Balanced scorecard

Defn. The balanced scorecard is a strategic planning and management system used extensively

in business and industry, government, and nonprofit organizations 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 Drs. Robert

Kaplan (Harvard Business School) and David Norton, 1990 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.

Most traditional management systems focus on the financial performance of an organization.

According to those who support the balanced scorecard, the financial approach is unbalanced

and has major limitations:

1. Financial data typically reflect an organization’s past performance. Therefore, they may not

accurately represent the current state of the organization or what is likely to happen to the

organization in the future.

2. It is not uncommon for the current market value of an organization to exceed the market

value of its assets. There are financial ratios that reflect the value of a company’s assets relative

to its market value. The difference between the market value of an organization and the

current market value of the organization’s assets is often referred to as intangible assets.

Traditional financial measures do not cover these intangible assets.

Balanced scorecard asks managers to view their business from four different perspectives: the

customer perspective, an internal business perspective, an innovation and learning perspective,

and the financial or shareholder perspective. The perspectives represent three of the major

stakeholders of the business (shareholders, customers and employees), thereby ensuring that a

holistic view of the organization is used for strategic reflection and implementation.

Benefits/Importance

Traditional performance measurement, focusing on external accounting data, is obsolete - and

something more is needed to provide the information age enterprises with efficient planning

tools. The balanced scorecard technique then has the following benefits over traditional

performance management;

Among the long row of benefits of applying Balanced Scorecard, these are the most significant:

i. Strategic initiatives that follow "best practices" methodologies cascade through the

entire organization

ii. Increased Creativity and Unexpected Ideas.

iii. The Balanced Scorecard helps align key performance measures with strategy at all levels

of an organization.

iv. The Balanced Scorecard provides management with a comprehensive picture of

business operations.

v. The methodology facilitates communication and understanding of business goals and

strategies at all levels of an organization.

vi. Maximized Cooperation - Team members are focused on helping one another succeed.

vii. Usable Results - Transforms strategy into action and desired behaviors.

viii. The Balanced Scorecard concept provides strategic feedback and learning.

ix. A cross organizational team - More open channels of communications - Enthusiastic

People.

x. Initiatives are continually measured and evaluated against industry standards

xi. The Balanced Scorecard helps reduce the vast amount of information the company IT

systems process into essentials.

xii. Unique Competitive Advantage

o Reduced Time-frames.

o Improved Decisions and Better Solutions.

o Improved Processes.

Application of balanced scorecard in modern management today

i. Balanced scorecard used for operational control

Operational control involves asking the following questions:

What process do we want to monitor?

What aspects of the process do we want to measure?

What is considered best practice?

The purpose of this application is to help managers monitor and control the delivery of a pre-

defined set of activities – often with a view toward achieving "best practice" performance

levels.

Balanced Scorecards help prevent organizations “drowning” in measures. Technology makes it

easy to measure ‘everything’, demanding that management teams actively choose what to

measure - which in turn demands that the teams reach consensus about what is important.

Choosing is hard, and when this doesn’t happen organizations end up with too many measures,

and crucially they lack the ability to separate out information that informs on key activities from

things that are less important.

The Balanced Scorecard framework offers a holistic but more focused view of performance

measurement that ensures that users are involved in the design process. By helping

management teams identify a concise set of operationally focused measures across Balanced

Scorecard perspectives, the framework makes it easier to highlight the key information needed

typically reflecting customer satisfaction and the impact of innovation and improvement

activities in addition to more typical financial and operational measures.

ii. Balanced Scorecard used for Strategic Management

Four questions are at the heart of strategic management issues:

What strategic outcomes are we trying to achieve?

What activities need to happen right now to achieve them?

Are these activities being done?

Are we achieving results targeted?

The purpose of this application of Balanced Scorecard is to help managers agree and then

articulate the strategic destination and road map for their organization, and monitor the

activities required for their achievement. The purpose of the Balanced Scorecard therefore

shifts from tracking performance of a process, to monitoring whether or not objectives have

been set, and the extent to which the planned actions to achieve them are working.

Management teams using this type of Balanced Scorecard primarily use it to support decision

making about the "interventions" needed by them to ensure that their strategic goals are

successfully achieved.

The crucial additional benefit in the case of strategic management is that having created the

Balanced Scorecard it also offers the means to articulate and communicate strategic

requirements to the wider organization – this is mentioned as a primary strength of their

Balanced Scorecard by Philips Medical Systems.

Ref: - Kaplan, R. S., Norton, D. P., The Balanced Scorecard, Boston: Harvard Business School

Press, 1996

Daokui Jiang, Zuankuo Liu (April 2014), ‘Research on Application of Balanced Scorecard in the

Government Performance Appraisal’, Open Journal of Social Sciences.