Posts Tagged ‘Balanced Scorecard’

What Is a Key Performance Indicator (KPI)? Definition, Framework, Resources, and 1000+ Examples

Written by Len on September 3, 2026. Posted in Articles, KPI

A Key Performance Indicator (KPI) is a measurable expression of the achievement of a desired level of results in an area relevant to the evaluated entity’s activity. This is the definition used by The KPI Institute, a global research, training, and consultancy organization with more than 22 years of experience in performance management.

In practical terms, a KPI is a measure used to evaluate progress toward an important organizational, departmental, team, or individual objective. A KPI is not simply any number an organization can track; it is a measure selected for its relevance to a desired result and its usefulness in evaluating and improving performance.

This guide examines:

What makes a measure a KPI and how the concept is defined within The KPI Institute’s performance management framework
How KPIs differ from metrics, measures, Performance Indicators (PIs), and Key Risk Indicators (KRIs)
How KPIs operate at corporate, departmental, team, and individual levels and connect performance to organizational objectives
Why KPIs matter for clarity, focus, improvement, engagement, communication, and organizational learning
The different types of KPIs, including leading and lagging indicators, strategic and operational KPIs, and count, percentage, and monetary measures
How KPIs fit within the Balanced Scorecard and its four perspectives for measuring and managing organizational performance
How to formulate a good KPI, from defining the objective to applying SMART criteria
How the KPI lifecycle works, including the establishment, use, review, and evolution of KPIs
Practical KPI examples by department, covering finance, human resources, sales and marketing, operations, and IT and service management
Common KPI mistakes and the performance management practices that can help organizations avoid them

What Is a Key Performance Indicator (KPI)?

The most cited definition of a KPI comes from The KPI Institute. The Institute defines a KPI as “a measurable expression for the achievement of a desired level of results in an area relevant to the evaluated entity’s activity.”

Break that down and three things stand out. First, a KPI has to be measurable. Second, it points to a desired result, not just an observation. Third, it only counts if it sits in an area that matters to whoever is being measured, whether that’s a company, a department, a team, or a single employee.

A KPI is not a stand-in for “anything you can count.” Website visits, email opens, or the number of meetings held in a week are data points. They only become KPIs once they connect to a specific objective and someone acts on the result. That connection to strategy is what separates a KPI from ordinary business data, and it’s also the single most common thing organizations get wrong.

KPIs Operate at Multiple Levels

A KPI rarely stands alone. It usually sits inside a chain that runs from the boardroom down to a single desk.

Corporate level: KPIs here back strategic alignment and executive decisions. Think $ Revenue Growth or % Market Share.
Departmental level: KPIs guide functional effectiveness inside a single team, such as % On-Time Delivery in operations or % Retention Rate in HR.
Individual level: Personal KPIs connect one person’s work to the bigger goal, such as # Projects De9/3/2026Slivered On Time for a project manager.

When these three levels are built correctly, a frontline employee can trace a straight line from their own KPI to a strategic objective on the board’s scorecard. That line of sight is one of the clearest signs of a mature performance system, and its absence is one of the clearest signs of a broken one.

KPI vs. Metric vs. Measure vs. Indicator

These four words get used as if they mean the same thing. They don’t, and mixing them up is one of the fastest ways to end up with a bloated, confusing dashboard.

Data moves up this chain: from raw measure, to metric, to indicator, to KPI. Most organizations track hundreds of metrics. Very few of those metrics deserve KPI status, because a KPI is reserved for the handful of numbers senior leadership actually uses to make decisions.

Where KRAs, PIs, and KRIs Fit In

The KPI Institute’s Body of Knowledge places KPIs inside a wider hierarchy of performance terms. Getting this right matters for anyone building a scorecard or a reporting structure.

Key Result Area (KRA): A broad domain where an organization has to perform well, such as Customer Experience or Operational Efficiency. A KRA is not measurable on its own; it needs indicators underneath it.
Key Performance Indicator (KPI): A high-priority, strategically significant measure tied to a KRA and reported to senior leadership.
Performance Indicator (PI): A supporting measure, relevant at the team or process level but not critical enough to reach the executive scorecard. Think # Daily Orders Processed rather than % Customer Retention Rate.
Key Risk Indicator (KRI): A forward-looking measure that flags a threat before it damages performance. Where a KPI asks “are we hitting our goals,” a KRI asks “what could stop us.”

