Balanced Scorecard and KPI,
performance-based management and benchmarking
In this article I combine well-known approaches
to managing business basing the performance, using metrics and
indicators. I will show the difference between Scorecard and KPI, I will
talk about using Scorecard concept for benchmarking and
possibility of usage Benchmarking with Scorecard
in Balanced Scorecard Toolkit
Few words about Balanced
Balanced Scorecard concept reefers to the theory
of metrics linked by the specific rules, where the total value is
calculated using specific formulas. Balanced Scorecard is talked a lot
about, but there are some applications of Balanced Scorecard concept
which are sometime overlooked.
Scorecard and benchmarking
For instance, combination of metrics, used in
Balanced Scorecard can be easily used for benchmarking, e.g. comparing
your product or service against competitors. What metrics should be used
to compare your product to your rival's solution? There are many
opinions, but the most reasonable answer sounds as: "Why should I
reinvent something new, I can use the same metrics as I use for my
Learn more about using
Balanced Scorecard for benchmarking purposes.
Actually, there is no need to create a specific
metrics for benchmarking, when you already have some ready-to-use
metrics. The metrics for benchmarking and metrics for evaluating the
performance of your business should be the same.
Terminology: KPI vs. Balanced
A note about terminology: what we call Balanced
Scorecard is also called "kpi". KPI is for "Key Performance Indicators".
What is the difference between KPI and Balanced Scorecard? Actually
there is no much difference. What we call "Indicator" is equal to what
we call "Metric". What metrics does Balanced Scorecard include? The most
important one - the "key" metrics. And finally, the goal of Balanced
Scorecard is to measure, yes, the performance of your business, focusing
on some specific aspects.
It's a time now to think about scorecards and kpi
as a set of key metrics, which help you to measure the performance of
your business. When we talk about benchmarking, we actually talk about
comparing products' or businesses' performance, so benchmarking is also
based on key metrics and their comparison.
Measure performance and
benchmark with Balanced Scorecard
How to use Balanced Scorecard concept to measure a
business performance? It's actually easy. You will need to pass tree
- First, you will need to design a set of
proper metrics, which will describe your business well. It is very
important step, as it will affect all your future estimations, so be
carefully and as some expert to help you or consider purchasing
- Second, the metrics should be grouped. There
should not be too many metrics and groups of metrics. It would be
great if you will have four or five metric groups and about 3-5
metrics in each group. You will need to set the importance values
for every metrics, you will need to describe the way, how do you
measure the metric value, you will need to set a target values for
- The final step is calculating the
performance, using your estimation of metric values, their weights
and weights of their groups. The total values will tell you how the
business is performing within the certain viewpoint.
It's important to understand benefits and
limitations of estimating business performance in this way.
- The main limitation is that your metrics will
never describe all your business, so what you can see in numbers is
some kind of abstraction.
- The main benefit, is having performance
described in numeric values. If you have these values you will be
able to record performance, to benchmark your performance and to
control your business.
Use cases: Balanced Scorecard vs.
People are often talking about different ways of business measurement
and control. The most popular approaches are KPI (Key Performance
Indicators) and Balanced Scorecard. While both concepts refer to the
business performance management, there is still a significant
Actually, we can think about KPI as a part of Balanced Scorecard.
Balanced Scorecard measures business using several (usually 4 or 5)
basic groups. Each group has indicators inside. What indicators should
be there? Correct! Key Performance Indicators.
Is Balanced Scorecard a better approach? Actually, yes. It gives more
flexibility. For instance, you're able to specify relative importance of
indicators, e.g. balance them. When KPI will do its job better than
Balanced Scorecard? When you are not interested in global view over the
performance problems (this is what Balanced Scorecard provides), but
need to focus on a very tight niche, more over on some certain aspect of
this niche, for instance, "Finances".
Let's give some samples. Scorecard for HR will include various
viewpoints on HR process, including financial aspect, management and
educational aspects. All Balanced Scorecard groups will include several
indicators that will help to measure business.
HR KPI will focus only on some certain aspects of HR. For instance, it
may cover the most valuable (with bigger weights) indicators from
scorecard. Or will have only indicators from certain group.
Is there any other value with Balanced Scorecard? Again, I’m happy to
answer YES! The Balanced Scorecard concept suggests representing
information about business performance in a four perspectives – Finance,
Customer Relations, Education and Internal Processes. It is important as
in this way you are able to cover all your business or all aspects of
some business unit.
Finally, both approaches deal with metrics, e.g. some way to measure
non-numeric values. For instance, to tell how good your customer support
service is (non-numeric value), you will be able to specify several
metrics, that will cover various aspects of customer support service.
These metrics will give estimation about response quality so that the
final result will be a performance in percents.
Read more about
using Balanced Scorecard for Benchmarking in our Balanced Scorecard