How to Create and Use Your Business Scorecard

By July 13, 2021News
Two people keeping score

Every business wants to succeed, but success can’t happen without a plan. CEOs and business managers know that to develop a plan, key metrics and performance indicators must be measured and tracked. There are innumerable metrics to record in a business, but not all measurements provide strategic insight into your company’s performance. If you want to boost your business strategy while supporting your employees and customers, the best way to achieve it is by using a balanced business scorecard.

What Is a Business Scorecard?

A business scorecard allows you to capture and track data about your business performance, allowing you to create a snapshot of your activity and performance. The metrics you choose to measure and report on will determine your company’s perspective over your company’s operations. For example, if you currently only focus on financial performance, your snapshot will only show you how your business operates financially and neglect the customer experience. When you design your business scorecard, on the other hand, you should strive to make it balanced for maximum benefit.

The Art of Balancing Metrics

The metrics you choose to measure will create a certain image of your business’s performance that may or may not be balanced. If your focus is mainly on your financial performance while ignoring the customer experience, you may miss important details. For example, a clothing company may see a short-term increase in their financial performance because they decided to eliminate their personal shopper program. By cutting back on their investment in employee salaries, they saved money for the company. But what they might not realize is that their customer base loved the personal shopper program. The initial savings lead to a long-term drop in sales because the customer experience suffered. But because the company was not paying attention to metrics related to the customer’s perspective, they did not realize how important that program was to their customers!

The Four Perspectives of Your Business: Customers, Internal Processes, Innovation, and Finances

A balanced scorecard helps business managers design a comprehensive view of their metrics to prevent and reduce mistakes, and to generate long-term business growth, as illustrated in the example above. There are four perspectives to include in a balanced scorecard:

  1. Customer Journey
  2. Internal Business
  3. Innovation and Education
  4. Financial Data

The four areas of business mentioned above complement one another. Once you know what your customers value, you can measure the metrics that demonstrate how you are meeting those values. You can then look at key internal business metrics that impact the customer experience to monitor your performance in this area. From there, you can measure whether you are excelling or require investment in your staff or products to meet your customers’ satisfaction. For each perspective, it is essential to look at both your company’s metrics and goals.

1. The Customer Perspective and Metrics

Your customer’s perspective and satisfaction should be included in your scorecard because without the support of your customer’s you won’t have a business. The main question to ask when choosing your metrics is: “How do our customers view our company?”

Customers tend to focus on three key elements: time, quality, and performance. For your scorecard, you should select metrics that track these three elements. For example, you should track the time it takes from when the customer contacts you to the time it takes for them to hold the product in their hands or the service is delivered. This is called Lead Time and can be applied to in-person shopping, online systems, or service-based business. Another metric to track is the quality of your product or service in the eyes of the customer. How many defects or complaints are launched on a monthly, quarterly, and yearly basis?

2. The Financial Perspective and Metrics

When measuring the performance of your business from a financial perspective, the main question to ask is, “How do our shareholders or business partners perceive us?”. Your investors and supporters will be looking at your cash flow management, profitability, and growth, so you’ll want to choose metrics that accurately reflect those portions of your business to record on your scorecard. While focusing solely on financial metrics is changing towards measures such as the balanced scorecard, the financial perspective cannot be left out entirely. A balanced perspective explained in an accessible way to the appropriate stakeholders can boost confidence and understanding in your business’s strategic plans.

3.The Internal Perspective and Business Metrics

The focus question of the internal perspective is how do we meet customer values? Most customers value time, quality, the skills you offer, and productivity. Taking a look at metrics reflecting these four areas will help capture where your business is at and where improvements can be made. The time metric can be reflected in how long a customer waits before their inquiry is answered, or how long they wait on the phone, or how long they stay on your website. If you don’t have a system to measure time, you’ll want to develop a plan to create them. The results of the other metrics can help you and your management team plan for improvements for employee training to improve their skills or hiring new employees to fill gaps.

Productivity is an area of your business that comfortably meshes with the other three perspectives. Innovative ideas can help increase productivity, which can, in turn, better satisfy the customer and improve the bottom-line that your investors focus on. With the balanced scorecard, you will be able to track those correlations and report on the successes.

4. The Innovative Perspective and Educational Metrics

The innovative perspective asks, “how can we improve and create value?” This perspective is closely linked to the customer experience and internal operations. Providing new solutions to operational problems, offered services, or the products sold to customers can have a huge impact on your business.

Creating a Big Picture Financial Strategy

Long-term growth and success require comprehensive monitoring. When you intentionally choose the metrics to pay attention to in your business and ensure you have a balanced look at your operations, you’ll be able to create a big-picture financial strategy. A focused, big picture strategy will give you a better overview of where you’ve been, what you need to improve on, and how each perspective on your business impacts the others. While the balanced scorecard does not guarantee success for your business, it will help you monitor and see results based on your company’s core principles in each area.

Your Business Advisors & Accountants in Edmonton, Alberta

Schwan and Associates Chartered Professional Accountants can help you craft a balanced business scorecard tailored to your company. We can help advise on the ideal metrics to track for your industry and help you record and analyze your data. Contact us today to set up a business scorecard consultation.

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Jeff Schwan

About Jeff Schwan

Jeff established Schwan & Associates CPA to bring unique “cloud-based” accounting services to small and medium-sized Edmonton businesses. Inspired by the quality time spent with his family, Jeff’s goal is to put more time back in the hands of the busy entrepreneurs who strengthen Edmonton’s business community. With 10+ years of experience in diverse management roles, Jeff has acquired a strong set of leadership and mentoring skills. He is, and always has been, an educator at heart. He knows the value of spreading knowledge, investing in people, and continually learning.

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