"The Balanced Scorecard helps to translate strategy into action by aligning the organization's activities with its vision and strategy.." — Robert S. Kaplan.
Traditionally , companies are relying on financial indicators to measure their performance that are reported in Balance Sheet such as: Machine Building, Cash.
The Idea Behind The Balanced Scorecard
The Balanced Scorecard framework is based on the idea that organizations should not only focus on financial metrics, but also on other critical aspects such as:
- Satisfaction of the Customer
- Efficiency of Work Processes
- Skills of the Employee
You will not see these indicators on company’s financial statements.
The balanced scorecard idea was developed by Robert S. Kaplan and David P. Norton in the early 1990s.
What is Balanced Scorecard
A balanced scorecard is a strategic planning and management system that organizations use to focus on strategy and improve performance.
It allows managers to look at the business from four important perspectives: financial, customer, business process, and learning and growth.
The Perspective of the Balanced Scorecard.
It incorporates four key perspectives to provide a more comprehensive view:
Financial Perspective | How do we look to shareholders? |
Customers Perspective | How do customer see us? |
Learning & Growth Perspective | Can we continue to improve and create value? |
Internal Process Perspective | What must we excel at? |
1. Financial Perspective | How do we look to shareholders?
Financial performance measures indicate whether the company’s strategy, implementation, and execution are contributing to bottom-line improvement. Typical financial goals have to do with profitability, growth, and shareholder value.
It includes measures such as:
- Profitability
- Revenue Growth
- Cash Flow Management
- Return on Assets
- Market Share
2. Customer Perspective | How do customer see us?
This perspective involves tracking metrics related to customer satisfaction, loyalty, retention, acquisition, and market share.
It helps you answer questions like:
- Are customers satisfied with our products or services?
- Are they likely to recommend us to others?
- How loyal are our customers?
- What is our market share compared to competitors?
- Are we meeting or exceeding customer expectations?
3. Internal Process Perspective | What Must We Excel at?
It's about making sure that the internal operations and activities of the organization are running smoothly and efficiently.
This includes things like:
- Doing things efficiently
- Maintaining high quality.
- Coming up with new ideas:
- Getting things done quickly
- Managing Risks
4. Learning & Growth Perspective | Can We Continue to Improve and Create Value?
This perspective focuses on the organization's capacity for growth and improvement. It includes metrics related to employee satisfaction, skills development, and organizational culture.
It addresses questions like:
- Are our employees motivated and satisfied with their work?
- Are we providing opportunities for skill development and learning?
- Is our organizational culture conducive to innovation and growth?
- Are we attracting and retaining top talent?
Implementing the Balanced Scorecard
- Make sure you have a clear vision and strategy
- Find the performance categories that best link your vision and strategy to success. (Here are some different examples: service standards, thought leadership, marketing activity, performance management, internal morale)
- For each perspective, define a small number of objectives that support your vision and strategy
- Develop standards or ways to measure progress and build simple systems to monitor and communicate performance against each perspective
- Spread the word throughout your organization that these measures will drive your reward and promotion mechanisms
- Monitor performance and compare it with your objectives
- Take action to bring performance in line with your objectives
Fact Sheet and Statistics
Balanced Scorecard - The Example
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