Leveraging Leadership

Unpacking the Balanced Scorecard: Financial, Customer, Internal Process, and Learning Perspectives

• Emily Sander • Season 1 • Episode 142

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Emily breaks down how to use the balanced scorecard to operationalize strategy, focusing on its four key perspectives: financial, customer, internal process, and learning and development. She discusses how financial metrics like cash flow are lagging indicators and the importance of customer perception using metrics such as net promoter scores. Emily also explains the role of leading indicators in internal processes and learning, using examples like strategic information coverage ratio and employee engagement scores.

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Who Am I?
If we haven’t yet before - Hi👋 I’m Emily, Chief of Staff turned Executive Leadership Coach. After a thrilling ride up the corporate ladder, I’m focusing on what I love - working with people to realize their professional and personal goals. Through my videos here on this channel, books, podcast guest spots, and newsletter, I share new ideas and practical and tactical tools to help you be more productive and build the career and life you want. 


Time Stamps:
00:00 Introduction to Balanced Scorecard Part 2
00:32 Recap of the Four Perspectives
00:45 Deep Dive into Financial Perspective
02:13 Understanding Customer Perspective
03:18 Metrics for Customer Perspective
05:16 Exploring Internal Process Perspective
06:12 Key Metrics for Internal Processes
08:41 Introduction to Learning and Development
09:22 Metrics for Learning and Development
12:50 Top-Down vs Bottom-Up Approaches
14:36 Why These Four Perspectives?
17:17 Conclusion and Next Steps

BSC 2 Video:

