Updated: 05/07/22
With the aim of having a complete vision of the business and being able to improve financial decision making, the scorecardThe new methodology, a modern business performance management methodology that was born in the 1990s and has been successfully developed to the present day.
Originally conceived by Kaplan and Norton and inspired by the idea that what you measure is what you get, it is a management system that is justified on the grounds that managers who understand that measurement systems strongly influence employee behaviour will be able to better manage the different areas of the company.
For that reason, we show you everything you need to know about this useful business management tool.
What is the scorecard?
The scorecard is a business management system that enables the translation of business objectives into measurable performance indicators, which can be monitored for decision-making purposes in the quest to meet established business goals.
This approach is based on the belief that the traditional indicators provided by company accounting are insufficient and, in some cases, even misleading as to the true financial reality of the organisation, making it necessary to incorporate more transparent indicators that reflect the true performance of the company.
An example of such indicators is the one recognised as the customer satisfactionA traditional financial report may show how the company has increased its profits in the last period, completely ignoring that this increase in profits may have been due, for example, to a decrease in service costs that have resulted in customer dissatisfaction and dissatisfaction.
If this customer satisfaction index is ignored, it can lead to the misconception that the economic situation of the company is positive, when the reality is that difficult times lie ahead, as the number of dissatisfied customers will have a further impact on the economic results of the next period if something is not done to reverse the situation.
¿What areas make up the scorecard?
The scorecard is made up of the performance of four major areas of the business: financial, customer, internal and growth. Financial analysis is usually present in almost any organisation, regardless of whether or not the scorecard is applied. This analysis includes ROI results, profitability, statement of financial position and other traditional management indicators.
On the other hand, the customer sector integrates indicators related to customer retention and the quality of service they are receiving, which directly or indirectly will have a financial impact on the company.
The internal analysis, in conjunction with the growth area, completes the picture by allowing a direct look at the processes that enable the business to run, such as trade, supplier relations, employee satisfaction, internal communication, and more.
Although this scorecard approach should not be understood as a system that measures organisational performance, it serves as a tool to manage the organisation more efficiently.
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