Together, these terms form a structure that runs from strategic intent down to the data behind a single report. Companies that skip this structure tend to end up with dashboards full of numbers nobody uses.

Why KPIs Matter

A KPI is worth building only if it changes behavior. The KPI Institute’s research points to six areas where well-designed KPIs pay off.

Clarity. A KPI turns a vague ambition like “get better at customer service” into something concrete, such as % First Call Resolution. Teams stop guessing at what success looks like. Example: a retail chain that tracks $ Sales per Square Foot gets a single number that lines up real estate, merchandising, and store operations around one shared measure of location performance.
Focus. With a small set of KPIs in place, attention goes to what actually drives results instead of spreading across everything that can be counted. Example: a hospital that tracks # Average Patient Wait Time channels staff effort into the specific process fixes that shorten delays.
Improvement. A KPI trending in the wrong direction is a prompt for action, whether that means a root-cause review or a new initiative. Example: a software company watching # Issue Resolution Time climb can launch a code review process before customer satisfaction takes the hit.
Engagement. Employees who can see how their daily work moves a KPI tend to feel more ownership over the outcome than employees who only hear about targets secondhand. Example: a call center agent measured on % First Call Resolution understands their effect on customer loyalty, not just call volume.
Communication. KPIs give departments and executives a common language, which cuts down on the back-and-forth that happens when everyone reports numbers differently. Example: an ESG report built around # CO₂ Emissions per Product tells shareholders and customers a consistent story about environmental performance.
Learning. Over time, KPI trends and benchmarks become a record of what worked and what didn’t, and that record is worth more the longer an organization keeps it. Example: a marketing team reviewing a falling $ Cost per Lead across several campaigns can trace which tactics worked and repeat them.

Types of KPIs

KPIs get classified a few different ways, and it helps to know all three.

By timing. Leading indicators predict future performance (# Sales Pipeline Opportunities). Lagging indicators confirm what already happened (% Net Profit Margin). A balanced scorecard needs both, because leading indicators alone can be unreliable, and lagging indicators alone arrive too late to act on.

By scope. Strategic KPIs sit at the corporate level and matter to the board. Operational KPIs track a specific process or team, often on a weekly or monthly cycle, and roll up into the strategic picture.

By format. The KPI Institute’s naming convention tags every KPI with a symbol that signals what kind of number sits behind it:

# (count): # New Clients, # Incidents Resolved
% (rate or proportion): % Customer Satisfaction, % Employee Turnover
$ (monetary figure): $ Revenue per Employee, $ Cost per Unit

This small convention does a lot of work. Anyone who looks at a dashboard can tell at a glance whether they’re looking at a count, a rate, or a dollar figure, without reading the full label.

The Balanced Scorecard: Where Most KPIs Live

Kaplan and Norton introduced the Balanced Scorecard in a 1992 Harvard Business Review article as a way to measure performance beyond financial results alone. It groups KPIs into four perspectives:

Financial: Revenue Growth Rate, Net Profit Margin, Return on Investment
Customer: Customer Satisfaction, Net Promoter Score, Customer Retention Rate
Internal Process: Process Cycle Time, Error Rate, Time to Market
People, Learning & Growth: Employee Engagement Score, Training Hours per Employee, Internal Promotion Rate

By 1996 the same framework had already expanded from measurement into strategy execution. Most modern KPI frameworks, including The KPI Institute’s own, still lean on this four-perspective structure because it forces a company to look past the income statement.

How to Write a Good KPI

The KPI Institute recommends a consistent naming pattern that keeps objectives, KPIs, and initiatives from blurring together:

Once the objective is set, the KPI itself should meet the SMART test:

Specific: It measures one clear thing, not a vague ambition.
Measurable: The data behind it can be collected consistently.
Achievable: The target is a stretch, not a fantasy.
Relevant: It ties back to a real strategic priority, not a number that’s just easy to pull.
Time-bound: It has a reporting frequency and a deadline attached.

A KPI that fails even one of these tests tends to get ignored within a quarter.

The KPI Lifecycle

KPIs are not set-and-forget. The KPI Institute’s Body of Knowledge describes three stages every KPI moves through:

Establishment. The organization selects the KPI, documents it, and puts data collection in place.
Use. Data flows in on a regular cadence, and the KPI feeds into real decisions and reporting.
Evolution. Over time, a KPI is kept as-is, refreshed to stay relevant, suspended once it stops adding anything useful, or replaced by a more advanced measure. % Customer Satisfaction, for example, is often superseded by # Net Promoter Score as an organization matures.

