How the Balanced Scorecard can help Small Businesses.
In order to survive today’s competitive business environment, it is important that small businesses have a clearly defined strategy and are able to measure their performances effectively. Measuring business performance is not only dependent on financial statements but involves a lot more. A very useful strategic planning and performance management technique which can be used is the Balanced Scorecard. Developed by Robert Kaplan and David Norton, its aim is to provide feedback on how successful a business strategy is performing. The main characteristic of balanced scorecard is that it uses both financial and non-financial measures in order to establish a complete view of the business' performance. It is also very useful in identifying, improving, and controlling the outcomes of the various functions within the business. Research has shown that the Balanced Scorecard has been successfully implemented within many large organisations globally. However, despite its effectiveness, only 20% of small businesses in the U.K were aware of it, let alone use it.
Balanced Scorecard Simplified for Small Businesses
This technique focuses on four perspectives: Financial, Customers, Internal Business Processes and Learning and Growth. In order to obtain the best results from this technique, it is best to frame these perspectives as questions which focus on what the business is trying to measure.
1. Financial - How is our financial health? Are we reaching our sales targets? How can we improve our bottom line?
2. Customers - How do customers see us? Do we meet their expectations? Are we winning new business? Are we keeping our existing customers happy?
3. Internal Business Processes – How efficient are our processes? Which processes have the greatest impact on our customers and our bottom line? What do we need to do to succeed?
4. Learning and Growth - How can we use learning to improve in the above three areas? How can we leverage learning to grow, create value, and improve? Is it easy for employees to collaborate and share knowledge? Does everyone have access to training and continuing education opportunities? Are we aware of the latest industry trends?
Once these perspectives are considered and strategic objectives are set, measurable targets can be determined and presented in a simple form as in the example (Fig.1) below.
Fig 1. Example of the Four Perspectives of the Balanced Scorecard
The selection of these performance measures is determined by answering the following fundamental questions about each of the four perspectives within the model (Fig.2), which are in line with the business overall vision.
Fig 2. Aligning the four perspectives to Vision
How this Approach benefits Small Businesses:
The balanced scorecard integrates the four key aspects of business, thus enabling you and your team to gain a clear understanding of how each business aspect supports the other and most importantly your vision. This in turn promotes better alignment of day-to-day tasks, processes, projects and initiatives with strategy. The balanced scorecard also allows you to break down the business into manageable chunks in order to see where you are doing well and where you might need to focus your energy and resources. Strategic goals become more transparent and are shared and understood by everyone, making it easier to prioritise projects and tasks as well as to measure and monitor progress towards strategic targets. Overall, it creates focus and better strategic planning by encouraging you and your team to work collaboratively to figure out how you can achieve success.
About Janice George-Pinard
Janice is a Certified Business Coach whose extensive professional experience in various aspects of business has set her on a mission to help business leaders turn their Vision into Reality. She works with them to develop and implement strategies, best-practice systems and take action steps that will help move their business forward. In addition to Business Coaching, she is an Entrepreneur, Certified Life Coach, Trainer, Wife and Mum. She also works with Christian business owners who desire to run their business based on Biblical Principles.