The Balanced Scorecard (BSC) was originally developed by Dr. Robert Kaplan of Harvard
University and Dr. David Norton as a framework for measuring organizational performance
using a balanced set of performance measures. The balanced scorecard added additional non-
financial strategic measures to the mix in order to better focus on long-term success.
Recognizing some of the weaknesses and vagueness of previous management approaches, the
balanced scorecard approach provides a clear prescription as to what companies should
measure in order to 'balance' the financial perspective.
Kaplan and Norton describe the innovation of the balanced scorecard as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the
story of past events, an adequate story for industrial age companies for which investments in
long-term capabilities and customer relationships were not critical for success. These financial
measures are inadequate, however, for guiding and evaluating the journey that information age
companies must make to create future value through investment in customers, suppliers,
employees, processes, technology, and innovation."
About:
The balanced scorecard (BSC) is a strategic planning and management system that
organizations use to:
Mission (our purpose) ------- Vision (what we aspire for) ------- Core values (what we believe
in) ------- Strategic focus areas (themes, results and/or goals)
The BSC suggests that we view the organization from four perspectives, and to develop
objectives (continuous improvement activities), measures (or key performance indicators, or
KPIs, which track strategic performance), targets (our desired level of performance), and
initiatives (projects that help you reach your targets) relative to each of these points of view:
Financial: views organizational financial performance and the use of financial resources
Customer/Stakeholder: views organizational performance from the point of view the
customer or other key stakeholders that the organization is designed to serve
Internal Process: views organizational performance through the lenses of the quality and
efficiency related to our product or services or other key business processes
Organizational Capacity (originally called Learning and Growth): views
organizational performance through the lenses of human capital, infrastructure, technology,
culture and other capacities that are key to breakthrough performance
Strategic Objectives:
Strategic Objectives are the continuous improvement activities that an organisation must do to
implement strategy. The break down the more abstract concepts like mission and vision into
actionable steps. Actions that the organization take should be helping in achieve the strategic
objectives. Examples might include: Increase Revenue, Improve the Customer or Stakeholder
Experience, or Improve the Cost-Effectiveness of Our Programs.
Strategy Mapping:
One of the most powerful elements in the BSC methodology is the use of strategy mapping to
visualize and communicate how value is created by the organization. A strategy map is a simple
graphic that shows a logical, cause-and-effect connection between strategic objectives (shown
as ovals on the map). Generally speaking, improving performance in the objectives found in
the Organizational Capacity perspective (the bottom row) enables the organization to improve
its Internal Process perspective (the next row up), which, in turn, enables the organization to
create desirable results in the Customer and Financial perspectives (the top two rows).
Measures:
For each objective on the strategy map, at least one measure or Key Performance Indicator
(KPI) will be identified and tracked over time. KPIs indicate progress toward a desirable
outcome. Strategic KPIs monitor the implementation and effectiveness of an organization's
strategies, determine the gap between actual and targeted performance and determine
organization effectiveness and operational efficiency.
Good KPIs:
Provide an objective way to see if strategy is working
Offer a comparison that gauges the degree of performance change over time
Focus employees' attention on what matters most to success
Allow measurement of accomplishments, not just of the work that is performed
Provide a common language for communication
Help reduce intangible uncertainty
Cascading:
Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to
as Tier 1) down to first business units, support units or departments (Tier 2) and then teams or
individuals (Tier 3). The end result should be focus across all levels of the organization that is
consistent. The organization alignment should be clearly visible through strategy, using the
strategy map, performance measures and targets, and initiatives. Scorecards should be used to
improve accountability through objective and performance measure ownership, and desired
employee behaviors should be incentivized with recognition and rewards.
Cascading strategy focuses the entire organization on strategy and creating line-of-sight
between the work people do and high level desired results. As the management system is
cascaded down through the organization, objectives become more operational and tactical, as
do the performance measures. Accountability follows the objectives and measures, as
ownership is defined at each level. An emphasis on results and the strategies needed to produce
results is communicated throughout the organization. This alignment step is critical to
becoming a strategy-focused organization.
Performance Analysis:
Once a scorecard has been developed and implemented, performance management software
can be used to get the right performance information to the right people at the right time.
Automation adds structure and discipline to implementing the Balanced Scorecard system,
helps transform disparate corporate data into information and knowledge, and helps
communicate performance information.
Development:
A key benefit of using a disciplined framework is that it gives organizations a way to connect
the dots between the various components of strategic planning and management, meaning that
there will be a visible connection between the projects and programs that people are working
on, the measurements being used to track success, the strategic objectives the organization is
trying to accomplish and the mission, vision and strategy of the organization.
Types of Balanced scorecards
50% of the examined companies that use the BSC appeared to work with a type I BSC,
21% with a type II BSC and
29% with a type III BSC.
Only the companies that use type III BSC are in position to fully benefit of the BSC as a
performance management system that bridges the gap between strategic plans and real
activities. However, linking the reward system to the BSC has some risks [KN96b]
Challenges in implementation: