Balanced scorecard: Define your strategy
A. When designing a balanced scorecard, start by asking: “What is our strategy?” To answer this question, the first step is doing a SWOT analysis, or another similar scanning assessment, followed by evaluation of issues, forecasting and goal setting.
The strategic goals that you set represent the four key components of finance—customer, internal processes, learning and growth—that make up the balanced scorecard. It is crucial that you write clear objectives for evaluating actual performance. The scorecard provides the framework needed for a company to change through execution of its strategy.
The core question of the financial component: What do shareholders, stakeholders or owners expect in value? Simply put, it’s sell more and spend less. This can only be achieved by improving the results of the other three components.
There are two basic strategies used for finance. The first is growth. This is done by developing new sources of revenue from new markets, new products or new customers; and by increasing customer value. The second is productivity. This may include reducing direct costs of products and services and sharing common resources among different departments. Also, reduce the working and fixed capital needed to support your level of business by using fixed assets more efficiently.
The financial component requires you to think about and discuss with your team how to achieve financial goals. For example, you might share this with your staff: “In order for us to meet our goal of increasing revenue by 8% in the next year, we will need to increase our customer base by 12% during the year or adjust our cost structure as needed.”
Tom Cesar is president/CEO of Tom Cesar Management Solutions, LLC. He can be reached at 919.539.5713 or firstname.lastname@example.org.