Many companies skip the evolution stage, and that’s one of the most common mistakes in performance management. Plenty of organizations still track KPIs that made sense five years ago and haven’t been reviewed since.

KPI Examples by Department

Most of these work best in combination rather than alone. Tracking # Tasks Completed alongside % Tasks Completed on Time and $ Value Generated per Task gives a fuller read on performance than any single number can.

Performance Measurement vs. Performance Management

These two terms get treated as synonyms, and they shouldn’t be. Neely et al. (1995) define a performance measurement system as a set of metrics used to quantify the efficiency and effectiveness of actions. Forza and Salvador (2000) go further, describing it as an information system that supports two functions: structuring communication around target setting, and collecting, processing, and delivering data on how people, processes, and business units are performing.

Performance measurement deals with the evaluation of results. Performance management deals with what happens next: the decisions, initiatives, and behavior changes built on top of that evaluation. One tracks the score. The other decides what to do about it.

The Balanced Scorecard is a good illustration of how the two ideas merge over time. Kaplan and Norton introduced it as a measurement tool in 1992. By 1996 it had grown into a strategic management system. By 2008 it sat inside a wider system for planning, execution, and organizational learning. A tool built to measure performance turned, over 16 years, into a system built to manage it.

Common KPI Mistakes

A few problems show up in nearly every organization that struggles with KPIs:

Measuring everything. Dashboards that carry 40 metrics dilute attention instead of sharpening it. A KPI list should be short enough that people remember it without looking it up.
Skipping alignment. When department KPIs aren’t linked to corporate objectives, teams end up optimizing for numbers that don’t move the business forward as a whole.
Weak documentation. A KPI without a documented formula, data source, owner, and reporting frequency is open to different interpretations by different people, and that alone can undermine trust in the number.
Stale data. A KPI that shows up weeks after the fact turns into a post-mortem rather than a tool for a live decision.
No data governance. Someone has to own data quality for each KPI, from the source system down to how often it gets refreshed. Without a named data custodian, small errors in a spreadsheet quietly turn into board-level decisions built on bad numbers.

Most of these mistakes trace back to the same root cause: a KPI system built around what’s easy to pull from an existing report, rather than what the organization actually needs to know.

Frequently Asked Questions

What does KPI stand for? KPI stands for Key Performance Indicator: a measurable value linked to a specific strategic or operational objective.
What is the difference between a KPI and a metric? A metric is any calculated figure built from raw data. A KPI is a small subset of metrics selected because it ties directly to a strategic goal and gets used by decision-makers. Every KPI is a metric, but not every metric is a KPI.
How many KPIs should an organization track? There’s no fixed number, but most performance management practitioners recommend keeping the list short, often somewhere between five and fifteen at the corporate level. More than that and the system tends to lose focus.
What makes a good KPI? A good KPI is specific, measurable, tied to a real objective, and something the organization can act on. If a KPI can’t change a decision, it’s not doing its job.
Is revenue a KPI? Revenue can be a KPI if it’s tied to a specific strategic target, such as $ Revenue Growth against a year-end goal. Without a target or an owner, it’s closer to a raw financial metric.
Who is responsible for setting KPIs in an organization? Top management sets the strategic direction and signs off on major KPIs, but the day-to-day design usually sits with a strategy or performance office, and department heads take ownership of the KPIs specific to their teams.
What is the difference between a KPI and a KRI? A KPI tracks progress toward a goal. A Key Risk Indicator (KRI) tracks the likelihood of something going wrong before it happens. Mature performance systems track both side by side.
What is the difference between a leading and a lagging KPI? A leading KPI predicts future performance, such as # Sales Pipeline Opportunities. A lagging KPI confirms a result that already happened, such as % Net Profit Margin. Leading indicators give teams time to act; lagging indicators tell them whether that action worked.
Can a KPI change over time? Yes, and it usually should. The KPI lifecycle covers exactly this: a KPI gets maintained while it’s still relevant, refreshed when its calculation needs adjusting, suspended once it stops adding anything useful, or replaced by a more advanced measure as an organization matures.
What is the difference between a KRA and a KPI? A Key Result Area (KRA) is a broad domain, such as Customer Experience or Financial Performance. It isn’t measurable by itself. A KPI is the specific, quantifiable measure placed underneath a KRA to track progress inside that domain.

