Building an HR Balanced Scorecard

What is a Balanced Scorecard?

Strategic alignment can be an ongoing challenge for HR professionals, this is where the Balanced Scorecard can be a really powerful tool. Many businesses, find the balanced scorecard concept to be a really useful tool for strategic planning, but relatively few manage to cascade it through their own organisation using a balanced scorecard system for other key aspects of the organisation from Operations to Sales and HR to L&D.

When it comes to strategic performance management, many organisations struggle to balance long-term goals with day-to-day operations. Too often, businesses focus exclusively on lagging indicators such as financial performance, with less focus on ‘leading indicators’ of sustainable success. This is where the Balanced Scorecard (BSC) comes into play. The Balanced Scorecard was introduced in a 1992 article in Harvard Business Review (HBR) titled “The Balanced Scorecard—Measures That Drive Performance”, authored by Robert Kaplan and David Norton. This publication, which is linked to Harvard Business School (HBS), gave the concept widespread recognition.

In this blog, we will explore what the Balanced Scorecard is, its four key perspectives, and how it drives organisational performance by linking organisational capacity to financial results. We will then take it to the next level and explain how you can use this concept to align your HR Strategic Objectives with Business Strategy using the balanced scorecard model.

Understanding the Balanced Scorecard

At its core, the Balanced Scorecard is a strategic management framework that helps organisations translate vision and strategy into measurable objectives. It balances financial measures with other key performance indicators (KPIs) across four perspectives:

Financial Perspective – How does the organisation appear to shareholders?

Customer Perspective – How do customers perceive the organisation?

Internal Business Processes – What must the organisation excel at to satisfy customers and shareholders?

Learning and Growth (or Organisational Capacity) – How does the organisation sustain its ability to improve and innovate?

Rather than relying solely on financial performance, the Balanced Scorecard approach encourages a holistic approach to strategic execution, ensuring that businesses are investing in the people, processes, and innovations that will lead to sustainable success.

Watch this YouTube video to learn how to use the Balanced Scorecard – by Lucinda Carney

The Four Perspectives of the Balanced Scorecard

Let’s break down each perspective in more detail:

1. Financial Perspective

This perspective focuses on traditional financial metrics that indicate whether the organisation is creating value for its shareholders. Key performance indicators (KPIs) in this area might include:

• Revenue growth
• Profitability
• Return on investment (ROI)
• Cost efficiency
• Cash flow

While financial performance is critical, the Balanced Scorecard ensures that it is viewed as an outcome, not just the only measure of success. Kaplan and Norton place even more focus on non financial measures, creating a more holistic system through which to monitor performance and drive strategic goals.

2. Customer Perspective

An organisation’s success is ultimately determined by how well it meets the needs of its customers. This perspective focuses on customer satisfaction, retention, and market share. Key objectives include:

• Customer satisfaction scores
• Net Promoter Score (NPS)
• Customer retention rates
• Brand reputation
• Market share

A business with strong financials but poor customer satisfaction is unlikely to sustain success in the long term. The Balanced Scorecard ensures that organisations continually improve their customer relationships.

3. Internal Business Processes

To deliver value to customers and shareholders, organisations must optimise their internal processes. This perspective focuses on operational efficiency, innovation, and quality. Key areas to measure might include:

• Process efficiency and cycle times
• Product and service quality
• Cost reductions through process improvements
• Innovation and new product development
• Compliance and risk management

Well optimised business processes will not only improve profitability but also enhance customer retention and market competitiveness.

4. Learning and Growth (or Organisational Capacity)

This perspective is often referred to as Learning and Growth, but some organisations prefer to call it Organisational Capacity. The focus here is on the foundational elements that enable success, including people, culture, and technology.

Key performance measures in this area might include:

• Employee training and skill development
• Staff engagement and satisfaction
• Knowledge management and collaboration
• Investment in technology and innovation
• Organisational culture and leadership effectiveness

When is it Learning and Growth vs. Organisational Capacity?

The terminology used depends on the organisation’s focus:

Learning and Growth is typically used when the emphasis is on people, skills, and cultural development.

