introduction to the balanced scorecard
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
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