What is a Balanced Scorecard?

What is a balanced scorecard?

This is a methodology for managing a business or organisation. Typically managers used the financial accounts issued monthly or even annually to see how their business or organisation had fared, but this far too late to take any corrective action.

The balanced scorecard moves away from this and looks back up the process of generating the finances of the company to find vital non financial measures e.g. customer satisfaction scores that can be used to give early warning of impending unacceptable performance.

It was created by Drs. Robert Kaplan (Harvard Business School) and David Norton. It is a framework of financial and non financial measures that can be made ahead of the traditional financial measures. It knits them into a balanced structure so that the measure support each other and not work against each other.

To make a profit, you must have happy customers using your good products or services. To do this you need to have processes and ways of fulfilling the customers needs. Finally you need good people and good technology or innovations to combine with these processes to keep existing customers and generate new customers.

The balanced scorecard takes four perspectives:

  • Financial - satisfying the stakeholders in the company - owners, employees, suppliers e.g. the objectives of this perspective would be to achieve a certain level of profitability, or growth.
  • Customer or Market - satisfying the customers such that they buy product and services to support the Financial perspective. e.g. increase customer satisfaction, introduce a new product.
  • Internal Business Processes - supporting the Financial and Customer perspectives through having appropriate and well operated processes or procedures e.g. the sales process, the product implementation process
  • Learning, Innovation and Growth - supporting the Financial, Customer ad Internal Business Process perspectives through having the ability to change, improve and innovate through the acquisition of new knowledge, skills and technology.

For each perspective you establish goals or objectives goals or objectives and form a consolidated and coherent structure or strategy map of objectives that support one another to bring the company organisation to meet their commitments to their stakeholders.

For each set of objectives for each perspective, to need to set Key performance indicators (KPIs) so you can establish your progress towards your goals. Some of these KPIs should be lead measures e.g. Number of Sales enquires and some should be lag measures e.g. sales invoiced total

Ideally you want to create a balanced scorecard dashboard to monitor progress.

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