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Balanced Scorecard 01

The balanced scorecard is a strategic planning and management system used by businesses, governments, and non-profits worldwide to align activities with organizational vision and strategy. It was created by Robert Kaplan and David Norton in the 1990s to add non-financial metrics to traditional financial measures, providing a more balanced view of performance. The balanced scorecard has evolved from a performance measurement framework to a full strategic planning system that transforms strategic plans into daily directives. It provides metrics for learning and growth, internal business processes, customer satisfaction, and financial perspectives.

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14 views

Balanced Scorecard 01

The balanced scorecard is a strategic planning and management system used by businesses, governments, and non-profits worldwide to align activities with organizational vision and strategy. It was created by Robert Kaplan and David Norton in the 1990s to add non-financial metrics to traditional financial measures, providing a more balanced view of performance. The balanced scorecard has evolved from a performance measurement framework to a full strategic planning system that transforms strategic plans into daily directives. It provides metrics for learning and growth, internal business processes, customer satisfaction, and financial perspectives.

Uploaded by

Akansh Nuwal
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Balanced Scorecard Basics (BSC)

The balanced scorecard is a strategic planning and


management system that is used extensively in business and
industry, government, and non-profit 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.

It was originated by 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 in 1950’s and the work of French process
engineers who create a "dashboard" of performance measures
in the early part of the 20th century.

Gartner Group suggests that over 50% of large US firms have


adopted the BSC. More than half of major companies in the US,
Europe and Asia are using balanced scorecard approaches, with
use growing in those areas as well as in the Middle East and
Africa.
A recent global study by Bain & Co listed balanced scorecard
fifth on its top ten most widely used management tools around
the world. Balanced scorecard has also been selected by the
editors of Harvard Business Review as one of the most
influential business ideas of the past 75 years.

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 organization’s 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."

Perspectives

The balanced scorecard suggests that we view the organization


from four perspectives, and to develop metrics, collect data
and analyse it relative to each of these perspectives:

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. 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.
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.

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


analysed in terms of kinds of customers and the kinds of
processes for which we are providing a product or service to
those customer groups.

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.

Balanced Scorecard Institute


http://balancedscorecard.org/
http://balancedscorecard.org/Resources/About-the-Balanced-
Scorecard

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