All right, I am back for part two of how to operationalize strategy through the lens of balanced scorecard. So last episode, we just introduced the four perspectives. And as a quick refresher here, we've got financial, customer, internal process, and learning and development. So let's go into each one of those a little bit more here. The first one is financial, and that's just what it sounds like, which is the perspective that tells you whether or not the organization's strategy and execution are improving its bottom line. So the key questions you can ask here are, are you making money? Are your customers happy? Are your shareholders happy? Some example metrics here could be now these can vary widely across companies and industries and all of those things. But some hallmarks here are cashflow. Do you have cash sales performance, operating income, return on investment, return on equity, these kinds of staple financial metrics, important note here. Financial metrics are a lagging indicator. So we talked about the leading and lagging indicators in the last episode and how you have to have a balance between both. A lot of people think finances are the end all be all, and there's a certain, I understand what they're saying about that, but. Looking at a spreadsheet and pounding your fist at the table going, change this number, change this number now is not good enough. You have to go, okay, something happened to cause this number to go up or down. And you have to address the cause and the input of that, not just stare at a spreadsheet and pound your fish on the table. I've just seen so many cases of that. I just want to call that out. Financial metrics are important, very important, critical, but they're a lagging indicator. So just know where they are in the big picture. Next perspective. Second perspective is the customer perspective. This focuses on delivering value to the customers. Are you delivering value? Do they think you're delivering value? You might think you're delivering tremendous value, but if they're like, no, meh, companies, meh, our interactions with them are meh, their tools are meh, then you're not delivering value in their eyes. Key questions here. Are you winning new business? Are you gaining net new business? Are you keeping existing business? So, how is your churn mitigation going? How is your customer attention going? Customer satisfaction? How happy are your existing customers? One of the questions that we asked when we used Ballot Scorecard was, how do customers see us? So how do customers perceive us? We have our vision and mission statement. We have our marketing campaigns and branding and messaging, but how do people in the market see us? If we ask someone on the street, one of our customers, maybe someone who's maybe thinking about buying us, you know, here's our company name. What are the first. two or three things that you think of just right off the bat. What do they know us for? How do the customers see us? examples of metrics here could be things like net promoter score or customer satisfaction scores. A wallet share could be one here. And we took this to, um, the next level or a level deeper. And we knew that we had, um, in the company I worked for, we had 12 main products and tools. And we knew that a certain combination of three would make a customer sticky. Would it would be, it basically be a pain in the butt for someone to leave our platform if they had these three products. And so we emphasize and put a higher weight and importance on getting these, getting customers on these three products. So not only share of wallet, but which combination of products did they have with us? Um, you could also have something like percentage of sales from new products. So we've spent a whole bunch of capital on R and D. Um, our technology team has gone gangbusters. Our marketing team has gotten people all excited about this launch. We've launched our sales team is selling it. What's the uptake in the market. So that could be a metric further to that one, a deeper dive on that one could be. What is the percentage of sales from new products in a specific market segment or a specific customer segment? So maybe we had, um, we had a new, we had a new product that we built to serve our existing customers, yes, but also to get our foot in the door and it. In an adjacent market. And so we really cared about, okay, how are we doing in this adjacent market? Are we getting net new business from this new product? So that was something we measured very closely. Um, all right. So the customer perspective and customer metrics are also lagging indicators. So customer satisfaction score. Great thing to measure. Yes, indeed, but it's because something happened to make that customer happy or sad or satisfied or dissatisfied. So it's a lagging indicator. So have this on the board for sure, but just know where it fits in in the process. All right, next perspective here is internal process. So this is looking at how smoothly is your business running. Some key questions here would be, are you prioritizing The processes that will have the greatest impact on delivering value value to your customers. So are you are you prioritizing the internal processes that will have the greatest impact on delivering value to your customers? One question that we asked ourselves and our teams throughout this. Balance scorecard process was what should we be the best at? What should we kick a butt at? What should we, um, what, what differentiates us from the cut from our competitors when we talk about what should customers know about us or what should we be known for? What do we want to be the best at? What distinguishes us? So that was a question that we constantly ask ourselves and constantly asked of our team members about what should we be the best at? All right. Example metrics here. This, this can be across the board. Some example metrics here could be anything from average collections period To number of new products launched. Um, and we had something called, we called it strategic information coverage ratio, which was a fancy way of saying, have certain people gotten access to information and, or have certain people in teams been given training on certain information? So let me give you an example. We had, um, our, our customer service team and we have like teams of customer service, um, reps. And we had built this basically like intranet or internal. Wiki database. This was long before like AI where this, this stuff can happen, um, in a faster, more robust way, but we built this thing manually and, and we said, okay, we want to train each manager of all of our customer service teams on. This new internal wiki page, and then we want to train all of the customer service teams on the wiki page. We couldn't pull them all off the floor at once because customers would would not get anyone to talk to you. But we said, Okay, let's go through a process here and we would measure. The strategic information coverage ratio. And we would say, okay, as we go through, uh, manager of team one, manager of team two, manager of team three, they've all been given access and trained on this new tool. Now we're going to go through and train the, the customer service team one and customer service team two, and that would increase our strategic information coverage ratio, things like this, the internal process perspective and the internal processes metrics are a leading indicator. So this is where we flip from lagging indicators to a leading indicator. So you can sit there and go take, um, average collections period. That's a pretty straightforward, straightforward one. Actually, um, average collections period is a leading indicator to how much cash we have. So if we can reduce that collections period, we have more cashflow. Um, number of new products launched. That's an interesting one because that has to do with innovation. So if you say, okay, what should we be the best at? We want to be the best at innovating. And developing new products for the market. We want to be known for being cutting edge in, in our industry and amongst our competitors. Okay. Well, you should build your internal processes and run your business so you can deploy new products and deploy innovation to the market. All right. Fourth and final perspective here is learning and development, and this is called some different names sometimes. So it might be learning and growth, or I've heard it called organizational capacity. Um, I kind of like organizational capacity in that it, It's talking about how capable your organization is. So how, what, what can your organization do? What is it capable of? How do I make it capable to do more of what I want? So learning and development, growth, organizational capacity, anything in that direction. some key questions here would be how well do people perform their skills? And does everyone have access to training or continuing education opportunities? Metrics here, examples of metrics could be employee engagement scores. It could be retention of high performing staff. It could be number of ideas submitted to leadership. So this was one of ours. This was a really interesting one. We said, all right, first of all, we want all of our staff to. know how their day to day