BSC & KPI are two important tools to help businesses shape up. Measure and manage business performance. Properly applying these two tools will help businesses achieve their strategic goals. At the same time, improve operating efficiency. So let’s learn how to implement this tool from Apexcorp consultants sharing below !
1. What are the concepts of BSC and KPI?
1.1 What is BSC?
BSC stands for Balanced ScoreCard. Also known as balanced scorecard. This is a multi-dimensional measurement and goal-based management tool. Launched by two economists Robert Kaplan and David Norton in the late 1980s, BSC helps businesses move from strategic vision into specific activities. By considering and balancing performance parameters from many different perspectives.
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BSC impacts 4 specific aspects of the business
- Customers: BSC helps businesses evaluate and measure customer satisfaction. Through indicators such as customer loyalty rate, service cancellation rate, and customer reviews.
- Financials: BSC defines key financial metrics such as revenue, profit, profit margin and ROI. This helps businesses monitor and evaluate their financial performance.
- Internal Processes: BSC measures and tracks performance through internal business processes and activities.
- Learning and development: BSC encourages businesses to clearly define learning and development indicators. Such as employee training rate, product innovation and development, new technology usage rate.
1.2 What are KPIs?
KPI is abbreviated as Key Performance Indicators. These are important indicators used to measure and evaluate the level of goal achievement and performance of an organization.
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Specifically, KPIs impact many aspects of a business and can be divided into the following main groups.
- Finance: Measure the financial performance of a business. Includes revenue, profit, profit margin, profit margin, cash flow and financial structure.
- Customers: Focus on measuring customer satisfaction and experience in several aspects. Such as customer retention rate, number of new customers, number of loyal customers.
- Production and operations: Measure the performance and efficiency of production processes and business operations. Such as output, quality, production costs, labor efficiency
- Human Resources: Support managers to measure and evaluate human resource activities. Such as turnover rate, employer rate, personal performance appraisal, training rate.
- Marketing and sales: Includes sales metrics. Conversion rate, marketing costs, number of new customers, and number of sales opportunities.
- Product research and development: KPI helps managers measure the number of new products. Research and product development costs and completion time.
2. Compare the difference between BSC and KPI
| Criteria | BSC (Balanced Scorecard) | KPI (Key Performance Indicator) |
| Limit | BSC aims to consider all important aspects of the business. To ensure that strategic goals are realized simultaneously and in balance. | KPIs focus on specific metrics and measure the performance of a specific aspect or activity within a business. Not necessarily all aspects are involved. |
| Target | Macro-level BSC supports businesses in creating a comprehensive and considered view of performance. From there, shape and promote the overall strategy to achieve sustainable success. | KPI provides specific metrics. Monitor and evaluate the performance of a specific activity, process, department, or goal. |
| Vision | BSC focuses on the long-term vision of the business to ensure balance between aspects. From there, sustainable development is achieved. | KPI focuses on short-term vision to monitor and evaluate current results. Performance metrics to tune and improve. |
| Application | BSC is often used as an overall strategic management tool. To shape, monitor and weigh business performance across key dimensions. | KPIs are often used as a tool to measure, track and manage the performance of specific activities and areas within a business. |
3. Relationship between BSC and KPI
BSC and KPI have a close relationship and support each other. It creates a bridge between the overall strategy and the detailed work of employees. From there, it helps guide business strategy and leadership within an enterprise.
3.1 Convert strategic goals into specific goals
BSC helps businesses identify strategic goals and convert them into specific measurement indicators. Applied in many areas such as finance, customers, internal processes… KPI will help measure performance, track important indicators and reflect the strategic goals identified in the BSC. For example:
- BSC: The strategic goal of the business is overall revenue growth.
- KPI: To measure this goal, the specific KPI is to increase annual revenue by 10%.
3.2 Performance management and motivation for improvement
BSC helps manage the comprehensive performance of businesses. By considering and balancing indicators from many perspectives. In contrast, KPI plays an important role in measuring performance in each area of operation. This creates motivation for improvement. For example:
- BSC: Tracks metrics on product quality, delivery time, and defect rates to ensure overall performance.
- KPI: A KPI in the manufacturing sector might be to reduce the defect rate to less than 1% during the production process.
3.3 Mutuality, synchronization and uniformity assurance
BSC and KPI complement each other in ensuring consistency. And build the overall strategy of the business. BSC helps synchronize goals and activities with strategy. While KPIs provide directional information and measure results.
- BSC: Ensure that the goals and activities of the marketing and sales departments in the company are consistent and compatible.
- KPI: A KPI in this department might be to increase the conversion rate from leads to actual customers by 10% in an advertising campaign.
In short, businesses should closely combine the two tools BSC and KPI. To ensure that the strategy is implemented effectively and that the organization’s strategic objectives are achieved.
