Balanced Scorecard - Introduction

Author: Jim Riley Last updated: Sunday 23 September, 2012

The background

No single measures can give a broad picture of the organisation’s health.
So instead of a single measure why not a use a composite scorecard involving a number of different measures.
Kaplan and Norton devised a framework based on four perspectives – financial, customer, internal and learning and growth.
The organisation should select critical measures for each of these perspectives.

Origins of the balanced scorecard

R.S. Kaplan and D.P. Norton -”The Balanced Scorecard- measures that drive performance”. Harvard Business Review, January 1992

-”The Balanced Scorecard”, Harvard University Press, 1996.
“Kaplan and Norton suggested that organisations should focus their efforts on a limited number of specific, critical performance measures which reflect stakeholders key success factors” (Strategic Management, J. Thompson with F. Martin)

What is the balanced scorecard?

A system of corporate appraisal which looks at financial and non-financial elements from a variety of perspectives.
An approach to the provision of information to management to assist strategic policy formation and achievement.
It provides the user with a set of information which addresses all relevant areas of performance in an objective and unbiased fashion.
A set of measures that gives top managers a fast but comprehensive view of the business.

The balanced scorecard…

Allows managers to look at the business from four important perspectives.
Provides a balanced picture of overall performance highlighting activities that need to be improved.
Combines both qualitative and quantitative measures.
Relates assessment of performance to the choice of strategy.
Includes measures of efficiency and effectiveness.
Assists business in clarifying their vision and strategies and provides a means to translate these into action.

In what way is the scorecard a balance?

The scorecard produces a balance between:

Four key business perspectives: financial, customer, internal processes and innovation.
How the organisation sees itself and how others see it.
The short run and the long run
The situation at a moment in time and change over time

Main benefits of using the balanced scorecard

Helps companies focus on what has to be done in order to create a breakthrough performance
Acts as an integrating device for a variety of corporate programmes
Makes strategy operational by translating it into performance measures and targets
Helps break down corporate level measures so that local managers and employees can see what they need to do well if they want to improve organisational effectiveness
Provides a comprehensive view that overturns the traditional idea of the organisation as a collection of isolated, independent functions and departments