Balanced scorecard Guide, Meaning , Facts, Information and Description

In 1992, Kaplan and Norton introduced the balanced scorecard, a method intended to give managers a fast, comprehensive view of the performance of a business.

The financial performance of an organization is fundamental to its success. Even not-for-profit organizations must make the books balance. Financial figures suffer from two major drawbacks:

• They are historical. Whilst they tell us what has happened to the organization they may not tell us what is currently happening, or be a good indicator of future performance.
• It is common for the current market value of an organization to exceed the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value can be thought of as intangible assets. These figures are not measured by normal financial reporting.

The scorecard seeks to measure a business from the following perspectives:

• Financial perspective - this will be familiar to business managers and measures such as financial ratios, debtors or cash flow common.
• Customer perspective - seeks to measure aspects directly impact on customers such as the time taken to deal with calls, customer surveys, complaints or competitive rankings.
• Internal business perspective - looks at the impact of internal processes on the business - how long is spent prospecting? How much rework is required? How successful are we when tendering for new business?
• Innovation and learning perspective - How much revenue comes from new ideas? How many employee suggestions are there? How do we train staff?

The specific measures within each of the perspectives will be chosen to reflect the drivers of that business. The method can facilitate the separation of strategic policymaking from the implementation, so that organizational goals can be broken into task oriented objectives which can be managed by front-line staff. It can also help detect correlation between activities. For example, we might find that the internal business objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business.

Kaplan and Norton found that companies are using the scorecard to:

• Clarify and up date strategy
• Communicate strategy throughout the company
• Align unit and individual goals with strategy
• Link strategic objectives to long term targets and annual budgets
• Identify and align strategic initiatives
• Conduct periodic performance reviews to learn about and improve strategy

In many senses, the objectives chosen are leading indicators of future performance. Effort we make today is reflected in the future profits of the company. In this way, current expenditure can be viewed as investment in the future of the company.

In 1997 Kurtzman found that 64% of companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard.

See also

• Strategic management

References

• Kaplan R S and Norton D P (1992) "The balanced scorecard: measures that drive performance", Harvard Business Review Jan – Feb pp71-80.

• Kurtzman J (1997) "Is your company off course? Now you can find out why", Fortune Feb 17 pp128- 30

• External Link: Balanced Scorecard Basics

• The Balanced Scorecard User Group

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