4. Instructions for implementing KPIs in BSC format
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Step 1: Provide knowledge about KPI and BSC to all employees
- To deploy KPIs in BSC format for businesses. The first step is for businesses to provide basic knowledge and an overview of this method to employees.
- Managers need to train members of their department. To ensure everyone has an understanding and grasp of relevant concepts and methods.
Step 2: Identify and agree on goals and strategic aspects
- Businesses need to clearly define the strategic goals, vision and overall strategy of the business. Goals must be consistent with the mission, values and goals of the business.
- Next, the leader identifies the strategic aspects that are important and necessary for the development of the business. Such as finance, customers, internal processes and learning development.
- However, businesses can adjust or add aspects to suit their specific needs.
Step 3: Set goals and KPI standards for each aspect
- Managers conduct surveys and review the operating process of this model through each department and department.
- At the same time, based on the overall strategic goal and the importance of that aspect. To create KPI goals and standards.
- Identify standards or metrics to measure performance in each aspect. Includes setting thresholds or levels that KPIs must meet to be considered successful.
Step 4: Deploy and experiment with KPIs in the business
- Support the establishment of work performance measures. Based on practical and implementation experiences at the company for departments.
- It is necessary to establish a data collection process and record KPIs. Ensure accuracy and consistency of collected data.
Step 5: Evaluate, analyze KPIs and propose improvement measures
- Compare achieved results with set standards and evaluate performance. Determine the level of goal achievement and identify strengths, weaknesses, opportunities and threats.
- Based on the analysis results, the Manager proposes improvement and adjustment measures. These measures may include adjusting goals and operating procedures. Or it could be allocating resources, training employees and improving management systems.
- It is necessary to evaluate and analyze KPIs regularly, periodically every week, month, year… To promptly handle when errors are discovered.
Step 6: Apply and promote in the business environment
- Ensure that goals and KPIs are met. And follow up continuously and with the participation of all relevant staff.
- Create a dynamic environment that encourages collaboration and information sharing about KPIs and performance.
- Create communication and feedback mechanisms so employees can discuss, contribute ideas, and drive continuous improvement.
5. Mistakes when applying BSC and KPI
5.1 Confusion between KPIs and business plans of each department
KPIs are performance metrics, while business plans are specific goals and activities. It is necessary to clearly distinguish between these two concepts. To ensure that KPIs meet and measure the effectiveness of business plan implementation.
For example: A sales department sets a target of increasing sales by 20% during the year. But the KPI that was reset was the customer conversion rate from 5% to 8%.
5.2 Deploy BSC and KPI half-heartedly, incompletely and generally
To achieve good results, leaders need to comprehensively deploy BSC and KPIs. Align with key organizational factors. If implemented half-heartedly, it will cause shortcomings. And affects the effectiveness of the performance measurement and management process.
For example: A business only sets KPIs for the financial sector. While ignoring other aspects such as customers, internal processes and human resources. This leads to inaccuracies and inconsistencies in performance measurement.
5.3 Business strategy has not been specified in BSC and KPI
Business strategy must be clearly divided into specific goals and indicators to measure and track. Without clarity and specificity, the implementation of BSC and KPIs will become vague. Causing omissions and not being able to achieve expected results.
For example: A company has a strategic goal of improving product quality. But specific indicators to measure quality are not clearly defined. This causes ambiguity and difficulty in measuring and evaluating quality-related performance.
5.4 There is no system for accurate monitoring and evaluation
Because there is no reliable data and information to evaluate performance and progress towards goals. Enterprises should establish a clear monitoring and evaluation system. To ensure that data is used correctly.
For example: A business does not have an accurate monitoring and evaluation system to collect data and information related to KPIs. Therefore, measuring performance and evaluating progress toward goals will be unfounded. Relying on emotions leads to inaccurate decisions.
6. When to apply BSC and KPI
6.1 When do businesses need to apply BSC?
BSC is applied when businesses want to innovate and use it as a strategic management system. This happens when the business needs to focus
- Shaping vision, plans, goals and strategies
- Link strategic goals and assessment targets
- Measure performance and balance key factors
- Promote learning and feedback among members.
6.2 When do businesses need to apply KPIs?
KPI is applied when businesses want to ensure effective goal completion. And want to measure and evaluate employee capabilities. KPIs are an effective tool for measuring progress and evaluating performance in implementing business goals and missions.
In summary, businesses need to apply KPIs when:
- Accomplish specific goals
- Track progress and progress
- Evaluate work performance
Through this article, we hope leaders have a better understanding of the two terms BSC and KPI. As well as the differences, implementation methods and mistakes to avoid when implementing. If your business needs training or guidance on using BSC & KPI tools, please contact Apexcorp immediately.
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