Balanced scorecard
Introduction
The Balanced Scorecard (BSC) is a strategic planning and management system that organizations use to align business activities with the vision statement, mission statement, and strategy of the organization. It provides a framework to translate a strategy into operational terms, thus driving both performance and behavior. The BSC was originated by Drs. Robert Kaplan and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics.
Background
The concept of the Balanced Scorecard was first introduced in the early 1990s through the work of Robert Kaplan and David Norton of Harvard Business School. While traditional organizational performance measures focused largely on financial metrics, Kaplan and Norton proposed the Balanced Scorecard approach to provide a more 'balanced' view of organizational performance. By incorporating non-financial measures, the Balanced Scorecard seeks to provide managers with a more comprehensive understanding of the business and a better means of aligning strategic objectives with operational outcomes.
Components of the Balanced Scorecard
The Balanced Scorecard consists of four perspectives: Financial, Customer, Internal Process, and Learning & Growth. Each perspective is interrelated and influences the others. The perspectives collectively cover a range of performance metrics that provide a balanced view of the organization's performance.
Financial Perspective
The Financial perspective covers the financial objectives of an organization and allows managers to track financial success and shareholder value. It typically includes measures such as operating income, return on capital employed, and economic value added.
Customer Perspective
The Customer perspective covers the customer objectives such as customer satisfaction, market share goals as well as product and service attributes. The organization needs to be customer-focused and therefore it must continually measure its performance in the eyes of its customers.
Internal Process Perspective
The Internal Process perspective focuses on the internal operational goals and outlines the key processes necessary to deliver the customer objectives. It includes measures such as cost, throughput, and quality.
Learning and Growth Perspective
The Learning and Growth perspective focuses on the intangible drivers of future success such as human capital, organizational capital and information capital including skills, culture, leadership, systems, and databases.
Implementation of the Balanced Scorecard
Implementing a Balanced Scorecard system involves identifying key measures, setting targets for those measures, and aligning them with the company's strategy. The Balanced Scorecard serves as a framework for managing the implementation of strategy while also allowing the strategy itself to evolve in response to changes in the company's competitive, market, and technological environments.
Benefits of the Balanced Scorecard
The Balanced Scorecard methodology offers several benefits. It provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. It also enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth.
Criticisms of the Balanced Scorecard
Despite its popularity, the Balanced Scorecard approach has been criticized on several fronts. Some critics argue that it does not provide a complete picture of business performance and that it can be difficult to implement in practice. Others suggest that it may not be suitable for all types of organizations, particularly those in the non-profit or public sectors.
Conclusion
The Balanced Scorecard is a powerful tool for measuring and managing performance in contemporary organizations. By providing a balanced view of organizational performance, it allows managers to better understand and manage their business.