How To Use The Balanced Scorecard Approach To Measure Business Success

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Nov. 14 2022, Published 8:00 a.m. ET

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Scorecards and metric tracking are critical to small business success. As a small business owner, you need to be up-to-date on how you determine success for your company. How your scorecards are set up is essential to monitoring and meeting your goals. Here is a new way to measure your metrics.

The balanced scorecard approach was first coined in 1992 in an issue of Harvard Business Review. Since then, it’s become a mainstay in the way we talk about business success metrics. This set of numbers acts as a health report, giving businesses a simple way to assess how well they’re doing and how close or far they are from reaching their goals.

The scorecard is split into four key areas — financial, customer, internal business processes, and learning and growth — and though these categories are as relevant now as they were in the ’90s, it might be time to evolve which indicators we focus on.

So where should we start?

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Leading Versus Lagging Indicators: Why Are They Important?

Leading and lagging indicators are the bread and butter of the balanced scorecard. As their names suggest, they have pretty different personalities. The lagging indicators are those that look back at your past performance: your revenue, client success, and so on. They measure outcomes that have already been decided.

Leading indicators, on the other hand, look at undecided factors — current productivity and direction, for instance — and can help you change course to achieve future goals. Essentially, leading indicators give you an idea of what can be adjusted for positive change in the future.

Consider leading indicators around the metric of new business, for example. An agency might have a successful client pitch and receive new business. The agency could then dive into the data around pitches, examining what about that pitch made it land so well and what hasn’t worked out with others. Whatever variables you can adjust here will be your leading indicators — the levers you can pull with new pitches to make them more successful.

Shifting the focus of business balanced scorecards to leading indicators rather than lagging ones when setting KPIs for business development is how you can build a more resilient company. In the face of the unexpected, you’ll be better able to adapt if you know how to pull your leading indicator levers to adjust for the future.

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How to Develop a Better Business Scorecard

Pivoting toward leading indicators doesn’t have to be a massive revolution. There are a few simple mindset shifts you can enact in your workplace to start thinking ahead with your metrics:

The thing about lagging indicators is that they’re always responding to a past state. If you’re going to drive forward to new heights and challenges, you need to work in light of your future goals.

Make time for a leadership meeting to map out your aims. Take your most recent goals to start with, but continue to stretch, refine, and rethink those goals as you learn more from your leading indicators. This meeting will help all team members stay aligned on what your business is trying to achieve next.

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So many meetings have a monthly focus. That, coupled with an overreliance on lagging indicators, can mean that businesses lack an awareness of the present moment and are unable to seize the day in the way they’d like.

Shifting to a weekly mindset will encourage you to focus on the drivers that are actually pushing your success every day. If you can spot patterns and problems early and proactively push the needle on your goals, the months will take care of themselves.

As you refocus on leading indicators, some employees will be better at using metrics to look forward. You’ll learn a lot about your team, who has natural resilience, and who is thriving in this current atmosphere of uncertainty.

Use reviews and ratings of employees to keep your internal team strong and aligned. This will also allow you to develop your future hiring practices so that they’re always acting in service of your organizational goals.

The balanced scorecard model is still a smart and dynamic way to measure and adjust your organization’s strategy. But we need to keep evolving our approach to it as times change. Set your sights on leading indicators to keep your team looking forward.

This article was written by Jeff Meade and originally appeared on Score.

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