In my last post, I argued that marketers should use a Balanced Scorecard to measure and manage marketing performance. The Balanced Scorecard was introduced by Robert Kaplan and David Norton in the early 1990’s, and it’s become one of the most popular and effective business management tools. In the Management Tools and Trends 2013 survey by Bain & Company, business leaders from around the world ranked the Balanced Scorecard as the fifth most widely-used management tool.
The Balanced Scorecard was created to address the deficiencies of performance management systems that rely exclusively on financial performance metrics. One of the main shortcomings of financial accounting measures is that they are lagging indicators. They measure the financial consequences of actions taken in the past, but they can’t measure how today’s activities will affect future performance.
To address these deficiencies, a Balanced Scorecard uses both financial and non-financial metrics, and it includes measures of both leading and lagging performance indicators. This framework enables company leaders to monitor both current performance and the factors that drive future performance.
These capabilities make the Balanced Scorecard a powerful tool for measuring and managing marketing performance. A Balanced Scorecard measures marketing performance across four perspectives – financial, customer, internal process, and learning and growth. The financial perspective measures the current performance of the overall marketing function, while the other three perspectives measure the drivers of future performance. The diagram below shows the basic architecture of a Balanced Scorecard.
A thorough explanation of how the Balanced Scorecard is used for marketing would require a book, not a blog post. In this post, I’ll briefly describe the four perspectives of a marketing Balanced Scorecard. In my next post, I’ll describe how you can use a Balanced Scorecard to measure the effectiveness of your marketing strategy.
The Four Perspectives of a Balanced Scorecard
Financial Perspective – As noted earlier, the financial perspective of a Balanced Scoredard measures the current financial performance of the marketing function. When a Balanced Scorecard is used for marketing, the ultimate financial measure is usually return on marketing investment.
This perspective will also typically include objectives and measures relating to revenue growth and the operational efficiency of the marketing function. For example, most marketing Balanced Scorecards will measure overall revenue growth. Depending on a company’s growth strategy, this perspective may also contain specific objectives and measures pertaining to certain sources of revenue growth, such as growth from specific customer groups, products, or geographic market areas.
Customer Perspective – The customer perspective of a marketing Balanced Scorecard will contain a set of objectives and measures relating to customer acquisition and to customer retention, growth, and satisfaction. This perspective will also typically include objectives and measures that focus on the most important aspects of your customer value proposition. Some of the measures commonly found in this perspective include number of new customers acquired (or number of new customers of a particular type) and average deal size. The “logic” of a Balanced Scorecard is that if a company achieves the objectives included in this perspective, the company will achieve the revenue growth objectives in the financial perspective.
Internal Process Perspective – This perspective will contain objectives and measures relating to the internal activities and processes that are critical to (a) understanding your current and potential customers, and (b) communicating your value propositions to prospects and customers. Some of these processes relate to how you gather and use data from and about your customers and prospects, and some will relate to how you design and execute marketing campaigns and programs. So, for example, this perspective is where you track the performance of lead generation and lead nurturing programs. The internal process perspective will also include objectives and measures relating to the operational processes in the marketing function that affect efficiency and productivity.
Learning and Growth Perspective – The fourth and final perspective of a Balanced Scorecard is the learning and growth perspective. This perspective measures the intangible assets that your company must posses in order to perform your critical internal processes with a high level of competence. This perspective will typically contain objectives and measures relating to three types of intangible assets – human capabilities, technological capabilities, and organizational/cultural attributes.
So, how do you determine what objectives and measures should be included in a Balanced Scorecard? In my next post, I’ll explain why objectives and measures should be derived from your marketing strategy. When this is done, the Balanced Scorecard becomes a powerful tool for managing your strategy and measuring its effectiveness.