The financial view of your balanced scorecard
- financial perspective (measuring and managing financial results – revenue, profit, returns, etc.)
- customer perspective (strategies and tactics related to marketing, sales, CRM, etc.)
- internal process perspective (KPIs for managing the operations efficiently and effectively)
- learning and development perspective (developing sustainable organizational core competencies)
The top of the balanced scorecard report includes the financial perspective metrics which is the overall goal of every business organization – to deliver tangible financial results for its stakeholders by delivering its financial targets.
The other three perspectives of the balanced scorecard include the non-financial metrics which help decision makers see the overall organizational picture and predict and proactively manage the future financial performance of the company.
The financial perspective includes the key financial measures – ratios, KPIs and metrics which help managers monitor the financial results of the organization. The specific financial metrics used will depend on the company and its overall strategy, goals and objectives including its financial targets.
However, regardless of the company and the strategy, the financial perspective of the balanced scorecard should always include these two categories of metrics or KPIs:
- Business growth (revenue growth)
- Productivity (cost and asset management)
1. Business Growth – Focusing on growing the business
The business growth category includes all the metrics related to business development and revenue growth. These KPIs measure the success of the organization in terms of developing new business through new customers, revenue from new markets, sales from existing products, sales from new products, sales from new services, growth from new business units, etc.
2. Productivity – Focusing on improving the operational efficiency and effectiveness
The productivity group of metrics measures how efficient and effective the company is in managing its business operations. While the business growth measures the revenue growth, the productivity KPIs measure how successful the organization is in managing its cost structure and assets. Metrics like asset turnover, inventory turnover, revenue per employee, etc. help decision makers monitor and improve the productivity of the business.
These two categories should always be included in the financial perspective of the balanced scorecard regardless of the business strategy and targets. It is always important for the management to be able to continuously improve both of these financial perspective categories in order to develop successful business in long term.
The targets and KPIs used in the financial perspective will drive the strategies and tactics in the remaining three perspectives of the balanced scorecard. For example, the productivity improvement part will be driven and continuously improved by measuring and managing the internal business process perspective, while the revenue growth will be driven by measuring and managing the customer perspective KPIs.
On one extreme the sales growth oriented companies generally will focus on the business growth metrics while operations driven companies with steady revenue will focus on managing its productivity. However in order to develop a sustainable business with effective operations, growth and profitability managers have to use both of these groups of metrics in order to balance its strategic and tactical plans and initiatives.