Organisational Capacity is used when the focus is on technology, systems, and structural enablers that support learning and strategic execution.

For example, an organisation investing in leadership development and continuous learning would align with Learning and Growth, whereas an organisation implementing an enterprise-wide digital transformation would focus on Organisational Capacity.

How the Balanced Scorecard Flows from Organisational Capacity to Financial Performance

One of the most powerful aspects of the Balanced Scorecard is the cause-and-effect relationship between perspectives. Organisational success is rarely a one-step process—investments in one area lead to improvements in another, ultimately impacting financial performance. For those of us in HR, this has the potential to be one of the most influential business ideas as it creates a clear link between investment in human capital (Organisational Capacity/Learning and Growth) and financial results. For any HR person who has ever wanted investment to train staff or management tools from a talent or growth perspective, this starts to build the business case for these as strategic initiatives that are worth investing in.

Step-by-Step Flow: Organisational Capacity → Financial Performance

1. Organisational Capacity (Learning & Growth) → Internal Processes
   • Investments in employee training, IT systems, and organisational culture enhance organisational capabilities.
   • A well-trained workforce and efficient systems improve operational efficiency, innovation, and decision-making.
   • Example: A company implements a new AI-driven customer service system, improving response times and knowledge sharing.
2. Internal Processes → Customer Satisfaction
   • Improved internal operations lead to better-quality products/services and faster delivery.
   • Enhanced efficiency increases customer satisfaction and loyalty.
   • Example: Faster service and error-free production improve customer experience, leading to higher retention.
3. Customer Satisfaction → Financial Performance
   • Satisfied customers are more likely to make repeat purchases, refer others, and increase spending.
   • Positive brand reputation leads to revenue growth and market expansion.
   • Example: Higher customer satisfaction increases revenue, reducing the need for costly customer acquisition.

Example Flow in Action:

Building an HR Balanced Scorecard

So if you are an HR or L&D professional you can choose to align your business unit’s strategic goals and measures with the overall strategy map. It is really a case of adapting the balanced scorecard perspectives to include relevant HR related topics or measures that could fit into each of the 4 quadrants.

In the financial goals area you can include metrics around recruitment costs, salary or bonus costs or benefits and retention. In an HR Balanced Scorecard, customer relates to the internal customer so scores like employee engagement, career progression or internal recruitment rates would be relevant. Relevant HR processes may include speed of hire against vacancies, appraisal completion rates or absenteeism. Finally learning and growth could be around use of recognition schemes, training uptake or suitability of successors per key role.

You may think that some measures could fit in more than one quadrant which is true. For example, compliance training completion could be about developing people, or it could be about processes that meet the requirements of the regulator. The key is to choose the right metrics for your organisation that align with your business priorities or strategies. By following this logical flow, organisations ensure that their investments in people and processes lead to tangible financial results.

Conclusion

The Balanced Scorecard is a powerful tool for ensuring that organisations take a holistic approach to strategic execution. By balancing financial outcomes with customer satisfaction, operational efficiency, and organisational capacity, businesses can create sustainable success.

Rather than focusing solely on short-term financial performance, the Balanced Scorecard encourages organisations to consider four perspectives, not just one. It highlights the idea that if they invest in their intellectual capital through people, processes, and technology, these investments will ultimately lead to stronger financial results.

For organisations looking to use the Balanced Scorecard, the key is to define clear objectives, establish meaningful KPIs, and ensure alignment across all levels of the business. By doing so, companies can build a future-ready organisation that not only delivers on today’s goals but also sets the foundation for long-term growth and innovation.

More useful resources

Subscribe to the Actus YouTube channel for educational HR videos, including ‘How to Use the Balanced Scorecard’. 

Read more blogs by Lucinda Carney see here.

Listen to ‘The HR Uprising Podcast’ hosted by Lucinda Carney, which has a variety of informative topics in business and HR. Visit the HR Uprising website or download wherever you get your podcasts from (YouTube, Spotify, Apple etc). Listen to episode 26 ‘Building an HR Balanced Scorecard’. 

HR Uprising Podcast all episodes

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