Balanced Scorecard

Developed by Robert Kaplan and David Norton

What you measure is what you get. Traditionally, more focus has been given on financial measures. But now companies are looking for a balanced presentation of financial and operational measures.

The balanced scorecard allows managers to look at business from four perspectives:

Customer perspective: How do customers see us? Customers’ concerns are generally around lead time, quality (defect level), performance and service (adding value to the customer), and cost. Companies should articulate goals for these four parameters and then translate these goals into specific measures. For example:

Internal Business Perspective: What must we excel at? Excellent customer satisfaction is driven by the internal business processes, decisions and actions occurring throughout the organization. Hence the need to monitor critical internal operations. Examples of internal factors affecting customer satisfaction: cycle time, quality, employee skills and productivity, technical capability.

Innovation and Learning perspective: Can we continue to improve and create value? The customer based and internal processes perspectives are important for the current competitive successes. The company needs to develop measures to as to face the future intense global competition through continuous improvement to their existing products and processes and the ability to introduce entirely new products with expanded capabilities.
Financial Perspective: How do we look to shareholders? It measures whether company’s strategy, implementation and execution are contributing to the bottom line improvement. It includes profitability, growth and shareholder value.

Benefits of BSC

1. It brings various seemingly disparate elements of a company’s competitive agenda on a single management report
2. It guards against the sub-optimization of goals. It forces senior managers to look all the important operational measures together, whether improvement in one area has been achieved at the expense of another.