What is a 'Balanced Scorecard'1

A balanced scorecard is a performance metric used in strategic management to identify and

improve various internal functions of a business and their resulting external outcomes. It is used
to measure and provide feedback to organizations. Data collection is crucial to providing
quantitative results, as the information gathered is interpreted by managers and executives, and
used to make better decisions for the organization.

The balanced scorecard was first introduced by accounting academic Dr. Robert Kaplan and
business executive and theorist Dr. David Norton. It was first published in 1992 in a Harvard
Business Review article. Dr. Kaplan and Dr. Norton took previous metric performance measures
and adapted them to include nonfinancial information.
Purpose Behind the Balanced Scorecard
The balanced scorecard is used to reinforce good behaviors in an organization by isolating four
separate areas that need to be analyzed. These four areas, also called legs, involve learning and
growth, business processes, customers, and finance. The balanced scorecard is used to attain
objectives, measurements, initiatives and goals that result from these four primary functions of a
business. Companies can easily identify factors hindering company performance and outline
strategic changes tracked by future scorecards. With the balanced scorecard, they look at the
company as a whole when viewing company objectives. An organization may use the balanced
scorecard to implement strategy mapping to see where value is added within an organization. A
company also utilizes the balanced scorecard to develop strategic initiatives and strategy
objectives.

The Four Legs of the Balanced Scorecard

Information is collected and analyzed from four aspects of a business. First, learning and growth
are analyzed through the investigation of training and knowledge resources. This first leg handles
how well information is captured and how effectively employees utilize the information to convert
it to a competitive advantage over the industry.

Second, business processes are evaluated by investigating how well products are manufactured.
Operational management is analyzed to track any gaps, delays, bottlenecks, shortages or waste.

Third, customer perspectives are collected to gauge customer satisfaction with quality, price and
availability of products or services. Customers provide feedback regarding if their needs are being
met with current products.

1
https://www.investopedia.com/terms/b/balancedscorecard.asp
Finally, financial data such as sales, expenditures and income are used to understand financial
performance. These financial metrics may include dollar amounts, financial ratios, budget
variances or income targets. These four legs encompass the vision and strategy of an organization
and require active management to analyze the data collected. Therefore, the balanced scorecard is
often referred to as a management tool, not a measurement tool.

Balanced Scorecard Basics2

The balanced scorecard (BSC) is a strategic planning and management system that organizations
use to:
 Communicate what they are trying to accomplish
 Align the day-to-day work that everyone is doing with strategy
 Prioritize projects, products, and services
 Measure and monitor progress towards strategic targets

The system connects the dots between big picture strategy elements such as mission (our purpose),
vision (what we aspire for), core values (what we believe in), strategic focus areas (themes, results
and/or goals) and the more operational elements such as objectives (continuous improvement
activities), measures (or key performance indicators, or KPIs, which track strategic performance),
targets (our desired level of performance), and initiatives (projects that help you reach your
targets).

2
www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard
Who Uses the Balanced Scorecard (BSC)?

BSCs are used extensively in business and industry, government, and nonprofit organizations
worldwide. 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 the BSC, 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, a list
that includes closely-related strategic planning at number one. BSC has also been selected by the
editors of Harvard Business Review as one of the most influential business ideas of the past 75
years.

BSC Terminology: Perspectives

The BSC suggests that we view the organization from four perspectives, and to develop objectives,
measures (KPIs), targets, and initiatives (actions) relative to each of these points of view:
 Financial: often renamed Stewardship or other more appropriate name in the public sector,
this perspective views organizational financial performance and the use of financial resources
 Customer/Stakeholder: this perspective views organizational performance from the point of
view the customer or other key stakeholders that the organization is designed to serve
 Internal Process: views organizational performance through the lenses of the quality and
efficiency related to our product or services or other key business processes
 Organizational Capacity (originally called Learning and Growth): views organizational
performance through the lenses of human capital, infrastructure, technology, culture and other
capacities that are key to breakthrough performance

BSC Terminology: Strategic Objectives

Strategic Objectives are the continuous improvement activities that we must do to implement
strategy. The break down the more abstract concepts like mission and vision into actionable steps.
Actions that your organization take should be helping you achieve your strategic objectives.
Examples might include: Increase Revenue, Improve the Customer or Stakeholder Experience, or
Improve the Cost-Effectiveness of Our Programs.