Where to Go From Here

For a deeper look at any single part of KPI management, from documentation templates to lifecycle management to industry-specific examples, see:

[Watch] Key Performance Indicators: The Core of Performance Management Systems – Compare KPIs and other performance evaluation criteria, identify the common KPI pitfalls, and discover how to use KPIs to create synergies between departments.
How Can You Improve the Data Gathering Process for Your KPIs? – “An important component of performance measurement is represented by the data collection capability. However, when applied in the organizational context, this process is neither easy nor lacking obstacles, as practitioners often discover.”
How Can We Ensure Our KPIs Are Aligned With the Strategy? – “In many cases, the key performance indicators (KPIs) monitored do not seem relevant as they are not connected to the strategy. To better understand how this problem can be addressed, we must first identify its possible causes.”
How to Implement a KPI Measurement Framework – “A KPI implementation project plan provides a structure for the implementation of an organization’s performance management system. Once the project plan is set, all types of activities would have a clear deadline and designated responsibilities.”
Project Plan: Developing a Performance Management System Based on KPIs – “When formalizing and implementing a performance management system (PMS) based on key performance indicators (KPIs), there are multiple activities to be considered and many stakeholders to be engaged in the process. Therefore, you’ll need a project plan to make performance management an ongoing process within your organization.”
[Watch] KPI Selection Techniques – “Learn how KPI selection techniques can be implemented in practice and gain insights into the best practices for selecting KPIs.”
Advice on KPI Selection – “KPI selection is a process which seems simple, yet is inherently complex, due to the interdependencies involved. Here are 15 things to consider before embarking on this journey.”
[Watch] Overcoming KPI Selection Challenges: Applying KPI Selection Techniques – “What are the most important guidelines to follow when selecting KPIs for strategic objectives? What are the most efficient KPI Selection techniques, most recommended KPI selection environments, and some Value Flow Analysis technique examples?”

Additional Resources: KPI Examples

KPIs are not just about understanding and working with numbers. Using KPIs requires stakeholders to fulfill a vision and commit to ensuring success across all levels of their organization. If you would like to learn how to select the right KPIs for your organization, sign up for The KPI Institute’s Certified KPI Professional and Practitioner live online course today.

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Editor’s Note: This guide draws on The KPI Institute’s more than 20 years of research, expertise, and practical experience in performance management. Its core definitions, terminology, and frameworks are grounded in the Institute’s forthcoming KPI Body of Knowledge, developed under the leadership of Marcela Presecan, Head of Research at The KPI Institute.

Brilliance in Balance: An Introduction to the Balanced Scorecard

Written by Paolo Orduna on April 16, 2026. Posted in Balanced Scorecard

The balanced scorecard (BSC) is a widely used performance measurement framework for strategic planning. It is so popular, in fact, that The KPI Institute’s latest State of Strategy Management Practice report found that 40% of respondents from Middle Eastern companies were using it. Why is that the case? It’s likely in the name—the BSC offers a balanced perspective of a company’s performance, focusing not just on financial gains but the various aspects of value creation as well. This enables companies who use it to establish sustainable business practices that can meet long-term goals without sacrificing short-term improvements.

What Is the BSC?

In 1992, Robert Kaplan and David Norton dreamed of a better way. Aware of the limitations of traditional practices that focused solely on financial indicators such as return on investment (ROI) to measure a company’s performance, the two designed a tool that incorporated non-financial variables to paint a more holistic, comprehensive picture. Thus, the balanced scorecard was born.

The BSC was further refined by connecting performance metrics directly to strategy, which marked a formal link between strategic goals and performance measurement. In 1996, it became a performance management system (PMS) that effectively integrated the various crucial aspects of an organization—i.e. strategic processes, resource allocation, budgeting and planning, goal setting, and employee learning.

By 2001, the BSC had outgrown its original form, no longer seen as a mere management tool but instead as an all-encompassing strategic management and control system. The BSC has continued to evolve alongside the ever-changing priorities of the business world. In 2021, many companies began integrating environmental and social dimensions into their BSCs to reflect their triple bottom line strategies.

The Four Perspectives

The BSC gives managers a view of the business from four crucial perspectives. Each perspective deals with an integral aspect of the organization and answers a specific question:

Customer Perspective: How Do Customers See Us?

