What is BSC? How to build a successful strategy with the BSC model

BSC is a management model used by many businesses to measure and track strategic objectives. But what is BSC, and why is this model still widely applied? This article will help you better understand its nature and practical application.

I. General Introduction to BSC (Balanced Scorecard)

History and Origin of BSC

The Balanced Scorecard, or BSC, was originally developed by Dr. Robert Kaplan of Harvard University and Dr. David Norton as a framework for measuring an organization’s performance using a more balanced set of performance measures. Traditionally, companies used only short-term financial performance as a measure of success. The “Balanced Scorecard” added supplementary non-financial strategic measures to the mix to better focus on long-term success.

This new approach to strategic management was first presented in articles and a book by Drs. Kaplan and Norton and was built upon the work of Art Schneiderman at Analog Devices. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard method provides a clear prescription as to what companies should measure in order to ‘balance’ the financial perspective.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

1. What is BSC?

The Balanced Scorecard (BSC) is a system of measures and planning used to prioritize their products, projects, and services; communicate their goals or objectives; and plan their daily activities.

Additionally, the balanced scorecard allows companies to track and measure the success of their strategies to understand the organization’s performance… For example, reducing customer service levels might increase current income, but the balanced scorecard approach would also account for the potential loss of future income due to poor customer satisfaction.

2. The Perspectives of the BSC Model (4 Aspects)

Financial Perspective

The financial perspective is a primary focus for businesses when measuring success, and it is indispensable in a balanced scorecard analysis. You need to analyze this angle to determine if your business is making money, if your shareholders are satisfied, and so on. It also tells you about the results of your past decisions. Proficient monetary management is ensured by measuring the financial perspective of the Balanced Scorecard.

Customer Perspective

Each organization will have different roles and tasks to serve each specific customer experience in the market. This is reflected in a target group, namely their customers. Customers determine, for example, the acceptable quality, price, service, and profit for these products and/or services. Therefore, organizations need to do their utmost to meet customer expectations, which can change at any time.

Internal Business Processes

From the perspective of internal processes, you need to ask which processes have truly added value to the organization and what activities need to be performed within these processes. Added value will primarily be demonstrated through customer-oriented performance, resulting from optimal alignment between processes, activities, and decisions.

Learning and Growth Perspective

An organization’s ability to learn and innovate is evidence that it cares about the quality of its human resources, its work management methods, and its capacity for continuous improvement and development in a dynamic environment. This environment can change daily due to new laws and regulations, economic shifts, or increased competition. This perspective thus answers the question: “How can we sustain our ability to achieve our chosen strategy?”

II. Benefits of BSC for businesses

It can be said that the balanced scorecard brings many benefits to a business. BSC not only helps managers save time, resources, and money but also helps your organization clearly articulate and act on your vision and strategy. Here are some benefits of the BSC model:

1. Better strategic planning

First and foremost, a benefit of BSC is that it provides a powerful framework for building and communicating strategy. With the business model in the pricing strategy map, it will help managers think about the cause-and-effect relationships between different strategic objectives. This means that performance results, as well as the driving factors or key motivators for future performance, help create a comprehensive picture of that strategy.

2. Better alignment with the organization’s projects and initiatives

BSC plays a role in helping organizations map out their projects and initiatives for different goals and strategies. Therefore, it helps ensure that all projects and initiatives are closely focused on effectively implementing goals and strategies.

3. Improved reporting performance

This is an important benefit of BSC, which plays a role in designing performance reports and dashboards. This ensures that report management focuses on key strategic issues and helps companies monitor the implementation of their plans.

4. Better management information

The balanced scorecard also helps organizations measure key performance indicators for their various strategic objectives. This helps ensure that companies are measuring the most important goals, and BSC helps the organization report higher-quality management information and make better decisions.

5. Better organizational alignment

BSC helps companies better align their organizational structure with their goals and strategies. To execute plans well, organizations need to ensure that all business units and support functions are working towards a common goal easily.

6. Better process alignment

If your business is still struggling with process implementation, BSC will help the organization implement and align organizational processes such as budgeting, risk management, and analysis with effective strategic priorities. This allows the organization to focus on professional human resource management and process management strategies.

>>> See more: Business automation solution – How to optimize 90% of operational processes

III. What is an example of a balanced scorecard?

In their 1993 article, “Putting the Balanced Scorecard to Work,” Kaplan and Norton provided examples of how several companies applied the balanced scorecard, including Rockwater, an underwater engineering company listed as a wholly-owned subsidiary of Brown & Root / Halliburton; Advanced Micro Devices; and Apple. The Apple case study is particularly interesting in retrospect.

According to the authors, Apple (then known as Apple Computer) developed a balanced scorecard to broaden the focus of senior management beyond metrics such as gross margin, return on equity, and market share.

A small steering committee, well-versed in the strategic thinking of executive management, chose to include all four scorecard categories and developed measurements within each.

• From the financial perspective of the scorecard, Apple emphasized shareholder value.
• For the customer perspective, it emphasized market share and customer satisfaction.
• For internal processes, it emphasized core competencies.
• For the innovation and improvement category, it emphasized employee attitudes.

