Balanced scorecard is a concept developed by Kaplan and Norton for effective monitoring of operational and strategic activities of a company. It uses a coherent system of financial and non-financial indicators (so called strategy map) to make assessment of the current state of the organization. Balanced scorecard assumes representation of strategic goals in the form of a set of measurable objectives necessary for the execution of the mission of the company. It is used to ensure consistency between the objectives and the activities undertaken, measure and control the effects of strategic activities and motivating workers.
Perspectives and metrics of balanced scorecard approach
The task of the scorecard is to coordinate major strategic areas of the company. Balanced scorecard perspectives are a set of metrics in four different perspectives: financial, customer, internal processes and development and their mutual interactions (of course, managers can add other relevant metrics and perspectives, four are only example given by Kaplan and Norton).
Table 1. BSC Perspectives
|Financial perspective||Presented using financial metrics that allow you to assess the financial effects of the deployed strategy. Specifies how the implemented strategy affects the economic health of the company.|
|Customer perspective||Its aims are to identify market segments in which the company intends to compete. Consists of Indicators that reflect the company's participation in customer service, their level of satisfaction.|
|Internal processes perspective||Presented by means of indicators relating to the processes of creating value for the customer.|
|Learning and development perspective||Presented by using metrics that show the basics of long-term development and improvement.|
Application of balanced scorecard
A scorecard shows the errors in the past and shows what went wrong. The company can learn from those mistakes and make better decisions in the future. This gives a clear and transparent picture of how companies and their functional units work to achieve strategic objectives.
Consists of balancing indicators financial and operational indicators that is why scorecard is called "balanced". To create this card managers uses the metrics of results and metrics of future (goals). The information generated by them are extremely important for executives at various levels. Allows to accurately monitor the existing activities and operations in the future.
Advantages of balanced scorecards
- consists of simple and logically selected indicators,
- it is a useful tool in monitoring the achievement of the strategic objectives of the company,
- clearly identifies company resources, its business units in the entirety of the objectives and ways of achieving them,
- can be used throughout the company through departmental scorecards as well as the achievements scorecards for individual employees,
- allows for synchronization of activities of all units and individual employees in order to achieve the strategic objectives of the company,
- positively affects the employees and motivates them to efficient operation.
- Kaplan, R. S., & Norton, D. P. (1995). Putting the balanced scorecard to work. Performance measurement, management, and appraisal sourcebook, 66, 17511.
- Kaplan, R. S., & Norton, D. P. (1996). Using the balanced scorecard as a strategic management system.
- Kaplan, R. S., & Norton, D. P. (1996). Linking the balanced scorecard to strategy. California management review, 39(1), 53-79.