Companies typically have a mission statement that encapsulates how they interact with customers. For example, e-commerce platform Etsy’s mission statement is “Keep Commerce Human.” This sentiment informs the way the company does business, which places importance on leaving a positive economic, social, and ecological impact.

The BSC holds companies accountable to their mission statements by translating them into specific measures that must be followed. For Etsy, one aspect to consider would be the diversity of its workforce, which falls under social impact. To address this, the company has taken measures such as increasing the presence of underrepresented communities in its seller community by interviewing candidates from those backgrounds. This has enabled the company to stay true to its mission and show customers that it walks the talk.

Internal Perspective: What Must We Excel At?

Balance is the primary focus of the BSC—it’s in the name, after all. Thus, the framework doesn’t only take into account the way customers perceive the company, but it also considers what the latter does to shape this perception. This is composed of the various operational and organizational processes that drive the company.

By giving managers an internal perspective, they can identify, track, and measure the processes that yield the most benefits and close the gaps on the ones that fall short.

Learning and Growth Perspective: Can We Continue to Improve and Create Value?

The business landscape is constantly shifting, and in order to keep pace with its changes, businesses must consistently learn and innovate. That is the importance of this perspective, which states that a company’s value hinges on its ability to improve. In any industry, competition can be fierce, which means companies must always find new ways to stand out.

Financial Perspective: How Do We Look to Shareholders?

Among the four perspectives, this is perhaps the most straightforward. Put simply, it indicates if a company is profitable. Although financial performance is no longer the end-all, be-all measure of a company’s success, it still plays a crucial role in determining whether a company is simply surviving or thriving. Shareholders understandably value profitability, and they won’t keep investing in a company that doesn’t produce ROI.

The BSC is by nature a holistic framework, meaning each part is interconnected to the others. This is why it’s important to take a balanced (pun intended) approach when considering the four perspectives. If one side is prioritized over the others, it could lead to the formation or widening of inefficiency gaps that impede business growth and success.

Benefits of the BSC

As previously mentioned, the BSC is quite popular. This is due to the myriad of benefits that it brings to organizations that use it wisely. The most obvious benefits of the BSC are twofold. First, it consolidates the seemingly disparate aspects of a business in a single report, leading to increased efficiency in performance reporting and measurement as well as faster decision-making. Second, the BSC helps mitigate suboptimization by making managers consider the entirety of the company’s operational measures, demonstrating whether one objective was achieved at the cost of another.

A more concrete example of the BSC benefiting companies can be seen in how Apple uses the framework. By shifting its focus from innovating its products to also paying mind to customer satisfaction by establishing it as one of the company’s core tenets, the tech giant was able to improve its already stellar reputation by catering to its customers’ desires. Apple also values core competencies, employee commitment and alignment, market share, and shareholder value. Together, these indicators make up the metrics of their BSC.

World-renowned electronic company Philips is also known for its use of the BSC, using a bespoke version of the framework to fit its organizational needs. The company’s focus is on its employees, and it uses the BSC to ensure that each member of its workforce has a clear understanding of the company’s strategic policies and long-term vision.

What Does the Future Hold?

There must be a stronger emphasis on customization as companies realize that there is no such thing as a one-size-fits-all approach to performance management. This aligns with the proliferation of new advancements in artificial intelligence (AI) and machine learning (ML), technologies that must be integrated into the BSC lest the framework fall behind the ever-shifting realities of the business world. Regardless of the future, the BSC appears poised to remain a vital tool for companies of all sizes and in all industries.

Interested in learning more about the BSC? Browse our articles here.

SBSC: blending sustainability with the Balanced Scorecard

Written by Islam Salahuddin on August 24, 2023. Posted in Articles, Balanced Scorecard

Image Source: EKATERINA BOLOVTSOVA | pexels

In an era when environmental concerns are at the forefront of global discussions, businesses are being called upon to integrate sustainability into their operations. Developed as an extension of the traditional Balanced Scorecard (BSC), the Sustainability Balanced Scorecard (SBSC) aims to provide businesses with a tool to align their environmental, social, and economic objectives, driving positive impact while ensuring long-term success.

The genesis of the SBSC

The concept of the BSC was first introduced by Robert Kaplan and David Norton in the early 1990s as a framework to measure business performance beyond financial metrics. The BSC aimed to provide a more holistic view of an organization’s health by incorporating four hierarchical perspectives: Financial, Customer, Internal Processes, and Learning & Growth.

