Professional Documents
Culture Documents
Balanced Scorecard
Balanced Scorecard
Balanced Scorecard
The origin of Balanced Scorecard is back to 1990 when Dr. David Norton and Dr. Robert Kaplan were in charge of the multicompany research on the issue of Measuring Performance in the Organization of the Future". The primary purpose of the study was on the belief that- Existing performance approaches, primarily relying on financial accounting measures. In survey, they found out that relying on the financial performance measures might weakening organization ability to create future economic prospect. Early in the project they started with examining the case study of "Performance- Measurement Systems". it was about various measurement approach towards rate of progress in continues improvement activities. The case was included also newly " corporate scorecard" in addition to several traditional financial measures, performance measures relating to customer delivery times, quality and cycle times of manufacturing processes, and effectiveness of newly product developments. during study progress and having several meeting with different manufacturing and firms CEO and executives and discussing on various firm experiences, led them to expand the scorecard to "Balanced Scorecard" that later was organized into four perspectives- financial, customer, internal, and learning. The new term concept is about making a balance between short and long-term objective and between financial and non-financial measures. The conclusion of the study in 1990 was about the feasibility and the benefits from such a balanced scorecard measurement system. so then, they published the summary of the study in and an article " The Balanced Scorecard- Measures That Drive Performance," Harvard Business Review (January-February 1992). As a consequence of these studies Balanced scorecard evolved from and improved "measurement system to a core management system". so at the end of the second phase of the study, they summarized various company developments toward Balanced Scorecard into another article, "using balanced scorecard as a strategy management system"H arvard Business Review (January-February 1992) The scorecard evolution into a strategic management system was so rapid, beside that they received many request from different firms and organizations all that, finally led Norton and Kaplan to publish the extensive result of all their observation and study into a book, "The Balanced Scorecard" Balanced Scorecard provides as a set of tools and measurement system that executives need to navigate organization to successful future. The balanced Scorecard translates an organization's mission and vision into set of measurement and provides the framework for strategic measurement system.
Although it was very common for most of the companies to use financial and non-financial measures, but such measurements are mostly useful for short-term achievements and can not meet the long-term objectives. Balanced Scorecard is about to communicate the company vision and mission from tip to toes of the organization. As Norton and Kaplan asserted in their book, "The Balanced Scorecard is more than a tactical or an operational measurement system. Innovative companies are using the scorecard as a strategic management system, to manage their strategy over their long run. They are using the measurement focus of the scorecard to accomplish critical management process: 1. Clarify and translate vision and strategy 2. Communicate and link strategic objectives and measures. 3. Plan, set targets, and align strategic initiatives 4. Enhance strategic feedback and learning (Norton & Kaplan, Balanced Scorecard 1991)
Financial perspective
Historically major company's measurement has been financial. Accounting has been called Business Language". Indeed many accounting system development like ROCE, ROI and so on, have been critical for businesses to monitor their financial processes. Since financial measures are valuable in summarizing company performance in the action that already taken, so BSC is also using financial perspective to indicate whether a company's strategy, execution and implementation is aligning toward company's mission and vision to meet its final objectives.
Customer Perspective
In every business indicating the customer and the market segment which is competitive is within the most important affairs that mangers have to identify and come up with some measurement in those segments. Some of the indication in such measurement is like, customer satisfaction, new customer attraction; customer profitability and market share in targeted segments. The result of such indication will represent the strengths and weaknesses strategy for the targeted segment in building customer loyalty or attract new customers. for example on time delivery and constant innovative in product design and quality is valuable to customers.