What is Balanced Scorecard? Definition
The Balanced Scorecard, popularized in the early 1990s, is a strategy performance management tool – organizations use it to identify and improve various internal functions and external outcomes. It’s a framework that provides a comprehensive view of an organization, from strategy to execution. The aim is to ensure that all departments are working together to achieve the company’s overall objectives. The Balanced Scorecard has been used by some of the world’s most successful organizations. In this blog post, we will explore what the Balanced Scorecard is and how it can be used to improve organizational performance.
What is the Balanced Scorecard?
The Balanced Scorecard is a performance management tool that helps organizations to track and monitor their progress towards strategic objectives. It provides a comprehensive picture of an organization’s performance, by measuring both financial and non-financial indicators. The scorecard is designed to help managers identify and manage areas of improvement, as well as track progress over time.
The four main perspectives of the Balanced Scorecard are:
1. Financial Perspective: How do we look to our shareholders?
2. Customer Perspective: How do our customers see us?
3. Internal Business Perspective: What must we excel at?
4. Learning & Growth Perspective: How can we sustain our ability to improve and create value?
By tracking progress across these four perspectives, organizations can get a well-rounded view of their performance, and identify areas where they need to focus their efforts in order to achieve their strategic objectives.
The Four Perspectives of the Balanced Scorecard
The four perspectives of the balanced scorecard are financial, customer, internal business process, and learning & growth.
The financial perspective measures whether the company is creating value for shareholders. The customer perspective measures whether the company is meeting customers’ needs and expectations. The internal business process perspective measures whether the company has the right processes in place to deliver superior products and services. The learning & growth perspective measures whether the company has the right people and systems in place to continuously improve performance.
The Origins of the Balanced Scorecard
The balanced scorecard is a tool used by organizations to measure and assess their performance. The origins of the balanced scorecard can be traced back to the early 1990s, when Dr. Robert Kaplan and Dr. David Norton developed the concept as a way to help organizations better align their strategies with their overall objectives.
Since then, the balanced scorecard has been adopted by organizations of all sizes across a variety of industries. While its use has evolved over time, the basic premise of the tool remains the same: it provides organizations with a comprehensive view of their performance, allowing them to identify areas of improvement and track progress over time.
If you’re interested in learning more about the balanced scorecard, check out our article on What is Balanced Scorecard? Definition & Examples.
How to Use the Balanced Scorecard
The Balanced Scorecard is a performance management tool that helps organizations to track and improve their performance. It is a framework that provides guidance on what to measure, how to measure it, and how to use the information to improve performance.
The four main elements of the Balanced Scorecard are:
1. Financial perspective: This perspective focuses on measures of financial performance such as profitability, return on investment, and cash flow.
2. Customer perspective: This perspective focuses on measures of customer satisfaction, retention, and loyalty.
3. Internal business process perspective: This perspective focuses on measures of product quality, cycle time, and efficiency.
4. Learning and growth perspective: This perspective focuses on measures of employee training and development, knowledge management, and organizational learning.
To use the Balanced Scorecard effectively, organizations need to define specific goals and objectives for each perspective and then select appropriate measures to track progress towards these goals. The Balanced Scorecard can be used at both the strategic and operational level to help organizations improve their performance.
Pros and Cons of the Balanced Scorecard
The balanced scorecard is a performance measurement system that provides organizations with a comprehensive view of their business. It helps managers to track and improve performance by aligning organizational goals with strategy. The balanced scorecard has its pros and cons, so let’s take a look at each one in detail.
Pros:
The balanced scorecard can help organizations to improve their performance by providing a clear and comprehensive view of the business. It can also help managers to identify areas where improvement is needed and track progress over time. Additionally, the balanced scorecard can help to ensure that organizational goals are aligned with strategy.
Cons:
The balanced scorecard may be difficult to implement and manage effectively. Additionally, it may not provide accurate or timely information if not used correctly. Finally, the balanced scorecard may place too much emphasis on financial measures of performance at the expense of other important measures.
Alternatives to the Balanced Scorecard
The Balanced Scorecard (BSC) is a strategy performance management tool – typically used by organizations to measure whether they are achieving their strategic objectives. However, the BSC is not the only tool available for measuring and managing organizational performance.
There are a number of alternative frameworks and models that can be used, depending on the specific needs of the organization. Some of the most popular alternatives include:
1. The Enterprise Performance Management (EPM) framework
2. The Six Sigma approach
3. The Malcolm Baldrige National Quality Award (MBNQA) criteria
4. The EFQM Excellence Model
5. The CAPM model
6. The PDCA cycle
7. The CIPD Profession Map
8. The Agile Manifesto
9. And many more…
Each of these frameworks has its own strengths and weaknesses, so it’s important to choose one that will best fit the needs of your organization.
Conclusion
The balanced scorecard is a performance management tool that helps organizations keep track of their progress towards strategic objectives. It does this by measuring progress in four key areas: financial, customer, internal business process, and learning and growth. The balanced scorecard is a valuable tool for organizations of all sizes because it provides a comprehensive view of how the organization is performing. If you’re looking for a way to measure and track your organization’s progress, the balanced scorecard may be the right tool for you.