Balanced Scorecards

Balanced Scorecards

Elaborated by David Norton and Robert Kaplan from Harvard Business School, the Balanced Scorecard is a performance measurement framework widely used in strategic planning and management. The balanced scorecard diagram has at its core the vision and the strategy of the company, which is converted into a coherent set of objectives, targets, measures and initiatives in terms of finance, customers, learning and growth, and internal business processes. The diagram is shown in Figure above.

From a financial perspective, traditional financial reporting is usually focused on the company’s performance in the past with little information provided regarding its situation in the future. Now organizations have new information needs to measure, e.g. changing industries, customers and new technologies, and the use of shareholder value.

The Customer perspective is related to customers and their level of satisfaction which can be easily measured. For example, are customers happy or not, do we meet their needs, from what market segments do they come from, do they stay after the initial transaction, etc. are all very important for customer management and can be determined by the scorecards.

Internal Business Processes covers all business operations and focuses on the measurement of value, description of the value chain, how value is delivered to other parties and the level of innovation, quality and responsiveness in an organization.

The last area is learning and growth which tries to measure success in correlation to more intangible aspects such as the rate of learning and improvements over time. Both training of employees and technological support can be measured.

Ultimately, each perspective of Balanced Scorecards includes setting major objectives, establishing measures to achieve these objectives, designing specific targets for these measures and initiating action plans to meet the proposed objectives, so it can be easily used as an instrument of strategic planning.