Balanced Scorecard

The Balanced Scorecard is a performance management tool developed by HBS professors Norton and Kaplan in the early 1990s (originally in an HBR article of 1992). BSC stipulates that a company’s vision and strategy can be translated into various metrics that cascade down through the organization. The key finding is that these metrics should not only be financial, but should also include three other key elements: Customer related metrics, internal process metrics, and learning and growth metrics.

The balanced scorecard forces managers to look at the business from four important perspectives. It links performance measures by requiring firms to address four basic questions:

(a) How do customers see us? - Customer perspective

(b) What must we excel at? - Internal perspective

(c) Can we continue to improve and create value? - Innovation & learning perspective

(d) How do we look to shareholders? - Financial perspective

Many companies (but also government agencies and non-profits) have instituted Balanced Scorecards in a rigorous way, often involving long-term projects and software tools. The objective in these implementation is to identify causal relationships: If our vision and strategy includes the fact that we want to become the most customer friendly company in our industry, then we want to pick four or five key customer metrics that best reflect this objective, e.g.: Being ranked #1 in independent customer satisfaction surveys, having a product return rate of less than x%, respond to all customer contacts within a time of y, etc. This list is not complete, as a matter of fact it is critical that an organization pick only the key metrics that really matter.

The exercise then continues, and the highest level metrics are being translated into key metrics for different departments, key initiatives that have to be undertaken, etc. Some companies even have linked employee objectives to the overall BSC.

References

1 Kaplan RS and Norton DP, "The Balanced Scorecard - Measures that drive performance", Harvard Business Review, 1992 Jan/Feb, pp71-79.

2 Kaplan RS and Norton DP. "Putting the Balanced Scorecard to Work, Harvard Business Review, September-October 1993. pp134-147 (Presents a series of cases about the balanced scorecard. Also documents Kaplan and Norton's process for developing a balanced scorecard.)

3 Kaplan RS and Norton DP. "Using the Balanced Scorecard as a Strategic Management System". Harvard Business Review, January-February 1996 pp75-85 (Presents Kaplan and Norton's thoughts on how the balanced scorecard can be used as a strategic management system.)

For more information see www.balancedscorecard.org.

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