are both important and have a very close influence on each other.
Based on the model, the process of completing the measures in the BSC (Balanced scorecard) is done from bottom to top, meaning that each component of the model is built by one or more previous models.
If you focus on employee training and build a modern information sharing culture (Learning & Development Metric), your business will run more smoothly and productively (Operational Process Metric). internal). Thanks to the sustainability in that internal platform, the business will be able to create value and take better care of customers (Customer Criteria). When customers feel satisfied, they will definitely support your product / service; As a result, the company earns high revenue and profit.
In addition, each target element in a measure can also have a cause-and-effect relationship with each other. Example: In financial metrics, reducing costs and increasing revenue both lead to the same goal of maximizing profits.
4 biggest benefits of BSC (Balanced scorecard) model for businesses
BSC helps in better strategic planning
The Balanced Scorecard provides a framework that shows the cause-and-effect relationships between the target elements, meaning that they agree on a certain core strategy. The results of implementing these goal elements are the pieces of the puzzle to create a complete picture of your business’s strategy.
BSC helps improve business communication
Once you have a complete strategic picture – all strategies are “drawn” on one side of the paper, it will be easier for you to implement a business communication plan, including both external and internal communications. set. The BSC model not only helps your partners and employees better understand the strategic content, but also has an impression and easy to remember each advantage, disadvantage, … of the measures you are taking.
BSC helps closely link different projects in the enterprise
Once the framework is the BSC model, every small project plan has a foundation and a strategic basis for easy construction. This way, you can ensure that the whole business is moving in the same direction without any wasted projects.
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BSC helps improve reporting performance
The BSC can be used to outline the overview report. This makes reporting faster and cleaner, with content clearly focused on the most important strategic issues.
How to apply BSC (Balanced scorecard) to benefit businesses?
According to the 2016 survey results of 2GC Active Management based on users of BSC (Balanced scorecard), of which more than 75% are executive or senior management teams, BSC’s main role is to execute strategy. . Only a small number of respondents use it to manage business operations, and about 25% of them use BSC for reporting purposes only.
However, in reality, BSC is a methodology that brings a lot of benefits if you know how to apply it properly in your business.
First try to control the data in your BSC model
If you’re trying to measure everything but not from a strategic perspective, you’re wasting time and effort on a mess. So, if your business is overwhelmed with the amount of data that needs to be included in the BSC, start by defining your strategy and putting it on a piece of paper. That’s the context that makes it easy to think about how to put business data into the BSC model.
You can refer to the process of putting data into context as below:
Limit the number of target factors in the BSC model. This number should range from 10-15 goals for a total of 4 measures, because more than that and you risk losing focus on the core strategic system.
Prepare questions about each objective element before each meeting. Emphasize the state of measurable numbers.
Compile a document of all objective elements along with the above questions and send it to employees 1-2 days before the meeting and ask them to study it thoroughly.
Make decisions in strategy review meetings. Record these decisions and seriously remind everyone to take responsibility for it.
Next, measure and evaluate target elements in your BSC model
You can designate a system of symbols or colors to mark different target elements. Take a look at the report from the main responsible person and decide which target element falls under which category. Eg:
Red: The target element needs additional resources or outside help to get things back on track.
Yellow: The target element is almost on the right track or has a bit of an obstacle that can be handled on its own.
Green: The target element has everything going in the right direction.
Note that this assessment needs to be as objective as possible to avoid cases of mislabeling leading to incorrect corrections, lowering the target to ensure performance, or intentionally concealing one’s own shortcomings. Make the most of transparently measured numbers and form a review board if necessary.
Time to assign KPIs to target elements
If the Balanced Scorecard (BSC) model is a strategic management tool based on measurement and evaluation results, then KPI (Key Performance Indicator) is a performance management tool for you to assign responsibilities to employees and employees. assess whether they have followed that strategy correctly. A good administrator will choose to use these two tools simultaneously.
Corresponding to the target factors, set the corresponding KPIs. The closer the KPI to the actual situation that you have measured and evaluated above, the more effective it will be.
Based on periodic KPI evaluation, you will determine the gap between the actual performance of the business and the set goals, thereby making a plan to improve and make reasonable adjustments.
Finally, connect the target elements
Use 1-way arrows to show relationships between target elements. You have more flexibility to connect two goals on the same metric, pool two goals together as the cause of another, one lead to two other goals, and so on, as long as neither goal stands. individually alone.
So you’ve got your own Balanced scorecard model, each of which is closely tied to the reality you’re managing. Following BSC’s strategy is the shortest and surest route to business success.
Conclusion
The Balanced Scorecard (BSC) model is an extremely powerful management tool to improve the current situation of the business and orient it towards important and feasible goals. The metrics have a cause-and-effect relationship with each other and are both a necessary source of energy to maintain and further improve the health of the business.
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