Balanced scorecard perspectives
|Balanced scorecard perspectives|
Main balanced scorecard perspectives
- Financial perspective - 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 - aims 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 - indicators relating to the processes of creating value for the customer.
- Learning and development perspective - metrics that show the basics of long-term development and improvement.
Balanced scorecard as a strategic tool
A Balanced Scorecard has gained fame, since its invention in 1990s by Kaplan and Norton, due to its use as a strategic management tool. The introduction of a strategic map by Kaplan and Norton in 200, provides for a linkage of strategic objectives and scorecard perspectives, and at the same time, a potential for using the balanced scorecard for evaluating the success of a company’s strategy.
The balanced scorecard is a tool that enables companies to clarify their vision and translate strategy goals into specific measures and to monitor company performance against these measures. Management traditionally pays attention to financial performance measures, with less attention to the drivers behind those measures. A balanced scorecard that addresses the four key perspectives allows management to monitor the drivers behind financial performance or the performance of key activities that contribute to positive financial results. Furthermore, financial performance measures are lagging indicators while a range of scorecard perspectives provides information related to performance of leading indicators, which are more crucial to strategic decision making.
Leading indicators of the balanced scorecard perspectives:
- Costumers perspectives – a company must translate strategic goals into specific measures to reflect what matters to its customers. Customer satisfaction is a leading indicator of success because unsatisfied customers will find alternatives.
- Internal business process perspective – metrics should be established to measure if internal processes are in place to design products and services that meet customer needs. Weaknesses in internal processes creates an obstacle in meeting the changing customer demands.
- Learning and growth perspective – a company’s ability to introduce new and innovative products and meet the changing needs of its customers is based on its knowledge base. Ability to innovate requires appropriate knowledge, research and development.
The final, financial, perspective provides primarily lagging information for strategic decision making but it is crucial to measuring the success of business activities in generating shareholder value and a company’s going concern.
- Financial perspective – measures that communicate the consequences of strategic actions in financial terms. These measures are important to shareholders.
- Agrawal, S. (2008). Competency Based Balanced Scorecard Model: An Integrative Perspective, Indian Journal of Industrial Relations. Vol. 44, No. 1, p. 24-34. Balanced Scorecard, 25-26.
- Cheng, M. M., Humphreys, K. A. (2012). The Differential Improvement Effects of the Strategy Map and Scorecard Perspectives on Manager’s Strategic Judgement, The Accounting Review, Vol. 87, No. 3, p. 899-924. Introduction, 899-900.
- Sainaghi, R., Phillips, P., & Corti, V. (2013). Measuring hotel performance: Using a balanced scorecard perspectives’ approach. International Journal of Hospitality Management, 34, 150-159.
- Saingaghi, R., Phillips, P., Corti, V. (2013)
- Cheng, M. M., Humphreys, K. A. (2012)
- Agrawal, S. (2008)
- Agrawal, S. (2008)
Author: Urszula Szydłowska