Among the highlights of Apple’s balanced scorecard plan were:

• Apple wanted to shift its classification from a technology and product-focused company to a customer-centric one. Recognizing its diverse customer base, Apple decided to go beyond the standard customer satisfaction metrics available at the time and develop its own independent surveys to track key market segments worldwide.
• Apple executives wanted employees to focus deeply on a few key competencies, including user-friendly interfaces, robust software architecture, and an effective distribution system.
• Apple wanted to measure employee commitment and alignment with strategic goals. The company implemented comprehensive employee surveys—as well as more frequent, smaller surveys of randomly selected employees—to measure how well employees understood the company’s strategy and whether the results their managers required of them were consistent with that strategy.
• Market share was crucial to senior management, not only for sales growth but also as a factor in attracting and retaining top software developers.

Kaplan and Norton wrote: Apple also included shareholder value as a key performance indicator (KPI), although this measure is an outcome, not a driver of strategic performance. Apple intended the emphasis on shareholder value to offset the previous emphasis on short-term metrics like gross margin and sales growth, focusing on investments that could affect future performance.

Read more: What is the Business Model Canvas? How to build a BMC model from A-Z

IV. How to apply the balanced scorecard in a business?

Step 1: Accurately Control Necessary Data

Most businesses today are facing the problem of data overload. Therefore, the first step is to clearly define the strategy and centralize it on one platform. This allows you to define a set of metrics for relevant stakeholders and track their performance. You can refer to the data control process below:

• Limit the number of BSC measures for easier management. Therefore, you should limit it to 10-15 strategies to best focus your efforts.
• Prepare questions about factors and objectives before the meeting. For example: if the average number of views decreases, what is the cause and what is the solution?
• Send documents and answer questions 1-2 days before meetings, and remind everyone to read and understand them beforehand.
• Make decisions to evaluate the meeting’s strategy, record those decisions, and require everyone to implement them. Concurrently, track action items and key project milestones.

Step 2: Measure and Evaluate Target Factors

To accurately measure and evaluate objectives, you can use color-coded systems to mark target factors. For example:

• Red signifies that a target metric requires additional help or the allocation of external resources to get back on track.
• Amber (or yellow) means the metric or objective is close to being on track or can self-correct.
• Green means everything is on track with the set objective.

Note, the evaluation must be objective to avoid errors. To ensure an accurate evaluation process, you can establish evaluation committees if necessary.

Step 3: Use KPIs to Periodically Evaluate Target Factors

KPI (Key Performance Indicator) is an effective performance management tool that helps you assign responsibilities to employees and serves as a criterion to assess whether they are following the strategy correctly. For a highly effective evaluation, you should apply both BSC and KPI evaluation software. Depending on the target factors, businesses can set different KPIs. This will help you better control the work and make appropriate adjustments.

With the established plans and strategies, you use BSC to measure them. Effectiveness will be higher if you attach objectives to them. Therefore, businesses should assign tasks to employees along with achievable KPIs. Finally, you should connect the objectives with arrows to illustrate the cause-and-effect relationship for the most accurate measurement.

V. Common Mistakes When Implementing BSC

Although the Balanced Scorecard (BSC) is an effective strategic management tool, in practice, many businesses still fail when applying it due to incorrect implementation or a lack of comprehensive understanding.
Below are the most common mistakes to avoid so that BSC can truly become a lever for organizational performance.

1. Building a BSC without linking it to the overall strategy

Many businesses view BSC merely as an expanded set of KPIs, not a strategic guidance tool. As a result, the set targets lack connection to the organization’s vision, mission, and core values.

Solution:

• Start by clearly defining the long-term strategic vision.

• Then, translate it into strategic objectives corresponding to the 4 perspectives of the BSC.

• Ensure every KPI answers the question: “How does this objective help us get closer to the overall strategy?”

2. Setting too many measurement metrics

One of the most common mistakes is an overblown BSC with dozens of indicators for each perspective. This causes employees to lose focus, makes tracking difficult, and obscures the main priorities.

Solution:

• Limit to 3–5 of the most important metrics for each perspective.

• Apply the “less but better” principle to ensure feasibility and focus on core value-creating factors.

3. Lack of commitment from senior leadership

If the leadership team sees BSC as just “a job for the HR department” or “the strategy department,” the model cannot succeed.
BSC requires strong participation and commitment from the highest level, as it is a comprehensive management system, not just a performance measurement tool.

Solution:

• Leadership needs to clearly communicate the meaning and objectives of implementing BSC.

• Participate directly in the process of defining KPIs and conducting periodic reviews.

• Combine BSC with a transparent reward and penalty system to ensure motivation for the entire team.

4. Inadequate internal communication and training

Another common mistake is that employees do not understand what BSC is, or why they need to achieve a particular KPI.
This leads to a reactive work attitude and a lack of alignment throughout the organization.

Solution:

• Organize regular internal

  Solution:

  • Combine BSC as the overall strategic framework and KPI/OKR as detailed implementation tools.

  • Use integrated management software to automate progress tracking and periodic reporting.

  7. Focusing too much on financials, neglecting development factors

  Businesses often prioritize short-term profits while overlooking long-term aspects such as employee capabilities, corporate culture, or technological innovation.
  As a result, the organization may achieve good financial results in the short term, but lacks long-term sustainability.

  Solution:

  • Maintain a true balance between the 4 perspectives: Financial – Customer – Internal Processes – Learning & Growth.

  • Ensure that “non-financial” objectives are also measured seriously and have corresponding rewards.

  

  VI. Conclusion

  Thus, the article above has introduced users to the BSC method to answer the question, what is BSC. It can be seen that BSC is a management system that helps businesses measure and evaluate the organization’s performance across 4 different perspectives: Financial, Customer, Internal Processes, and Learning & Growth. This helps businesses seize opportunities for improvement & breakthroughs to bring success and sustainable development for the present and future in a fiercely competitive environment.

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