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Balance score card
business performance





It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a
performance measurement framework that added strategic non-financial performance measures
to traditional financial metrics to give managers and executives a more 'balanced' view of
organizational performance. While the phrase balanced scorecard was coined in the early 1990s,
the roots of the this type of approach are deep, and include the pioneering work of General
Electric on performance measurement reporting in the 1950s and the work of French process
engineers (who created the Tableau de Bord literally, a "dashboard" of performance measures)
in the early part of the 20th century.

Meaning and definition of balance score card

The balanced scorecard is a strategic planning and management system that is used extensively
in business and industry, government, and nonprofit organizations worldwide to align business
activities to the vision and strategy of the organization, improve internal and external
communications, and monitor organization performance against strategic goals.
The balanced scorecard has evolved from its early use as a simple performance measurement
framework to a full strategic planning and management system. The new balanced scorecard
transforms an organizations strategic plan from an attractive but passive document into the
"marching orders" for the organization on a daily basis. It provides a framework that not only
provides performance measurements, but helps planners identify what should be done and
measured. It enables executives to truly execute their strategies.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the
story of past events, an adequate story for industrial age companies for which investments in
long-term capabilities and customer relationships were not critical for success. These financial
measures are inadequate, however, for guiding and evaluating the journey that information age
companies must make to create future value through investment in customers, suppliers,
employees, processes, technology, and innovation."

The balanced scorecard suggests that we view the organization from four perspectives, and to
develop metrics, collect data and analyze it relative to each of these perspectives:

1. The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both
individual and corporate self-improvement. In a knowledge-worker organization, people -- the
only repository of knowledge -- are the main resource. In the current climate of rapid
technological change, it is becoming necessary for knowledge workers to be in a continuous
learning mode. Metrics can be put into place to guide managers in focusing training funds where
they can help the most. In any case, learning and growth constitute the essential foundation for
success of any knowledge-worker organization.
Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like
mentors and tutors within the organization, as well as that ease of communication among
workers that allows them to readily get help on a problem when it is needed. It also includes
technological tools; what the Baldrige criteria call "high performance work systems."

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2. The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the
managers to know how well their business is running, and whether its products and services
conform to customer requirements (the mission). These metrics have to be carefully designed by
those who know these processes most intimately; with our unique missions these are not
something that can be developed by outside consultants.
Manufacturing excellence

Cycle, time, yield

Increase design productivity

Engineering efficiency

Reduce product launch delay

Actual launch vs plan

3. The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of
customer focus and customer satisfaction in any business. These are leading indicators: if
customers are not satisfied, they will eventually find other suppliers that will meet their needs.
Poor performance from this perspective is thus a leading indicator of future decline, even though
the current financial picture may look good.
In developing metrics for satisfaction, customers should be analyzed in terms of kinds of
customers and the kinds of processes for which we are providing a product or service to those
customer groups.
In customer perspective two umbrella-objectives:

Add and retain high-value customers. We need to support (see below how) this
objective with customer value proposition details, such as product quality, shopping
experience and other.
Achieve and retain win-win partner relations. This umbrella objective need to be
supported with the specific objectives that form the value for the partners, for example
reduced product price, product availability, and a partner support program.

4. The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate
funding data will always be a priority, and managers will do whatever necessary to provide it. In
fact, often there is more than enough handling and processing of financial data. With the
implementation of a corporate database, it is hoped that more of the processing can be
centralized and automated. But the point is that the current emphasis on financials leads to the
"unbalanced" situation with regard to other perspectives. There is perhaps a need to include
additional financial-related data, such as risk assessment and cost-benefit data, in this category.

Strategy Mapping
Strategy maps are communication tools used to tell a story of how value is created for the
organization. They show a logical, step-by-step connection between strategic objectives (shown
as ovals on the map) in the form of a cause-and-effect chain. Generally speaking, improving
performance in the objectives found in the Learning & Growth perspective (the bottom row)
enables the organization to improve its Internal Process perspective Objectives (the next row up),
which in turn enables the organization to create desirable results in the Customer and Financial
perspectives (the top two rows).

Building and implementing balance score card

1. Preliminary assessment: the balance score card building process starts with an
assessment of the organizations mission and vision, challenges, enablers, and values.
This step also includes preparing a change management plan for the organization, and
conducting a focused communication workshop to identify key messages, media, outlets,
and timings.
2. Strategy
Step Two (Strategy) is about determining the strategic themes, including strategic results,
strategic themes, and perspectives, which are developed to focus attention on the
customer needs and their value proposition. The most important element of this step is to
ensure that you have unpacked what your customers are looking for from your
organisation in terms of function, relationship and image to determine whether you are
providing value to your customers.
3. Objectives
Step Three (Objectives) is about determining your organisations objectives that is your
organisations continuous improvement activities, which should link to your strategic
themes, perspectives and strategic results.

