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The Balanced Business Scorecard and Why it Needs an Update

A new year brings an opportunity to reflect on the successes of the previous year and determine new goals for the next 12 months.
I think one of the most useful tools for doing this is the Balanced Business Scorecard, a strategy management tool developed by Drs Robert Kaplan and David Norton. The Balanced Business Scorecard, which has been around for decades now, challenges the idea that organisational success should be measured solely by financial measures and suggests a framework of four key areas around which an organisation’s strategy should be developed. 
These four areas are: 
  • Financial.
  • Customer.
  • Internal Processes.
  • Learning and Growth (Sometimes called Organisational Development).
The theory is simple. Even if the financial benefits are not immediate, improvements in any area should benefit and add value to the organisation. Taking an approach that gives equal status to all four quadrants helps ensure continuous long-term success and avoid short-termism.
An investment in learning and growth, for example, might increase costs in the short term, but longer term it is likely to benefit retention (reducing costs), and increase skills.
That increase in skills could result in innovative improvements to internal processes, that again have financial benefits. Perhaps those processes result in cost savings, or new business opportunities.
And what about the customer? Again, focusing on them and the service you provide might not bring instant financial benefits but I’m sure we all recognise that great service increases loyalty and customer retention, improves brand reputation, reduces the costs of sales, and reduces the costs of managing complaints.

Not only does the Balanced Business Scorecard ensure a richer, forward thinking strategy, it’s also a powerful tool for engaging teams, a fact we explore in our activity The Card Factory.  After all, which of these would you prefer to work for:

  1. An organisation focused, not just on financial success but on providing fantastic service, continuous improvement, and employee development?
  2. An organisation focused solely on getting more sales and/or cutting costs?
For at least the last 18 years our company strategy has been built on our own version of the Balanced Business Scorecard, developed when, like many organisations, we realised we had more values and principles than we could easily remember and whittled nine values down to five ‘passions’.
Although it happened by accident, it’s easy to see from the image on the left, the link between four of our passions and the quadrants in Kaplan and Norton’s scorecard.
But our fifth passion is missing from the standard Balanced Business Scorecard. And I don’t think it should be.

Our fifth passion is about our impact on the wider world. It’s about caring for the environment, our duty to the communities we live and work in and our legacy. You might call it ‘Planet’, ‘Green’ or ‘Doing the Right Thing’. We call it being Socially Responsible. 
The name isn’t important. What is, I think, is that we are all aware of the impact we have on the wider world and the impact that in turn can have on us. 
This isn’t just a “nice to have”; it makes good business sense. Because, again, improvements here will impact the other sectors (and visa versa). For example, customers are increasingly choosing to work with ethical organisations, or at least those that avoid the worst behaviours like slave labour. And employees are far more likely to be motivated and engaged when working for a company that is trying to do good, than one that isn’t. So, having social responsibility at the core of the business could help to attract and retain the best employees and, for customers, set you apart from the competition.

I love the Balanced Business Scorecard – it’s a simple and powerful business management tool. But at a time when we’re faced with a climate emergency and are aware of the injustices in the world, isn’t it time a fifth quadrant was added that reflects our wider responsibility beyond customers and staff. One that acknowledges and focuses on the impact our organisation has on the communities we live and work in, and the world beyond?
What do you think?

January 10 2024Rod Webb

Rod Webb

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