What are the benefits and challenges of using balanced scorecard as a leadership tool?

1 What is the balanced scorecard?

The balanced scorecard (BSC) is a strategic management system that was developed by Robert Kaplan and David Norton in the early 1990s. It is based on the idea that financial measures alone are not enough to capture the value and impact of an organization, and that other aspects such as customer satisfaction, operational efficiency, and innovation are also important. The BSC helps leaders to translate their strategy into a set of measurable objectives and indicators that can be tracked and evaluated across four perspectives: financial, customer, internal, and learning and growth. The BSC also helps to align the activities and resources of the organization with its vision and mission, and to communicate and cascade the strategy throughout the organization.

3 What are the challenges of using the balanced scorecard?

Despite its advantages, the balanced scorecard also poses some challenges and limitations for leaders. It requires a clear and coherent strategy, vision, and mission that can be translated into measurable and relevant objectives and indicators. Without a strong strategic foundation, the BSC can become a mere exercise of data collection and reporting. Additionally, it demands a significant amount of time, resources, and commitment to design, implement, and maintain the BSC, and to ensure its alignment and integration with the existing systems and processes of the organization. Furthermore, it involves a cultural and behavioral change that may encounter resistance or skepticism from some stakeholders. To overcome these potential barriers and challenges, it requires a strong leadership support and engagement to foster a shared vision and ownership of the BSC.

4 How to use the balanced scorecard effectively?

To use the balanced scorecard as a leadership tool effectively, leaders need to start with the end in mind and define the vision, mission, and strategy of the organization. It is important to involve and consult the relevant stakeholders in the design and implementation of the BSC, and ensure their input and feedback are considered and incorporated. Objectives and indicators should be specific, measurable, achievable, relevant, and time-bound, and should reflect the cause-and-effect relationships and the strategic alignment of the four perspectives. The BSC should be reviewed and updated regularly, and the data and information should be used to analyze and evaluate the progress and results of the organization, and to identify and address the gaps and opportunities for improvement.

5 Examples of the balanced scorecard in action

The balanced scorecard has been adopted and adapted by many organizations across different sectors and contexts, with varying degrees of success and impact. For instance, a nonprofit organization used the BSC to align its programs and activities with its mission and vision, and to measure and demonstrate its social and environmental impact to its donors and beneficiaries. Similarly, a public sector organization used the BSC to improve its service delivery and customer satisfaction, as well as its internal efficiency and accountability. On the other hand, a private sector organization used the BSC to increase its market share and profitability, and to foster its innovation and growth.