4. Strategy Maps
The objectives designed in Step Three are linked in cause-effect relationships to produce
a strategy map for each strategic theme. The theme strategy maps are then merged into an
overall corporate strategy map that shows how the organisation creates value for its
customers and stakeholders.
5. Performance Measures
In Step Five, the performance measures are developed for strategic objectives.
Performance measures should be defined clearly, differentiating the outcome and output
measures, as well as the leading measures (future expected performance) and lagging
measures (past performance history). In this step, you will also design your performance
targets. This might be perceived as the most difficult and confusing step, so it is
important that a bit of time is apportioned so that the performance measures will be
6. Strategic Initiatives
In Step Six, the strategic initiatives are developed that support the strategic objectives.
This is where the projects that have to be undertaken to ensure the success of the
organization (the extent to which the organization fulfills its mandate or vision) are
drafted and assigned. To build accountability throughout the organization, performance
measures and strategic initiatives are assigned to owners and documented in data
definition tables.
7. Software and Automation
Step Seven (Software and Automation) involves automating the Balanced Scorecard
system, and consists of analyzing software
8. Cascading
The enterprise level scorecard is cascaded down into business and support unit
scorecards, meaning the organizational level scorecard.
9. Evaluation
In this step , balance score card is now evaluated considering the issues like: whether
organizational strategies have been effectively working or not?

Utilising the balance score card as a strategic management tool:

The balanced scorecard relies on four processes to bind short-term activities to long-term
1. Translating the vision.
The first new processtranslating the visionhelps managers build a consensus around the
organizations vision and strategy. Despite the best intentions of those at the top, lofty statements
about becoming best in class, the number one supplier, or an empowered organization
dont translate easily into operational terms that provide useful guides to action at the local level.
For people to act on the words in vision and strategy statements, those statements must be
expressed as an integrated set of objectives and measures, agreed upon by all senior executives,
that describe the long-term drivers of success.
2. Communicating and linking.
The second processcommunicating and linkinglets managers communicate their strategy up
and down the organization and link it to departmental and individual objectives. Traditionally,
departments are evaluated by their financial performance, and individual incentives are tied to
short-term financial goals. The scorecard gives managers a way of ensuring that all levels of the
organization understand the long-term strategy and that both departmental and individual
objectives are aligned with it.
3. Business planning.
The third processbusiness planningenables companies to integrate their business and
financial plans. Almost all organizations today are implementing a variety of change programs,
each with its own champions, gurus, and consultants, and each competing for senior executives
time, energy, and resources. Managers find it difficult to integrate those diverse initiatives to
achieve their strategic goalsa situation that leads to frequent disappointments with the
programs results. But when managers use the ambitious goals set for balanced scorecard
measures as the basis for allocating resources and setting priorities, they can undertake and
coordinate only those initiatives that move them toward their long-term strategic objectives.
4. Feedback and learning.
The fourth processfeedback and learninggives companies the capacity for what we call
strategic learning. Existing feedback and review processes focus on whether the company, its
departments, or its individual employees have met their budgeted financial goals. With the
balanced scorecard at the center of its management systems, a company can monitor short-term
results from the three additional perspectivescustomers, internal business processes, and
learning and growthand evaluate strategy in the light of recent performance. The scorecard
thus enables companies to modify strategies to reflect real-time learning.

Benefits of Balanced Scorecard

The benefits of the balanced scorecard approach in measuring performance are:

Gives the complete picture of the employee as well as the organizational performance.
It guides users in determining the critical success factors and performance indicators.
Strategic review or analysis of the organizational capabilities and performance.
Focusing the whole organization on the few key things needed to create breakthrough
Integrating and directing the performance and efforts from the lowest levels in the
organization to achieve excellent overall performance.

Disadvantages of Balanced Scorecard

Balanced Scorecard performance is subjective. Unlike quality levels, it cannot be

quantified except by surveys or management opinion. Mandating a specific number of
training hours per year to meet an learn and innovate doesnt necessarily mean all
employees take courses that help them in their jobs or that attending classes to fill in the
quota is better than working on the assembly line. Demanding high employee moralecan
hurt managers, since morale is not always a managers purview. Setting a goal of high
morale along with lay offs to save money is counter-productive.

Balanced Scorecard does not include direct financial analysis of economic value
or risk management. Goal selection under Balanced Scorecard does not automatically
include opportunity cost calculations.

Because Balanced Scorecard can add a new type of reporting without necessarily
improving quality or financial numbers, it can seem to be an additional set of non-valueadded reporting or, worse, a distraction from achieving actual goals.

Overly abstract Balanced Scorecard goals are easy to reach but hard to quantify.
When a company is failing to meet its Balanced Scorecard goals, the goals may be reinterpreted to the current state of affairs to meet success or avoid failure. Altering the
acceptance criteria for a good balanced scorecard is easier than altering the acceptance
criteria for mechanical parts and hence the reject rate.