Balanced Scorecard · Business Analysis Notes

What it is#

The balanced scorecard is a tool for strategic planning and performance management. It was developed by Robert Kaplan and David Norton; the BCS book presents their version, and the BABOK® Guide includes its own short description as a technique. Both agree on four perspectives:

Financial: what the organization needs to achieve financially to carry out its strategy, such as profitability, revenue growth or economic value added.
Customer: how customers see the organization: satisfaction, the value delivered, whether quality meets expectations.
Internal business process: how well the organization runs, and whether its products and services meet customer needs. The BCS book frames this as the processes the organization must excel at.
Learning and growth: the people, knowledge and technology that let the organization keep improving: training, mentoring, knowledge sharing, tools.

The BCS book places “vision and strategy” at the center and describes a cause-and-effect chain: learning and growth enables better internal processes, which lead to satisfied customers, which in turn produce financial results.

The BABOK Guide adds two practical points:

Leading and lagging indicators. Lagging indicators report results of actions already taken and are typically used as targets (for example, last quarter’s revenue). Leading indicators give earlier signals of future performance (for example, the share of staff trained on a new system). A good scorecard needs both.
Any level. You can build a scorecard for an enterprise, a department, a function, or a single initiative. The four perspectives influence each other, so the scorecard is a living system that evolves over time.

When to use it#

When defining a future state and you want objectives that are measurable and balanced.
When aligning strategic, tactical and operational teams around the same goals.
When an initiative is judged only on cost and you need to make other kinds of value visible.
When setting up measures for later solution evaluation.

When not to use it, or what to add: a scorecard needs a clear strategy to start from; without one, the measures will not hang together. Do not treat it as the only strategic planning tool, or as a replacement for planning, execution and measurement themselves. For the analysis that feeds the strategy, use SWOT Analysis and the frameworks in Strategic Analysis Tools. For one specific measure, Metrics and KPIs is enough.

How to do it#

Start from the strategy. Write down the vision and the few strategic themes the scorecard must support. Agree the level: enterprise, unit or initiative.
Set objectives per perspective. Two to four per perspective is usually enough. Phrase them as outcomes (“customers always know when their bike will be ready”), not activities.
Link the objectives. Check the cause-and-effect chain: which learning and growth objectives enable which process objectives, and how those lead to customer and financial results. Remove objectives that connect to nothing.
Choose measures. For each objective, pick one or two measures. Make sure each perspective has at least one leading indicator.
Set targets and owners. Give each measure a baseline, a target, a date and a person responsible.
Define initiatives. List the changes that will move the measures; this is where business analysis initiatives connect to strategy.
Review regularly and adjust objectives and measures as the strategy and environment change.

Example#

A first scorecard for The Workshop (a fictional chain of 12 bike-repair shops) supporting its strategy of “the most reliable and transparent bike repair in the region”:

Perspective	Objective	Measure	Type
Financial	Grow repair revenue per workshop	Revenue per workshop per quarter	Lagging
Financial	Lower parts inventory cost	Value of parts stock held	Lagging
Customer	Customers trust our promised dates	Share of repairs ready by the promised date	Lagging
Customer	Customers come back	Share of repeat customers within a year	Lagging
Internal process	Fewer repairs delayed by parts	Average days waiting for parts	Leading
Internal process	Status always up to date	Share of repairs with status updated the same day	Leading
Learning and growth	Staff confident with new tools	Share of mechanics trained on the status app	Leading
Learning and growth	Shared repair know-how	Number of repair guides added to the shared library	Leading

The cause-and-effect chain: trained mechanics update status promptly; customers are informed and dates are kept; trust grows and customers return; revenue per workshop rises.

Common mistakes#

Measuring what is easy, not what matters → derive measures from objectives, not from available reports.
Too many measures → keep the scorecard short enough to discuss in one meeting.
Only lagging indicators → add leading indicators so you can act before results arrive.
No link between perspectives → test the cause-and-effect chain; isolated measures pull people in different directions.
Scorecard without a strategy → clarify the strategy first; otherwise measures are hard to align.
Treating the scorecard as the strategy → it expresses and tracks strategy; it does not replace strategic thinking.

Checklist#

The strategy and the scorecard’s level are written down.
Each perspective has a few outcome-style objectives.
Objectives are linked in a plausible cause-and-effect chain.
Each objective has one or two measures, with leading indicators included.
Every measure has a baseline, target, date and owner.
Initiatives are mapped to the measures they should move.
A review rhythm is agreed.

Sources and further reading#

IIBA. A Guide to the Business Analysis Body of Knowledge (BABOK® Guide), version 3. International Institute of Business Analysis, 2015. Technique 10.3 “Balanced Scorecard”.
D. Paul, D. Yeates, J. Cadle (eds.). Business Analysis, 2nd ed. BCS, The Chartered Institute for IT, 2010. Ch. 3 (strategy implementation and the balanced business scorecard).
R. Kaplan and D. Norton, originators of the balanced scorecard (as presented in the BCS book).