Understanding Balanced Scorecard
In the late 90’s when Dr. Robert Kaplan, a business executive and theorist Dr. David Norton Norton began to work together. After working for a year, on 8th February 1996 they published their book "The Balanced Scorecard" the book focuses on a company's vision and strategy into a coherent set of performance measures.The book narrates about Balanced Scorecard which is a popular strategic management tool. If you are interested in knowing what and why a balanced scorecard means, you are at the right place in this article. We'll explore the key components of the Balanced Scorecard.
What is the Balanced Scorecard ?
The Balanced Scorecard is a strategic management tool that helps organizations align their goals and objectives with their overall vision and mission. It provides a comprehensive framework for measuring and tracking performance across multiple areas of the business, including financial, customer, internal processes, and learning and growth.
Why is the Balanced Scorecard important?
The Balanced Scorecard is important because it helps organizations to focus on what really matters and not only the financial reports. By aligning goals and objectives with the overall vision and mission, organizations can ensure that everyone is working towards the same goals. Balanced Scorecard also provides a comprehensive framework for measuring and tracking performance, which can help to identify areas for improvement and ensure that resources are being used effectively. Ultimately, the Balanced Scorecard can help organizations to achieve their strategic objectives and improve overall performance.
The four perspectives of the Balanced Scorecard
The Balanced Scorecard framework is based on four perspectives: financial, customer, internal business processes, and learning and growth. Each of these perspectives is important for measuring organizational success, and together they provide a balanced view of organizational performance
1. Financial Perspective: is perhaps the most traditional perspective and focuses on financial results such as revenue growth, profitability, and return on investment. While financial metrics are important, they don't provide a complete picture of organizational success. Therefore, the other three perspectives of the balanced scorecard are equally important.
2. Learning and Growth Perspective: emphasizes the organization's ability to learn and innovate. This perspective measures the organization's ability to develop new products and services, improve processes, and develop its people. By investing in employee training and development, organizations can ensure they have the skills and knowledge needed to succeed in an ever-changing business environment.
3. Internal Business Process Perspective: focuses on the internal processes that contribute to the success of an organization. This perspective measures the efficiency and effectiveness of the organization in delivering products and services. By improving internal processes, organizations can increase efficiency, reduce costs and improve customer satisfaction.
4. Customer Perspective: focuses on customer satisfaction, fulfillment, commitment and retention. This perspective measures how well an organization meets the needs of its customers, which is essential for long-term success. By monitoring customer satisfaction and loyalty, organizations can ensure that they are meeting their customers' needs and retaining business for the long term.
The Balanced Scorecard helps organizations set goals and measure performance in each of these four perspectives. By using a balanced set of metrics, organizations can ensure that they are not only focusing on short-term financial results, but also on the long-term health of the organization. The BSC can be used in any type of organization, including for-profit, non-profit, and government organizations.
In conclusion, the Balanced Scorecard is a valuable strategic management tool that has proven effective in helping organizations measure and improve their performance. By focusing on a balanced set of metrics across four perspectives, organizations can ensure they are aligned with their vision and strategy and work towards long-term success.