Jacob Tunnel vision is a problem many businesses face. They will struggle to align their long-term vision with daily tasks, especially at the startup level. This leads to wasted time, energy, and money on processes that do not help a business prosper.
The opposite problem is also true. Some businesses focus so much on day-to-day activities that they miss out on the big picture. As a result, they aspire for benchmarks that are unrealistic, eventually losing drive and productivity. Or they end up in the reverse situation, with a business that grows stale in its services, lacking creativity, while stifling its employees with unnecessary tasks.
Here’s How Scorecards Change That
Scorecards align short-term processes with long-term goals. They design healthy metrics of what counts towards good performance. Eventually, this helps business management design tasks that are relevant and actionable on a daily basis.
To that end, scoreboards measure 4 perspectives in an organization. They are:
- Learning and Growth
- Internal Business Processes
- Customer
- Financial
We’ll discuss each, before putting them together into a strategic plan!
What Do The Four Perspectives Represent?
Learning and growth look at the company’s culture. It specifically looks at employee access to knowledge, and their ability to share information without bureaucratic obstacles. It also looks at how informed employees are regarding their industry, their company, and job roles. Employees should also be aware of new market technology, and how it allows them to do their jobs better.
Internal business processes look at efficiency. The focus is on fast execution without sacrificing quality. Reduction of waste is also important, plus learning to provide value with fewer resources.
Customer perspective looks at the market. It looks at the satisfaction and retention rates of old customers. It also looks at conversion rates, and how effective a business is at getting new customers.
The Financial perspective looks at the bottom-line. While the previous factors focus on employees and customers, this factor looks at shareholder satisfaction, and comfortable margin levels.
Many businesses might be tempted to put each perspective in a separate category. But you’ve got to understand that perspectives affect each other in a cyclic manner. If one perspective is taken care of, the rest automatically show signs of improvement.
For example, the learning and growth perspective affects internal processes, since informed employees are more efficient, work faster, and produce better results. Internal processes also affect customers since that sense of efficiency shows itself in customer service. With customers being affected positively, the company’s financials improve, which gives a company more funds to train and educate their employees.
Next Step – Define Your Objectives
You need a goal for each of the four perspectives. Those goals need to be concrete, which allows you to build measurements around them. At the same time, they shouldn’t be too detailed to the point of making the organization inadaptable in the long run.
The process of defining objectives can be done through the following checklist:
- Start with a verb. Verbs such as Increase/Reduce, Maximize/Minimize define the trajectory of the organization, without setting numerical quotas in stone.
- Don’t define a time limit. A goal such as “increase profits by 15% this quarter” is not a strategic goal. That is, your goal shouldn’t focus on one-time benchmarks. Instead, a phrase like “increase profits” sounds a bit more strategic.
- Actionable. Make sure you pick goals that you can act upon, not ones that are out of your control.
- Measurable. Avoid strategic goals that you can’t quantify. For example, a goal such as“improve brand image” is hard to measure. But a goal such as “improve customer retention rates” is both actionable and measurable.
Apply the previous checklist to each perspective. As a tip, we recommend starting with financial goals, since that’s the base of your business activities. From there, define your customer goals, or what customers want to see in your organization. This’ll help you set goals for your internal processes, which in turn will help you define what needs improvement on the learning and growth level.
As you can see, the previous perspectives do flow together in a cause-and-effect chain. And to make them even more comprehensible, you can organize those goals in a hierarchical representation. You can have financial goals at the top of the table, branching out to customer goals, and so on.
What Happens Next?
Once you put together each goal in a hierarchical table, you should have what’s called a strategy map.
Strategy maps are the essence of balanced scorecards. They’re a strategic reference point for each individual in your business. In fact, they’re akin to a simplified mission statement, except that you can build measurements out of them.
That’ll be the next step. Your business needs to quantify each perspective, building the day-to-day routines of employees from there.
When picking what to measure, we recommend sticking to the following guidelines:
- Stick to one or two measurements. Multiple measurements can cause confusion when evaluating a strategic goal. So, with limited measures to track, it’s easier to gather data per measure, which means better accuracy.
- Pick measures relevant to each goal. For example, if the strategic goal is to “increase customer retention rates,” then you could measure something like “number of return customers per quarter.”
But is the Scorecard Method Tried and True?
Absolutely, most major corporations use them. In fact, by the 2000s, it was estimated that 50% of US corporations used balanced scorecards approaches. The method is also popular in Asia, and Europe, where at least 25% of businesses rely on them.
Even international companies use them, and in a variety of industries. In the banking sector, Wells Fargo and Citibank are known to rely on them. In the automotive world, companies such as Volkswagen and Ford use that approach.
Time to Put Your Scorecard into Practice
We predict that within a few years every business will rely on scorecards. It’ll be a standard method of keeping long-term visions and short-term goals aligned. Expect their use to be worldwide, and even a norm for your competitors. After all, it’s efficient, effective, and it’ll save you money and time spent on unnecessary meetings and processes that don’t align with your business goals!
