What Is a Balanced Scorecard (BSC), How Is It Used in Business?
The balanced scorecard is a management system aimed at translating an organization's strategic goals into a set of organizational performance objectives that, in turn, are measured, monitored and changed if necessary to ensure that an organization's strategic goals are met.
A key premise of the balanced scorecard approach is that the financial accounting metrics companies traditionally follow to monitor their strategic goals are insufficient to keep companies on track. Financial results shed light on what has happened in the past, not on where the business is or should be headed.
The balanced scorecard system aims to provide a more comprehensive view to stakeholders by complementing financial measures with additional metrics that gauge performance in areas such as customer satisfaction and product innovation.
The business performance management framework was laid out in a 1992 paper published in the Harvard Business Review by Robert S. Kaplan and David P. Norton, who are widely credited with having developed the balanced scorecard system.
Here is how Kaplan and Norton began their 1992 paper:
What you measure is what you get. Senior executives understand that their organization's measurement system strongly affects the behavior of managers and employees.
Executives also understand that traditional financial accounting measures, like return on investment and earnings per share, can give misleading signals for continuous improvement and innovation – activities today's competitive environment demands.
The traditional financial performance measures worked well for industrial age companies, but they are out of step with the skills and competencies companies are trying to master today.
A balanced scorecard is a strategy performance management tool – a well structured report, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.[1]
The phrase 'balanced scorecard' primarily refers to a performance management report used by a management team, and typically this team is focused on managing the implementation of a strategy or operational activities – in a 2020 survey[1] 88% of respondents reported using Balanced Scorecard for strategy implementation management, 63% for operational management. Balanced Scorecard is also used by individuals to track personal performance, but this is uncommon – only 17% of respondents in the survey using Balanced Scorecard in this way, however it is clear from the same survey that a larger proportion (about 30%) use corporate Balanced Scorecard elements to inform personal goal setting and incentive calculations.
The critical characteristics that define a Balanced Scorecard are:[2]
its focus on the strategic agenda of the organization/coalition concerned; a focused set of measurements to monitor performance against objectives; a mix of financial and non-financial data items (originally divided into four "perspectives" - Financial, Customer, Internal Process, and Learning & Growth); and, a portfolio of initiatives designed to impact performance of the measures/objectives.[3]
What is the Balanced Scorecard?