A decade later, as sustainability became a critical global concern, scholars started looking into the possibility of integrating sustainability considerations into the BSC. They agreed on the potential of extending the focus of the well-established BSC to include measuring business performance through the lens of environmental stewardship, social responsibility, and ethics. Thus, the concept of the SBSC began to crystallize .

How to build an SBSC

When it comes to the best architecture for the SBSC, there have been conflicting discussions ever since the concept was introduced. Two major approaches took prominence: one is to add a fifth perspective to the traditional BSC that was dedicated to sustainability; the other is to integrate sustainability objectives and KPIs into the already existing perspectives.

A 2009 study showed that in the fifth perspective approach, sustainability KPIs tend to be overlooked by management in organizations with no established sustainability culture. That is why the four-perspective approach can be a safer choice, especially for organizations that are only starting to integrate sustainability in their measures.

In a 2021 article, Kaplan supported the four-perspective approach, introducing a suggested restructuring of three out of the four perspectives to make them more relevant to environmental, social, and governance (ESG) elements:

From “Financial” to “Outcomes” to include environmental and societal objectives besides the financial aspect
From “Customer” to “Stakeholder” to reflect the value of different members of the whole ecosystem
From “Learning & Growth” to “Enablers” to encompass the various capabilities across all stakeholders in the ecosystem

Reaping these sustainability integration benefits can be a bit of a long shot, and further studies are needed to prove such benefits even exist. However, the only way to reap said benefits is to plant the seeds of sustainability integration. To help accomplish this, the SBSC can be a potent tool that allows organizations to measure, manage, and optimize their sustainability performance. As global challenges such as climate change, resource depletion, and social inequality loom larger, businesses must go beyond profits and consider their broader impact. The SBSC empowers organizations to embrace sustainability as a strategic imperative, paving the way for a more responsible, resilient, and prosperous future.

For more on utilizing the Balanced Scorecard, The KPI Institute has developed the Certified Balanced Scorecard Management System Professional to help organizations maximize the tools’ potential. And if you are interested in expanding your toolkit further, consider subscribing to smartkpis.com and gain access to the world’s largest database of documented KPIs, which includes a thorough collection of sustainability metrics.

How To Know Your Strategy Is a Winner

Written by Brian Kiprop on March 31, 2022. Posted in Articles, Strategy

Image Source: Digital Marketing | Unsplash

Often than not, several executives take strategy as a routine task or a series of frameworks instead of a mode of visualizing and solving problems. Furthermore, taking on the newest strategy trends or following a successful entrepreneur’s guidelines is not an ideal way to win. Companies need to take their strategies through a series of tests to determine their validity.

There are three tests that identify the success of strategies. These assessments help executive teams to answer some of their burning question, such as:

a) Does your company strategy respond to uncertainty and trends?

b) Does your strategy exploit legitimate sources of advantage?

c) Is your strategy aligned and cascaded throughout your organization?

Three Winning Strategy Tests

There are three types of tests companies can apply to determine whether their strategies are viable or not. The first one is the Fit Test. This type of test measures the level of fitness of a company’s strategy along with its business condition. When conducting the Fit Test, there are three fit dimensions that need to be assessed: internal fit, external fit, and dynamic fit.

Internal fit and external fit are the keys to securing a company’s survival (Tyge Payne et al., 2015). Internal fit is described as a multi-dimensional matching of strategy with structure. It is undertaken to ensure that the strategy matches the company’s resources as well as competitive capabilities. Winning strategies display an internal fit and must be compatible with the ability of a company to implement the strategy in a competent mode.

External fit refers to the congruence between an entity’s strategy and composition and its task environment. Testing external fit will exhibit how a strategy matches significantly with the external conditions, such as industry dynamics, competition, and market opportunities. Therefore, a strategy will only work well if it has an excellent external fit against the external environment.

The last type of fit test is dynamic fit. It is a fundamental measurement that assesses if strategies are changing over time. Dynamic fit is used to synchronize and align the current state of the business with market conditions.

According to Jonathan Trevor and Barry Varcoe, retaining a good strategic alignment relies on the ability of a company’s structure, procedures, and culture to evolve with strategy changes. The signs of misalignments are always evident to employees and customers who fail to receive the type of service they expect.

