Imagine driving a car and just looking in the rear-view mirror. This is the way most companies are run in Switzerland. The measurement is based on financial ratios, which only allow a retrospective presentation of the company's success. However, these figures only show where the company stands, but not where it should develop in the future. Based on this situation, the Americans Robert Kaplan and David Norton developed a management system in the 1990s that tries to keep up with the pace of today's fast-moving business world: The Balanced Scorecard.
The Balanced Scorecard (BSC) was created to provide management with the information they need to make better informed business decisions. As part of an integrated management system, the BSC is not only limited to the financial perspective, but also includes those aspects that drive business results. The focus is on the long-term interests of the company. The dimensions of the BSC include the customer perspective, the financial perspective, the learning and development perspective as well as the business process perspective.
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Source: The Kaplan/Norton Balanced Scorecard
Before the perspectives are discussed in detail, goals, strategies and measures for their implementation must be defined. The principle here is that a company's vision and strategy should have an equal impact on all four areas. The four perspectives must therefore be regularly analysed and adjusted with regard to the achievement of objectives. In this process, the balance between perspectives plays the decisive role. If this equilibrium is out of balance, then it is - to stay with the picture from the beginning - like driving a car on three wheels.
To the four perspectives:
The financial perspective is to a certain extent superior to the other perspectives, because the overall strategic goal of a company is always to increase value. The financial perspective pursues the need for financial resources and services. Therefore, the BSC must be structured in such a way that all relationships in it always lead to financial figures. Every manager - regardless of his or her specific position - must know and understand the key figures for his or her area of responsibility.
Example: Determining the office-specific hourly rate per employee.
The customer perspective refers to the market segments covered by a company and measures the satisfaction and requirements of the customers there, both with regard to the company and its services. As soon as the rules and procedures of the customer perspective are deposited in the BSC, the focus can be directed to the desired results. It is important that the employees adhere to the agreed rules and procedures.
Example: Measurement of customer satisfaction and needs based on a survey.
The internal business process perspective measures and controls the requirements and performance of business-critical, customer-oriented processes. To track processes, effective metrics must be introduced to measure the most important areas - time and quality. When creating process indicators, it makes sense to involve employees; they document and track the respective processes.
Example: The measurement and evaluation of a completed project with the aim of optimizing processes.
The learning and development perspective measures the results of the company with regard to its future competence. This perspective focuses on the training and further education of employees, on their motivation and on the corporate climate. This creates the basis for continuity and competitiveness.
Example: Increasing employee motivation through continuous further training.
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Practical experience shows that the development of suitable indicators for recording the above-mentioned perspectives - for example for assessing the corporate climate - is still in its infancy. In very subjective areas, the human factors that are difficult to grasp often make the definition of key figures even more demanding. Since company management focuses primarily on sales, learning and development perspectives are often neglected due to a lack of time and leadership skills. It goes without saying that BSC's balance can quickly lose its equilibrium.
From a methodological point of view, the four perspectives of BSC form the heart of a company's management system; they combine the strategy with the necessary success factors via key figures. Due to the individual character of each company, a specific BSC must be developed for each company, which is able to cover the respective requirements in a timely and targeted manner. In order to guarantee the acceptance and suitability of the BSC in the company and to ensure that it is not only set aside after a relatively short time in the sense of another theoretical instrument, it must become an elementary component of the everyday work of every manager and every employee. Companies increase external attention and internal engagement by providing incentives to achieve employee, business unit and corporate goals.
Due to the great complexity of the BSC and the need to anchor it at every level of the company, the following problems often arise:
- Incorrect data is identified that is not related to customer needs.
- Data measurement is not carried out frequently enough to provide timely information
- Employees are not involved in measuring processes and performance
- The sub-processes are weighted too heavily, so that the entire organization is neglected. Often process changes, which are supposed to improve performance, have a negative influence on the overall performance of a company.
Source: The Kaplan/Norton Balanced Scorecard
It is the management's task to develop the strategy of the four BSC perspectives. Management must be aware of the fact that the strategy influences the BSC. Development is not a one-off activity, but rather a dynamic process that becomes an integral part of the decision-making processes of management. Management can take the following measures to define the strategy:
• Development of the mission statement and the fundamental values of the company
• Development of long-term goals and strategies based on strategic analysis and planning
• Development of a strategic map, operational and tactical plans, targets and target analyses. The development is carried out by the middle management, with the support of the directly subordinated employees.
• Strategies, plans and tactics must be adapted where necessary for success.
In the current dynamic business environment, the BSC is an extremely controversial topic and is particularly concerned with controlling. The application of this system is very hesitant and reluctant among SMEs, possibly because the introduction is time-consuming and its benefits have not yet been recognized.
In any case, it is clear that the BSC is a modern and extremely valuable tool for companies to improve their strategic decisions and to ensure the long-term success of a company. It takes into account not only financial figures and facts, but also so-called "soft factors" and is therefore broadly based and from a holistic perspective.
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