BSC Terminology: Strategy Mapping

One of the most powerful elements in the BSC methodology is the use of strategy mapping to
visualize and communicate how value is created by the organization. A strategy map is a simple
graphic that shows a logical, cause-and-effect connection between strategic objectives (shown as
ovals on the map). Generally speaking, improving performance in the objectives found in the
Organizational Capacity perspective (the bottom row) enables the organization to improve its
Internal Process perspective (the next row up), which, in turn, enables the organization to create
desirable results in the Customer and Financial perspectives (the top two rows).

BSC Terminology: Measures (Key Performance Indicators)

For each objective on the strategy map, at least one measure or Key Performance Indicator (KPI)
will be identified and tracked over time. KPI’s indicate progress toward a desirable outcome.
Strategic KPIs monitor the implementation and effectiveness of an organization's strategies,
determine the gap between actual and targeted performance and determine organization
effectiveness and operational efficiency.
Good KPIs:
 Provide an objective way to see if strategy is working
 Offer a comparison that gauges the degree of performance change over time
 Focus employees' attention on what matters most to success
 Allow measurement of accomplishments, not just of the work that is performed
 Provide a common language for communication
 Help reduce intangible uncertainty

BSC Terminology: Cascading

Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to
as Tier 1) down to first business units, support units or departments (Tier 2) and then teams or
individuals (Tier 3). The end result should be focus across all levels of the organization that is
consistent. The organization alignment should be clearly visible through strategy, using the
strategy map, performance measures and targets, and initiatives. Scorecards should be used to
improve accountability through objective and performance measure ownership, and desired
employee behaviors should be incentivized with recognition and rewards.

Cascading strategy focuses the entire organization on strategy and creating line-of-sight between
the work people do and high level desired results. As the management system is cascaded down
through the organization, objectives become more operational and tactical, as do the performance
measures. Accountability follows the objectives and measures, as ownership is defined at each
level. An emphasis on results and the strategies needed to produce results is communicated
throughout the organization. This alignment step is critical to becoming a strategy-focused
organization.

BSC History
The Balanced Scorecard (BSC) was originally developed by Dr. Robert Kaplan of Harvard
University and Dr. David Norton as a framework for measuring organizational performance using
a more BALANCED set of performance measures. Traditionally companies used only short-term
financial performance as measure of success. The “balanced scorecard” added additional non-
financial strategic measures to the mix in order to better focus on long-term success. The system
has evolved over the years and is now considered a fully integrated strategic management system.
Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic
Management System,” Harvard Business Review (January-February 1996): 76.
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 reporting in the 1950’s and the work of French process engineers (who created
theTableau de Bord – literally, a "dashboard" of performance measures) in the early part of the
20th century.
This new approach to strategic management was first detailed in a series of articles and books by
Drs. Kaplan and Norton and built on work by Art Schneiderman at Analog Devices. Recognizing
some of the weaknesses and vagueness of previous management approaches, the balanced
scorecard approach provides a clear prescription as to what companies should measure in order to
'balance' the financial perspective.

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."

BSC Automation and Performance Analysis

Once a scorecard has been developed and implemented, performance management software can
be used to get the right performance information to the right people at the right time. Automation
adds structure and discipline to implementing the Balanced Scorecard system, helps transform
disparate corporate data into information and knowledge, and helps communicate performance
information. The Balanced Scorecard Institute formally recommends the QuickScore Performance
Information SystemTM developed by Spider Strategies and co-marketed by the Institute.

BSC Development

The Institute’s award-winning framework, Nine Steps to SuccessTM, is a disciplined, practical

approach to developing a strategic planning and management system based on the balanced
scorecard. Training is an integral part of the framework, as is coaching, change management, and
problem solving. Emphasis is placed on “teaching clients to fish, not handing them a fish”, so the
scorecard system can be sustained.
A key benefit of using a disciplined framework is that it gives organizations a way to ‘connect the
dots’ between the various components of strategic planning and management, meaning that there
will be a visible connection between the projects and programs that people are working on, the
measurements being used to track success, the strategic objectives the organization is trying to
accomplish and the mission, vision and strategy of the organization.