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