A balanced scorecard is a strategic management tool that helps an organization communicate its goals and align projects across departments. A distinctive feature of the balanced scorecard is that it looks at your organization’s performance using various perspectives.
These are the lenses that put your overall strategy in different contexts. Usually, people use four perspectives to get a good picture of how a system works or to know their training needs analysis. Executives use this tool to broaden the definition of success for their organizations.
How a private company uses a balanced scorecard
Traditionally, the four perspectives used in a balanced scorecard are Financial, Customer, Learning and Growth, and Internal Processes. Learning and growth are also sometimes referred to as Organizational Capacity. The first two perspectives are the most frequently used, so we shall take a closer look at the last two types. These are also the ones most interrelated.
For example, you can improve organizational capacity through investments in human capital, tools, infrastructure, and technology. Improving the governance of the company is also one way to push for learning and growth. Making changes in any of these necessitates adjustments in the internal processes of the business as well.
A balanced scorecard enhances the company’s value creation story. It takes into account other factors beyond the financial and intellectual inputs of the employees and combines the social aspects of working for the company.
How a public sector company uses a balanced scorecard
Mission-driven companies like not-for-profit organizations and civilian government institutions use different value-creation systems than the ones for business and profit-driven groups. Balanced scorecards for these types of companies are not focused on profit, so “financial stewardship” is a more appropriate term.
Financial stewardship is also not the main priority of a public company; it is usually the second or third. Effective planning and scheduling are at the forefront of any business’s success, but it is even more so for public companies since they serve the largest group in any locality. Public sector companies have to be efficient in providing services, and the scorecard should reflect that as a goal.
What’s more, since they are not owners of funds, they have to lean toward controlled, conservative spending, instead of risking taxpayer money for profitability. ‘Resource effectiveness’ or ‘budget effectiveness’ are also better terms. Donors and funders of not-for-profit organizations would also like to see that in the companies they support.
How the scorecard shapes company culture from the top
Perspective names should fit the culture of the organization. Using ‘clients’ in a scorecard for business and ‘citizens’ for government institutions are examples. Though the underlying focus is the same—external groups served by the company—the change in label reinforces the company’s goals.
Furthermore, in business, the focus is on providing value by increasing the profitability of the company. In government, the value increases with citizen or donor trust and satisfaction. It is important to choose terms that resonate with the organization’s identity and communicate how they want to be known to both internal and external stakeholders.
Conclusion
For many companies, the only metric they have for determining if their projects are doing well is the company’s financial standing. In reality, especially for companies that are just starting, the revenues gained do not accurately reflect the real strength of a business. Balanced scorecards can be used by both private and public-sector organizations, though they might need to focus on different things.
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