The Balanced Scorecard

The balanced scorecard is not an additional management tool but an essential ingredient of a performance management system throughout the organisation. According to Kaplan and Norton, pioneers in this area, this concept takes the mission and strategies of the corporation and converts them into tangible objectives and measurements. These measures are to integrate historical outcomes and future performance measures by addressing the following perspectives:

  • financial, or How do we look to stakeholders?
  • customer, or How do customers see us?
  • internal business, or Are we productive and effective?
  • innovation, learning, and growth, or Can we continue to improve and create value?

Successful development of the four aspects of the balanced scorecard provides a useful tool for implementing the objectives and strategies and obtaining feedback about company efforts toward goals. The balanced scorecard system helps the corporation to clarify and achieve consensus on company strategies; communicate its vision and strategy to all parties in the organization; tie individual and departmental goals to the mission and strategies of the entity; focus resources on needed internal process changes; indicate which initiatives should be undertaken; link objectives of the company to targets and budgets; and develop leadership and coordination of the units of a business enterprise.

Financial measures should focus on measuring the growth, profitability and risk viewed from the perspective of the shareholder. Used alone, financial measures are an inadequate way of improving performance systems as they focus on past performance and short term outcomes, rather than guidance on what can be achieved in the future.

Customer measures should focus on creating value and differentiation from the perspective of the customer and on identification and retention of the right customers. Considerations may include; customer satisfaction, customer retention/loyalty, new customer acquisition and products/customer services. These measures may require surveys which indicate the levels of satisfaction felt by customers to the range of products, quality or service and value for money provided to them.

Innovation measures should demonstrate the priorities for supporting organisational change, innovation and creativity. This could include investing in information technology, new product development, investing in people, and maintaining or enhancing market competitiveness.

Operational measures should focus on improving those things which create customer and shareholder satisfaction.  Corporations should consider which processes they need to excel in to satisfy their customers and shareholders. This could involve staff satisfaction, quality improvements, process improvements, or cost rationalisations. Process benchmarks could also be measured against external independent targets, although in larger organisations there may be scope to identify best practice internally in the first instance.

Although an organisation as a whole can have a number of measures, where these are translated into performance targets for individual managers they must be focused and prioritised.  No-one can do everything all the time and if they are given a range of measures will prioritise them themselves. Their personal priorities may not match those of the organisation. Therefore it is easier to limit the number of targets given to any individual at any one time to the 4-5 most important to the strategy of the organisation.

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