How to Build the Balanced Scorecard
Let’s examine the ways in which this important management “dashboard” can be created
What is the Balanced Scorecard
The Balanced Scorecard (BSC), also called “Balanced Evaluation Card”, is a Management Tool conceived in the 90s of the last century by Robert Kaplan and David Norton, which allows you to analyze the Company’s performance not only from the point of view “Financial”, but also from other “perspectives” such as Internal Business Processes (eg: Production, Sales, etc.), Learning and Growth and Customers.
How the Balanced Scorecard is constructed
The creation of the Balanced Scorecard revolves around the concepts of “Vision” (the Company Idea that the Entrepreneur has in his mind and which he will have to become in the future) and “Strategy” (Strategic Planning which contains within it the Medium-Long Term which must be precisely identified by Top Management). Once these two important concepts (“Vision” and “Strategy“) have been clearly explained, it is necessary to identify an implementation timeline and a series of Indicators, designed to measure the performance of 4 Perspectives:
- Financial: which puts in relation the Company Results with the profit expectations of the Top Management or the Property. Examples of indicators of this type can be: Turnover, R.O.I. (Return on Investment), R.O.E. (Return on Equity), R.O.S. (Return on Sales), Revenues per Employee …
- Internal Business Processes: aimed at identifying the Critical Success Factors (F.C.S.) and the Improvement Actions to be activated. In this regard, it may be useful to measure the Level of Efficiency of the Services.
- Learning and Growth: linked to the Learning-Training of Internal Staff and Process Innovation and therefore to the Number of Training Hours or Research & Development Expenses.
- Customers: the need to direct the Business Activity to the Satisfaction of Customer Needs, analyzing the Market Share and Growth Rate or the % of Customer Satisfaction or Customer Loyalty.
The areas of application of the Balanced Scorecard
With the entry into force of the “New Corporate Crisis Code” (Legislative Decree n° 14/2019), the usefulness of the Balanced Scorecard has increased to avoid the onset of an economic-financial imbalance that makes it difficult to part of companies (and especially SMEs), to comply with their debts and compromise business continuity.
In fact, adopting this Tool (BSC) would allow Top Management to prevent situations of uncertainty and to focus better on the Long-Term Strategy, knowing how to better interpret the signals of their Company.