The Balanced Scorecard

The term 'Balanced Scorecard', or 'BSC', refers to a new strategic management approach developed by Dr. Robert Kaplan and David Norton in the early 1990's as a means of enabling an organization to clarify its vision from different perspectives and create future value for the organization by concretizing the metrics and actions necessary for this vision to come true.

The Balanced Scorecard is basically a methodology that defines an organization's performance measurement system or metrics based on the organization's value drivers and strategy. Value drivers include everything that enhances the organization's value - customer service, innovation, operational efficiency, financial performance, etc. Once these metrics have been defined, they are rolled up into a 'scorecard', which the company uses to measure, record, and analyze its performance and determine if it is meeting its goals.

This measurement-based management approach not only considers feedback information from the organization's internal processes, but from various business outcomes as well to achieve continuous improvements in all aspects that drive the organization's over-all value. Using performance data from different aspects of the business (i.e., internal processes, financial performance, customer satisfaction, human resource development, etc.) allows the company to acquire a 'balanced' assessment of its needs and weaknesses and develop the appropriate strategy to come out with an improved and more balanced set of performance results.

A fully deployed Balanced Scorecard must cascade from the top levels of the company down to the lowest ranks. It goes without saying that the vision, mission, strategy, and objectives to which the Balanced Scorecard will be aligned must be set by no less than the company's top management. Without top management buy-in, any scorecard defined for the company will have difficulty getting the necessary support. It would also be a good idea to have a champion for the Balanced Scorecard within the company.

Equally important is the awareness of all company personnel of what the corporate goals are, how these will be measured by the company's Balanced Scorecard, and how each employee can contribute his or her own share towards the achievement of these goals. This is realized by having everybody in the company keep a personal scorecard in support of the company's Balanced Scorecard.  As a result, everyone will be driven by metrics and performance data that follow the same roadmap toward company success.

The balanced scorecard approach works because people are motivated if they know that they're being measured and they know how they're being measured. Experts say that this is true whether or not there's an incentive given for the achievement of the goal.

The Balanced Scorecard views an organization from four (4) perspectives: 1) the learning and growth perspective; 2) the business process perspective; 3) the customer perspective; and 4) the financial perspective.  A company must define metrics and collect and analyze data for each of these perspectives.

The 'learning and growth' perspective pertains to the development of the human resources of the company, and includes the following:  1) personnel training and improvement; 2) cultivation of corporate culture; 3) organizational development, including the nurturing of corporate experts, gurus, and mentors; 4) setting up of fast and efficient knowledge transfer infrastructure; and 5) opening up of communication lines among personnel. This perspective supports the concept that people are a company's main resource and most valuable asset, so metrics defined for this perspective must measure various aspects of employee improvement, growth, and satisfaction.

The business process perspective deals with the company's internal business processes. Every manager within the company must have his or her own set of metrics that determine whether his or her area of responsibility is performing business to expectations set by the company's over-all Balanced Scorecard.  These business metrics, which measure various aspects (efficiency, speed, quality, etc.) of how well the company's products and services are manufactured to match customer expectations, must be carefully defined by people who know the internal processes very well.

The customer perspective, as its name implies, focuses on customer satisfaction.  Keeping the customers satisfied, if not delighted, is the best way to keep them loyal to the company. Failure to satisfy the customers will prompt them to look for other suppliers who can deliver what they want. Customer satisfaction is not always easy to measure though, so ingenuity may be needed for the establishment of the appropriate metrics and data gathering system that will reflect the true sentiment of the customer.