The second type of test is called the Competitive Advantage Test. This type of test measures the lasting competitive advantages of businesses in the market space. The Competitive Advantage Test also enlightens managers on strategies that often fail to keep up a constant competitive advantage with rivals. Failed approaches to maintain a competitive advantage over competitors usually lead to inferior performance in the long run.

As winning strategies enable competitive advantage to be durable and larger, the research of competitive advantages in the tech industry by (Huang et al., 2015) sheds light on the outcome differences between Temporary Competitive Advantage (TCA) and Sustainable Competitive Advantage (SCA).

The paper suggests that companies can achieve higher outcomes through SCA by amassing assets, resources, and capabilities. However, TCA created through strengthening market positions can assist firms with capital to accumulate resources that will develop a sustainable competitive advantage.

The Performance Test is the third form of measurement to differentiate a winning or losing strategy. A performance test is vital for organizations as companies usually mark their success based on performance. There are two types of indicators that a company looks at to understand the standard of this strategy test:

a) Competitive strength and market positioning and

b) Profitability and financial strength.

One of the performance measurements tools that businesses can use to effectively manage organizational performance is the balanced scorecard. It provides a holistic strategy implementation framework comprising five elements: desired state of evolution, strategy map, performance scorecard, performance dashboard, and portfolio of initiatives.

To sum it up, a company’s strategy needs to excel in all tests to succeed. Failing in even one of the tests could spell problems for business ventures and lead to negative performance. A company can introduce new practices only if they match or erase both internal and external conditions. On the other side, existing strategies should always be evaluated thoroughly to affirm that they are fit and contribute to good performances and competitive advantage. Incorporate fast changes to current strategies if companies fail at least one of the three tests.

Take a look at The KPI Institute’s website and find out more about the Certified Balanced Scorecard Management System Professional course. Discover new approaches on how to create a performance management system based on the balanced scorecard technique and how to implement it at all levels of the organization.

Why It is Time to Revisit the Sustainability Balanced Scorecard

Written by Fakhri Ramadhan on November 9, 2021. Posted in Articles, Balanced Scorecard

Image source: Matt Jones | Unsplash

The world is moving towards a more sustainable business practice. Investors, advocacy groups, and academics have asked corporations to take on added purpose beyond the traditional pursuit of shareholder value. Even the business leaders from Business Roundtable stated that major companies are investing in their employees and communities because they realize it is the only way to achieve long-term success.

The fundamental concept behind this shift is the Triple Bottom Line (TBL), where companies must measure not only their financial performance but also their environmental and societal performance as well. The TBL concept is not new; the term had been coined by John Elkington in the 1990s. Later in 2003, Amanco pioneered in measuring the impact of its TBL strategy, building on the idea of Balanced Scorecard (BSC) from Kaplan and Norton. The new sustainability BSC included environmental and social dimensions in addition to the basic dimensions of the initial BSC.

In a recent article, Kaplan stated that the demands for sustainability today are even higher. In summary, there are three different perspectives from three main stakeholders categories:

Customers: The customers’ preferences in every product category shifted towards more sustainable products. Over the past five years, there is a 71% rise in online searches for sustainable goods globally in countries with either developed or emerging economies.
Employee: Reports of unsafe working conditions at Amazon warehouses caused many criticisms. Their employees protested for fair pay and COVID protection. This example reflects the importance of social and ethical issues. Fulfilled workers are more loyal and likely to stay compared to those who only work for a weekly paycheck. Worse, incidents like this would probably affect consumers’ perception badly and hurt the company’s brand image.
Environment and social: As more consumers demand transparency and accountability, companies must consider the environmental and social aspects in every decision they make. For example, major fashion brands are beginning to pay attention to the demand for more sustainable practices.

The stakeholders have always played an important role in the business ecosystem. But in today’s post-pandemic era, the stakeholders expect even more from companies in terms of environment (e.g., sustainability, health) and social (e.g., inclusive, ethics, social welfare) aspects. As with any crisis, there are chances to learn and make a positive difference.

This article aims to remind companies of the criticality of environment and social dimensions. Taking note of its importance, this might be the opportunity to revisit the idea of sustainability BSC. The sustainability BSC can be used as a groundwork for a future BSC that is environmentally, socially, and ethically responsible. For more on utilizing the Balanced Scorecard, The KPI Institute has developed the Certified Balanced Scorecard Management System Professional to help organizations maximize the tools’ potential.