Balanced
Scorecard As a Performance Measurement Tool
The background
- No single measures can give a
broad picture of the organisation’s health.
- So instead of a single measure
why not a use a composite scorecard involving a number of different
measures.
- Kaplan and Norton devised a
framework based on four perspectives – financial, customer, internal and
learning and growth.
- The organisation should select
critical measures for each of these perspectives.
Origins of the balanced scorecard
R.S. Kaplan and D.P.
Norton -”The Balanced Scorecard- measures that drive performance”. Harvard
Business Review, January 1992
- -”The Balanced Scorecard”,
Harvard University Press, 1996.
- “Kaplan and Norton suggested
that organisations should focus their efforts on a limited number of
specific, critical performance measures which reflect stakeholders key
success factors” (Strategic Management, J. Thompson with F. Martin)
What is the balanced scorecard?
The
Balanced Scorecard is a strategic planning and management system used to align
business activites to the vision and strategy of the organization by monitoring
perfomance against strategic goals.
- A system of corporate appraisal
which looks at financial and non-financial elements from a variety of
perspectives.
- An approach to the provision of
information to management to assist strategic policy formation and
achievement.
- It provides the user with a set
of information which addresses all relevant areas of performance in an
objective and unbiased fashion.
- A set of measures that gives
top managers a fast but comprehensive view of the business.
The balanced scorecard…
- Allows managers to look at the
business from four important perspectives.
- Provides a balanced picture of
overall performance highlighting activities that need to be improved.
- Combines both qualitative and
quantitative measures.
- Relates assessment of
performance to the choice of strategy.
- Includes measures of efficiency
and effectiveness.
- Assists business in clarifying
their vision and strategies and provides a means to translate these into
action.
In what way is the scorecard a balance?
The scorecard produces a
balance between:
- Four key business perspectives:
financial, customer, internal processes and innovation.
- How the organisation sees
itself and how others see it.
- The short run and the long run
- The situation at a moment in
time and change over time
Advantages of using the balanced scorecard
- Helps companies focus on what
has to be done in order to create a breakthrough performance
- Acts as an integrating device
for a variety of corporate programmes
- Makes strategy operational by
translating it into performance measures and targets
- Helps break down corporate
level measures so that local managers and employees can see what they need
to do well if they want to improve organisational effectiveness
- Provides a comprehensive view
that overturns the traditional idea of the organisation as a collection of
isolated, independent functions and departments
Dis Advantages of using the balanced scorecard
·
It is not a tool you can
just think up one night to solve a problem. Instead, it is recommended that you
hold a meeting to plan out what goals you would like to see your company reach
in each of the four above areas.
·
while the balanced
scorecard gives you an overall view of the four areas for concern in business
growth and development, these four areas do not paint the whole picture. The
financial information included on the scorecard is limited. Instead, to be
successfully implemented, the balanced scorecard must be part of a bigger
strategy for company growth
·
many companies use
metrics that are not applicable to their own situation. It is vitally important
when using balanced scorecards to make the information being tracked applicable
to your needs. Otherwise, the metrics will be meaningless.
4 Business Perspectives of Balance
Score Card
Financial Perspectives
What must we do to create
sustainable economic value?
Internal
Business Process Perspectives
To satisfy our stakeholders what
must be our levels of productivity, efficiency, and quality?
Learning and
Growth Perspectives
•
How does our
employee performance management system, including feedback to employees,
support height performance?
Customer Perspectives
What do our Customer require from s and
how are we doing according to those requirements
