Brief on Balanced Scorecard
The concept of the balanced scorecard was first introduced in the HBR in 1992 in a paper published by Robert S Kaplan and David P Norton. Kaplan and Norton published their ideas in full in The Balanced Scorecard: Translating Strategy into Action. The paper muted an idea which is also focused on human issues as well as financial ones. By the mid-1990s other organizational thinkers had taken up Kaplan and Norton's work and modified the design method of balanced scorecards.
The BSC is a management system and a way of looking at organization’s strategic goals and bigger picture. Conventionally, companies have judged their health through financial health. Though financial measures are definitely important, but they represent a part of the picture and are generally focused on short-term. So for long term perspective it is very important to include other aspects as well. The name “balanced scorecard” gives an idea of looking at strategic measures in addition to traditional financial measures to get a more “balanced” view of performance.
It is a tool of strategic importance being used by managers to keep track of the execution of activities and to monitor and to control the consequences arising from these actions. The BSC framework is used to implement strategy from four perspectives:
Customers - The customer perspective addresses the general mission statement on customer’s service and it must be translated into specific measures that reflect the factors that really matter to customers e.g. Are you winning new business through customer satisfaction? How to keep your existing customers happy? How are you viewed in your industry compared to your competitors? It is a forward looking indicator of success and it directly impacts how much financial success an organization will achieve.
Internal business processes - The internal business process perspective addresses the focus on those critical internal operations that enable the organization to satisfy customers’ needs. It’s all about efficiency and reducing waste activities and doing things first time right. This perspective addresses questions like Obstacles standing between new ideas and execution? How quickly an organization adapt to changing business conditions? This perspective also encourages to look at bigger picture of organization and also making organization thinks what customers actually want from them.
Learning and growth - The learning and growth perspective addresses ability to change and improve to achieve vision. The learning and growth perspective looks at your overall corporate culture. Technology plays a major role in learning and growth and how people able to use the latest devices and software? What are you doing to make sure your organization is staying ahead of your competition?
Financial performance - The financial perspective addresses the success of strategy implementation and execution and there contributing to bottom-line improvement. Just because we’re taking a balanced look at your organization doesn’t mean that we want to ignore traditional financial measures. Quite the contrary, the financial perspective is a major focus of the balanced scorecard. Are you making money? Are your shareholders happy? The financial health of your organization may be a lagging indicator showing the result of past decisions, but it’s still incredibly important. Money keeps companies alive, and the financial perspective focuses solely on that.
BSC gives executives the information from four different perspectives, the balanced scorecard minimizes information overload by limiting the number of measures used. The balanced scorecard forces managers to focus on the handful of measures that are most critical not on those measures which are not important for organizations success.
BSC brings together, in a single document, many of the seemingly contrasting elements of an organization’s competitive agenda customer orientation, reducing response time, improvement in quality and managing organization’s long term strategic intent. It ensures that the prime focus must always be of prime importance and also it arms them with knowledge that whether improvement in one area is achieved at the expense of another.