Balance Score card as a Performance Measurement Tool

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