Balanced scorecard and its application in e-commerce

E-commerce can be considered one of the most rapidly growing industries in the market. Online shopping is no longer just a convenient alternative, but increasingly a standard practice. Therefore, it is so important for owners of such businesses to be able to stand out from the large competition and develop their businesses. A strategic scorecard can help you do this!

Balanced scorecard – table of contents:

1. What is a balanced scorecard?
2. 4 perspectives of the balanced scorecard
3. An example of a balanced scorecard – e-commerce
4. Benefits of a strategic scorecard
5. Errors in the application of the strategic scorecard
6. Summary

What is a balanced scorecard?

The balanced scorecard is one of the tools to effectively shape the company’s strategy. You do it by defining the goals of the company or a single project, using quantitative data (KPIs) to measure progress, and then implementing selected solutions.

4 perspectives of the balanced scorecard

The starting point of this method is to look at one’s business from 4 different perspectives, which are interconnected and interdependent. By understanding each of them, you can meet the needs of your stakeholders (customers, suppliers, etc.) and achieve tangible financial benefits. These are:

• Financial perspective – focuses on financial performance (profits, expenses, liabilities, etc.);
• Internal process perspective – pays attention to the performance and quality of individual business processes (e.g., product production, customer service levels), controlling for the detection of any irregularities;
• Development perspective – refers to the way the company manages its knowledge, IT infrastructure or human capital (checking, among other things, whether the ways of storing information are secure enough, the effectiveness of training provided to employees, etc.);
• Customer perspective – is important because of consumer feedback and satisfaction, feedback is used to improve offerings, change prices, improve service quality, etc.

An example of a balanced scorecard – e-commerce

One industry where a balanced scorecard comes in handy is e-commerce. In this case, due to its nature and strong dependence on the Internet, the customer perspective will be particularly noteworthy. Internal efficiency is no less influential, as it is closely related to the quality of services offered affecting the satisfaction of the recipients of the offer.

1. Identify your goals against 4 prospects

For each of the previously mentioned perspectives, match the strategic goals you would like to achieve. They should be precisely specified and realistic to achieve. E.g.:

• Financial perspective

Goal: increase sales revenue by 20% and reduce costs by 10%

• An internal process perspective

Purpose: to diversify product or service offerings

• Development perspective

Goal: increase employee satisfaction, increase training

• Customer perspective

Goal: increase customer base by 5%, raise customer satisfaction with services to 95%

2. Match KPIs to each area

To meet the above goals, you need data so that you know where you are starting from and whether the decisions you are making are translating into results. What indicators are worth using?

• Financial perspective – gross/net profit, average revenue per user, free cash flow, marketing expenses;
• Internal process perspective – number of new products launched in a given year, revenue from new product sales;
• Development perspective – measurement of employee performance, employee turnover, the ratio of internal promotions to external recruitment, number of employees participating in a given training, training satisfaction rate, measurement of job performance before and after a given training;
• Customer perspective – measuring customer satisfaction with products/services through surveys, return rate, retention rate, customer life cycle.
3. Collect data and analyze results

Monitor statistics systematically and compare them from time to time with past data. Are the actions taken producing the expected results, what needs to be improved? Make the needed changes.

4. Adjust your goals

Perhaps the previously stated goals will prove impossible to achieve at a given moment. In that case, adjust them to your situation. You can divide one goal into several smaller ones, which will be easier to achieve, in a short period of time, or extend the time to complete individual activities.

5. Repeat the process

It is worth using the strategic scorecard from time to time to be able to examine on an ongoing basis whether our actions allow us to achieve and later maintain a good position in the market.

Table 1. An example of a strategic scorecard for e-commerce

	Goals	Indicators	Action
Financial perspective	Increase sales revenue by 20% and reduce costs by 10%	Gross/net profit; average revenue per user; free cash flow	Improve conversion rate, outsourcing, streamline payment and accounting system
An internal process perspective	Diversification of product or service offerings	Number of new products launched in a given year	Look for opportunities to work with different brands, promote the offer keeping in mind the characteristics of your customers, find a niche market, sell through different distribution channels
Development perspective	Increase employee satisfaction, increase training	Measuring employee performance; Employee turnover; Training satisfaction rate; Measurement of work effectiveness before and after training	Ask for feedback, reward top employees, improve onboarding process, offer flexible working conditions and training
Customer perspective	Increase customer base by 5%, increase customer satisfaction to 95%	Measuring customer satisfaction; Return rate; Customer lifecycle	Find out customer feedback about the product/service (reviews, newsgroups, etc.) and use it to implement improvements, establish active communication on social media, use email marketing, improve your search engine visibility, raise the quality of customer service

Benefits of a strategic scorecard

What are the advantages of using a strategic scorecard in your business? These are primarily:

• Comprehensive insight into the company’s financial and non-financial performance, which will be used to review goals and improve;
• Optimize costs, as well as inefficient processes;
• Allows you to perform benchmarking ;
• It helps to know and understand the customer’s needs;

Errors in the application of the strategic scorecard

• Selecting KPIs before defining strategic goals;
• Misalignment of indicators with stated goals;
• No tracking of progress;
• Treating the BSC as a one-time project rather than a component of a long-term management strategy.

Summary

The strategic scorecard is a way to detect errors and shortcomings in e-commerce processes. By highlighting 4 perspectives relating to different areas of your business and analyzing selected data, you can make the needed changes in managing human resources, internal processes, customer relations or improving your financial situation.

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