The Balanced Scorecard – A Review

1. When explaining about the balanced scorecard (BSC) mainly it highlights two components. One is the “balanced” and the other “scorecard”. The structure of the balanced scorecard emphasized on how to think about the organization holistically. According to Robert S. Kaplan and David P. Norton we have to look in to the organizations in four different ways, not like different departments, but in a balanced perspective. Balanced Scorecard can be applied to any kind of business, public or private sector, large or small. The BSC focuses on clear measurable targets in four key perspectives. They are the financial perspective, customer perspective, internal business process perspective, and the knowledge and growth or the people perspective.

2. So we have to think about these four perspectives as a strategy framework of the organization in which the strategic plan is effective, integrated and holistic. These perspectives can be visualized as a strategy map of the strategic plan. Then about the scorecard, which is made in relations with the balanced strategic plan of the organization. Simply the scorecard can be divided in to four categories as in the example below.

Goal	Measure	Target	Initiatives
Eg: Improve customer satisfaction loyalty by 30%	·         Customer survey score (lag indicator) ·         Delivery time (lead indicator – a driver)	·         30% ·         Less than 3 days

And the goal will include the balance of all four perspectives.

3. The perspectives map out to view the organization’s vision and strategy. This in turn shows a formal or informal strategy map, which is the organizational strategy based on the four balanced scorecard perspectives. Within each perspective we can identify small number of strategic objectives, setting targets to the objectives and then measuring against the targets continuously to determine success or failure. Measurement is undertaken through performance measures, which should be small, easily understood and acted upon quickly. Performance measures should contain both leading and trailing measures. According to the authors we need to concentrate more on the trailing measures, because they are easy to measure and they are accurate. But leading measures are harder to identify but they are the only measures that can help people to succeed. It is better to focus on a small number of things that will influence change. A simple case of the law of diminishing returns it easy to succeed in few easy strategies than more strategies which are difficult.

4. The balance scorecard has become an extremely powerful tool to ensure alignment through strategy maps, improve communication through common language and lead to a better performing organization. So to answer the question “can business operate with a balanced scorecard?”, according to the Kaplan and Norton the managers of the organization are like pilots and navigating today’s enterprises through complex competitive environments is at least complicated by dealing with different instruments similar to an airplane. These instruments are like the four perspectives as described above. And thus have to be perfectly balanced to prepare the correct scorecard for performance management.

5. Financial and Non-financial Measures together can be a balanced scorecard. But according to many consultants the basic rational for a BSC is when they supplement traditional financial measures with non-financial measures. According to Robert S. Kaplan and David P. Norton in observing and building more than 100 scorecards revealed that the financial and non-financial measures on a BSC should be derived from the business-unit’s unique strategy.

6. The four perspectives of the scorecard permit a balance between short-term and long-term objectives, between desired outcomes and the performance drivers of those outcomes, and between hard objective measures and softer, more subjective measures. All these four perspectives in terms of the strategic measures can be described using a diagram as shown below.

 

7. The financial perspective. The financial perspective looks at financial objectives and measures and also says how we are looking at our shareholders. The financial performance measures define the long-term objectives of the business unit.

8. The Customer perspective. It looks at the customer satisfaction, which is how do our customers see us? And what value we provide to our customers in order to achieve our financial goals. The customer perspective typically includes several generic measures of the successful outcomes from a well-formulated and implemented strategy. The generic outcome measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in target segments.

9. The internal processes perspective. This focuses on how well the business is running, which in order to achieve our financial goals and to add value to our customers, and then what internal process must we execute to achieve the customer and financial perspectives. In the internal business process perspective, executives identify the critical internal processes in which the organization must excel. The internal perspective reveals two differences between traditional and the BSC approaches to performance measurements. The BSC approach identified an entirely new process at which the organization must excel to meet customer and financial objectives.

10. The people (knowledge and growth) perspective. This looks at people, their skills, training, leadership, and knowledge the organization should have in order to drive the internal processes to provide value to the customers, and to reach to our financial goals. And also systems and organizational procedures.

11. When summarizing the balanced scorecard it is a simple tool for measuring performance which links multiple scorecard measures to a single strategy. Head of organization can sit with the other department heads and discuss about the organization’s strategy and performance in all four perspectives.