Balanced scorecards are a performance measurement system that helps organizations track their progress in achieving goals.
It looks at a company performance from four different perspectives:
1. Finances
2. Customers
3. Internal process
4. Human Resource
These are the four I use to track every month. But you decide which areas to track.
The idea behind the balanced scorecard is that a company's financial performance is just one aspect of its overall performance and that it is also essential to consider other factors such as customer satisfaction, internal processes, and the development of its employees.
How can we track and evaluate the different areas? We can use KPIs (Key Performance Indicators).
Example of a Customer KPI using the SMART model:
"Increase market share in the XYZ industry by 2% within the next month through the launch of targeted marketing campaigns." This goal is specific (increase market share by 2%), measurable (2% increase), attainable (realistic), relevant (we need to grow), and time-bound (within the next month).
Another example of an Employee KPI using the SMART model:
"Improve employee retention rates by 10% within the next month. This goal is specific (improve employee retention), measurable (10% improvement), attainable (realistic), relevant (we need to retain great employees), and time-bound (within the next month).
In these examples, the goals are checked every month, but you could also do it quarterly or yearly. You decide.
A lot of books and articles have been written about Balanced Scorecards, but basically, it is just a goal-setting system. I use it monthly - checking on 4 KPIs. It gives me a fast and solid monthly impression of what's happening. And I can take action if necessary.
Some will say this tool is only for huge companies, but that is not the case. I run a small consultancy and decided to measure these KPIs:
*Profit margin (finances)
*Customer retention (Customers),
*Monthly security audit (Production)
*Employee satisfaction (Human resource).
In each case, I looked at initiatives on how to help reach the goals. For this purpose, I have different programs; like a Customer retention program, which provides my subscription customers with a set of free benefits.
Some goals are easy to measure, like a profit margin. Others can be somewhat difficult to measure; employee satisfaction is an example. Now here I use a mail survey - asking for feedback (rate 1 to 4 stars, which is very measurable) - and a very direct “what can we improve”.
I use Balanced Scorecards not only as a goal-setting system but also as a way to measure performance. In my world, it is two different approaches, which I try to combine. An example is a measurement of profit margin, which I do. It can vary from month to month, but my minimum target is 10%. If I don't reach the target then it is not necessarily a mistake, but I will look into why.
Some warnings: Don’t have 50 goals / KPIs. I recommend max. two in each area. Also, they must be realistic. The goals must be attainable - not dreams. I have made both mistakes, and it did not work.
By looking at these different aspects of the business, the balanced scorecard provides a view of your organization's performance and helps to ensure that all areas of the business are aligned with the overall strategic goals.
I highly recommend you use Balanced Scorecards, but also that you find your own way in dealing with goal setting and measurements. Good luck.