Balanced Scorecard

The Balanced Scorecard, referred to as the BSC, is a framework to implement and manage
strategy. It links a vision to strategic objectives, measures, targets, and initiatives. It balances
financial measures with performance measures and objectives related to all other parts of the
organisation. It is a business performance management tool.

It was originally published by Dr Robert Kaplan and Dr David Norton as a paper in 1992.
And then formally as a book in 1996. Both the paper and the book led to its widespread
success. It is interesting to note that although Kaplan and Norton published the first paper,
they were anomalously referenced in a work by Art Schneiderman who is believed to be the
balanced scorecard creator.

Balanced Scorecard Definition - Balanced Scorecard is a performance based metric which

companies used for strategic management. It improves the internal functions and external
results of the business.

Balanced Scorecard Meaning - Balanced scorecard basically connects dot between the
strategic part of the organization and the operational elements. It make sure that mission,
vision and core values of the organization are well reflected in the objective, initiatives and
measures taken by the employees. It also checks the strategic performance is on the line to
strategic focus areas.

The strategic management and planning system used by organization is known as balanced
scorecard (BSC). The balance scorecard is often used for purpose such as-

1. To communicate well about what the organization wants to accomplish

2. To align the daily work of employees with organizational strategy

 3. To prioritize on product, project and services level

4. To monitor and measure the progress of organization towards the strategic goals

In order to identify the downfall in the internal function and to improve the performance
balance scorecard is used as a performance metrics. It is very useful to provide feedback to
the employees about their performance and outcomes. The crucial step of balance scorecard
is data collection, the realistic information gathered is further interpreted by executives and
managers in the company to provide a guideline for decision making in the future.

Explain Kaplan and Norton balanced scorecard

In early 1990, Kaplan and Norton developed balance scorecard model to help firms in
measuring their performance using data (both financial and non-financial). The aim of
balance scorecard is ‘to align the work activities of organization to its vision and strategy, to
improve communication and to monitor business performance with respect to strategic
goals to be achieved’. According to the definition of balanced scorecard, it consists of
relevant aspects of financial and non-financial information which supports the efficient
business management.

Background to the Balanced Scorecard:

1. Balanced scorecard states and define that a broad picture of status of organization can
be predicted using several relevant measures.

2. Instead of single measure organization should used composite scorecard which

consists of different relevant measures linked with the goals and performance of the
organization.

3. Four perspectives are important and should be considered during analysis- customer,
finance, internal, learning and growth.

4. Critical measures should be selected by organization of each of these perspectives.

What are the 4 perspectives of balance scorecard?

The perspective of balance scorecard means to cover almost all the business aspects of the
organization. It consist of the financial front, the customer point of view, the process which is
internally follow, the learning as well as growth the organization is expecting and ongoing.
The four perspectives of balance scorecard are explained in detail as given below:

1. The Financial perspective

The obvious objectives of any organization include profit and revenue. The financial
perspective of balance scorecard deals with the financial performance and health of
organization. The financial objective popularly includes- cost saving and improved work
efficiency, more profit margins and addition in revenue sources.

2. The Customer perspective

The customer focused organization always work on needs and wants of customer. If an
organization wants to achieve the set financial goal then it has to know what need to be
delivered to the customer. From customer perspective the company can set objects such as-
improvement in customer service and satisfaction, increase market share and hike in brand
awareness.

3. The Internal Process perspective

Now as the financial objective is set and company is aware about the wants of customer, then
comes the processes which need to put properly to reach the set financial and customer
related goal. Here the organization has to set the internal operational objectives. The company
has to decide the actions which must be executed in order to dive the performance. The
internal process objective might cover- work process improvement, quality optimization and
improvement in capacity utilization.
 4. The Learning and Growth perspective

This perspective is related to intangible drivers of organizational performance. The spectrum

of this perspective is very broad and thus segregated into parts such as human capital,
information capital and organizational capital. The objectives of learning and growth
perspective are- assessment of skills, talent and knowledge, information about safety system,
infrastructure investment and data protection system, updates linked to staff engagement,
employee alignment, knowledge management and teamwork.

Balanced Scorecard advantages and disadvantages

Balanced scorecard is a popular approach which has its own set of advantages and
disadvantages. It helps organization in certain aspects but it gets criticized by experts for the
difficult changes organization has to put up to implement balance scorecard.

Advantages of Balanced Scorecard

1. It builds up the necessary focus required for the company to create a extraordinary
performance.

2. It integrates variety of business programs.

3. It makes the organizational strategy operational by reflecting it in performance targets

and measure.

4. It connects the corporate level with the local managers to see what actions have to be
taken to improve organizational efficiency.

5. It improves the communication within the organization and provide a feeling of

togetherness among employees.

Disadvantages of Balanced Scorecard

1. It increases number of performance indicators which can be confusing for the

employees.

2. It is very difficult to manage all the four perspective and create a required balance.

3. Although the employees put hard work to make internal process effective, the senior
management will still look for results in terms of instant financial performance.

4. The balance scorecard system has to be updated regularly to make it relevant to the
given point of action.