contributes to the overall success of the team and company. And part of the way we did that was we wanted them to know what the other teams around them did. So we don't want them with blinders on in a silo. Like I just do these 10 steps and I don't know what's happening around me. So we would have just casual things like Brown bag lunches, where we would give people free food and free lunch and people would come on a volunteer basis. and someone from, like, Team 1 would present on just what their team does. Or someone from Team 2 would talk about a special project that they were working on. Or someone from Team 3 would talk about this exciting thing that was happening in their team. But just to get to know, Oh, like I see those people sitting next to me, but I don't really know what they do. Let me go like have free sandwiches or, or free lunch or whatever, and just sit there and kind of listen to their presentation. And then the back half of the meeting or back half of the lunch, we can just have a casual chat and talk about it. Um, all of that to say, when people were aware of. What was going on around them and how they fit into the big picture, they were able to submit more ideas to us so they could see what we were trying to do. They could see our, our vision and mission and our goals. Um, we were transparent, they had visibility, and they also knew the inner workings of all the different departments and teams and how they work together. And so we asked from. Like from like rank and file, um, mid level management, directors, executives, everyone, if you have an idea, let us know, we, we want to hear from you. And we had this whole process where people would submit ideas with, uh, just a minimal amount of information. And then there was a small group of us, I was included, who would reach out to the folks who had submitted something and talk to them about their idea. What made you think of that and how would that make your life better? You know, what would that mean for the team? What would that mean for the customer? What would you need to trial this if this is like this might have some legs here? What would what resources would you need to go try this? And then if we did take on that idea and implemented it Then they would get a bonus for it and they would also get called out in our weekly email So the ceo would send Um, an email out to the all company and in one little section of it, we would call out people like, Hey, Jose had this great idea for a marketing campaign. Uh, marketing team is working on that. You should see that deployed in the next two weeks here. And that's for this key, uh, customer base. And it's talking about this, this, and this great job, Jose. And just, you know, everyone, again, please submit your ideas for anything that you see we could be doing differently or better across the company. So anyway. Long way of saying number of new ideas submitted to leadership could be a metric for learning and development. Um, all right, learning and development metrics are again, leading indicators. And this perspective is a little bit special. So if you think about the four perspectives, I might put a little gold star or like asterisks next to this one. So organizational capacity, learning and development, because this is where most of the investments take place. So this is really where you can distinguish between. A top down organization or leadership or approach and a bottom up. So top down is again, we talked about this last episode, but saying, here's, here's my spreadsheet, here's the budget, right? Here's my spreadsheet. Here's what I want to have happen. Here's my forecast and everyone make this number happen up into the right in a linear fashion, nothing ever goes wrong. Um, you know, make this number happen. And that's all I care about. You can burn people out. You can cheat on contracts. You can do whatever, make this happen. I'm telling you this from the top and you make it happen. However you can, Bottom up approach is the opposite. It says, I am going to pay attention to investing in my people. I am going to make sure they feel capable and competent and comfortable and confident and have all the training and tools they need. Now, Yes, you have to have the right kind of people in there. You know, you can't have like a lazy person or someone who's sitting there thinking they're entitled or whatever. That's a sidebar conversation. You have to have hard workers, smart people, people who care about the customer, people who care about the teams next to them, people who care about doing a good job, but when you have those types of people. in the right seats with this environment around them. Oh my goodness. You have people who are excited to come to work, who are bringing their best. You have internal processes that are supporting them. You have things in place where everything runs like you want it to. And in turn, those leading indicators will help you. will result in happier customers. And guess what? Happier customers buy more stuff. And so when you invest in learning and development, financial performance and financial success is, is like a natural extension of, it just is what happens when you align those things correctly. So that's an asterisk next to learning and development. Okay. So these are the four perspectives and you might be sitting there going, okay, like those are four perspectives. Why do you have four, Emily? Why don't you just have one? Just pick one. Why do we need four? If you're a pilot flying a plane, do you use one indicator or do you use many indicators? So if you imagine like all, like the dashboard in front of you and the lights and the buttons and the like joystick or not the joystick, the like throttle machine or whatever's in the middle that makes the plane go, I'm not a pilot, clearly, um, Anyway, let's just say you're sitting there and let's say a pilot is like staring at their wind speed and that's all they look at. Well, I'm sure wind speed is important, but you know what else is important? Fuel. Fuel seems important for flying a plane. Also like the wheels. Can you make the wheels go up and down? Maybe not important for the flying part, but certainly important for the landing. So all these components together, you want to make sure you're seeing the full dashboard and you have all the information that's available to you and you're using it together in the, in the right way. to get you to the destination you want to go to. All right. Why these four perspectives? We have four. Okay, I can get on board with that. No pun intended. I can get on board with these four. Why these four, Emily? The short answer is because these four have the highest cause and effect relationship. So it's the most causal relationship. Kaplan and Norton, who came up with Balance Scorecard, did an extensive study across 50 companies, in all different types of industries, and they found consistently that these four perspectives had the greatest cause and effect. so you can customize this. These are customizable, but just know that you'd be introducing a little bit, um, risk is maybe too strong a word, but you'd be introducing a little bit of, okay, we're, we're changing the equation here. This is a proven, Proven cause and effect situation. And we're changing it a little bit. I had one company who was in a highly regulated environment and they just had to have, they said, we have to have compliance on the board. And so we came up with the compliance perspective and added it to the other four, so they had five and that was just fine. That made sense for them. I would probably stay away from. Removing one of these, I've seen companies kind of emphasize one more than the other. Um, I would certainly not go, I'm going to emphasize finance and just like, kind of go through the motions on these other three, that's not the point. You're missing the point entirely, but if there's a way that you need to situate it or a way that you need to emphasize. Um, a certain part of it over another for maybe a period of time or for whatever, or whatever reason, then that can be fine. So it can be customizable, but just know that these four perspectives were selected for a reason, and it's because they have the most causal relationships, which is actually what we're going to talk about next episode is mapping the cause and effect relationships. So it tells a story and you get to tell a story about your strategy and a story about what your company is doing. And there's this really cool thing called a strategy map, which is a way to visualize your company's strategy. So we'll go into that next time. But for now, I would have a think about, all right, I've heard these four perspectives and we'll do a little recap here. So financial perspective is talking about sustainability and profitability. The customer perspective is identifying, attracting, and retaining customers. Internal process, where we switch to a leading indicator, is all about alignment and delivery. And learning and development is capacity and culture. So how is your team and how is your company doing across those four perspectives today? And next week we'll talk about how those tie together and cause and affect relationships. I'll catch you next week on Leveraging Leadership.