THE BALANCED

SCORECARD
Performance Measurement
Systems
• Measurement must support the company’s strategy and
operation

• Must be designed so companies get better at managing

and improving the value created from their intangible
assets

• Need to move from reliance on financial measures to a

mix of financial and nonfinancial measures
The History of Balance Score Card
History
• First created in 1987 at Analog Devices
• Bob Kaplan published (Harvard Business Review) HBR
articles in 1992
• “The Balance Scorecard” book published in 1996
• Adopted by many companies in the 90’s
• More popular in Europe
• Popular with Government organizations
• Widely used in Education
Balanced Scorecard
• The Balanced Scorecard (BSC) provides a system for
measuring and managing all aspects of a company’s
performance

• The scorecard balances traditional financial measures of

success, such as profits and return on capital, with
nonfinancial measures of the drivers of future financial
performance

• The Balanced Scorecard measures organizational

performance across different perspectives
 The Balanced Scorecard
Definition:

The Balanced Scorecard is a management tool

that provides stakeholders with a comprehensive
measure of how the organization is progressing
towards the achievement of its strategic goals
Perspectives
• Four different but linked perspectives are derived from the
organization’s mission, vision and strategy:
• Financial
• Customer
• Internal Business Process
• Learning and growth
Balanced Measurements
• The BSC enables companies to:

• Track financial results

• Monitor how they are building the capabilities for future growth and
profitability
• With customers
• With their internal processes
• With their employees and systems
Objectives
• Typical objectives found in each of the four BSC
perspectives include:
• Increase revenues through expanded sales to existing customers
(Financial perspective)
• Offer complete solutions to our targeted customers (Customer
perspective)
• Achieve excellence in order fulfillment through continuous
improvements (Process perspective)
• Align employee incentives and rewards with the strategy (Learning
and growth perspective)
Measures
• Provide specificity and reduce the ambiguity that is
inherent in word statements

• Specifying exactly how an objective is measured will give

employees a clear focus for their improvement efforts

• Once the objectives have been translated into measures,

managers select targets for each measure
Targets
• Targets establish the level of performance or rate of
improvement required for a measure
• Should be set to represent excellent performance
• Should, if achieved, place the company as one of the best
performers in its industry
• Should create distinctive value for customers and shareholders
 Strategy Map
• Illustrates the causal relationship among the strategic
objectives across the four perspectives

Financial Perspective Return on Investment

Customer Perspective Customer Loyalty

On-Time Delivery

Process Perspective Process Quality Cycle Time

Learning and
Employees’ Process Improvement Skills
Growth Perspective
Financial Perspective
• The ultimate objective for profit-seeking companies
• Financial performance measures indicate whether the
company’s strategy, implementation, and execution are
contributing to bottom-line improvement
• A company’s financial performance can be improved in
two ways: productivity improvements and revenue growth
Financial Perspective
• Increased productivity occurs by:
• Lowering direct and indirect expenses
• Utilizing their financial and physical assets more efficiently
• Companies generate revenue growth by:
• Selling additional products or services to existing customers
• Selling new products, selling to new customers, and expanding into
new markets
Customer Perspective
• Identify the targeted customer segments in which the
business unit competes and the measures of the business
unit’s performance in these targeted segments.

• This perspective typically includes several common

measures of the successful outcomes from a well-
formulated and implemented strategy:
• Achieve customer satisfaction and loyalty
• Acquire new customers
• Increase market share
• Enhance customer profitability
Customer Perspective
• The value proposition is the unique mix of product
performance, price, quality, availability, ease of purchase,
service, relationship, and image offered to the targeted
customers
• Defines the company’s strategy
• Communicates what the company expects to do for its
customers better or differently from its competitors
Internal Business Process Perspective
• Means by which the organization will:
• Create and deliver the value proposition for customers
• Achieve the productivity improvements for the financial objectives

• The Process perspective identifies the critical processes

in which the organization must excel to achieve its
customer, revenue growth, and profitability objectives
Internal Business Process Perspective
• Organizations perform many different processes, which
may be classified into four groupings:
• Operating processes
• Day-to-day processes by which companies produce their existing
products and services and deliver them to customers
• Customer management processes
• Processes by which companies expand and deepen relationships with
targeted customers
Internal Business Process Perspective
• Innovation processes
• Processes by which companies develop new products, processes, and
services

• Regulatory and social processes

• Processes by which companies ensure that they meet or exceed
regulations on business practices
Learning and Growth Perspective

• Identifies objectives that drive improvement in the process

objectives
• Human Resources
• Information Technology
• Organization Culture and Alignment
Learning and Growth Perspective
• Human Resources
• Strategic competency availability
• Employees have the appropriate mix of skills, talent, and know-how

• Information Technology
• Strategic information availability
• Systems and applications contribute to effective strategy execution
Learning and Growth Perspective
• Organization Culture and Alignment
• Culture and climate
• Employees have an awareness and understanding of the shared vision,
strategy, and cultural values
• Goal Alignment
• Employee goals and incentives are aligned with the strategy
• Knowledge sharing
• Employees and teams share best practices and other knowledge
relevant to strategy execution
 Advantages Of BSC
• It is used to align the business activities to vision and
strategy
• It improves Internal & External communications
• It is used to monitor organizations performance
• It provides management with comprehensive picture
of operations
• It provides strategic feed back
• It improves decisions & better solutions
Managing with the BSC
• The benefits from BSC are realized as the organization
integrates its new measurement system into management
processes that:
• Communicate the strategy to all employees and organizational
units
• Align employees’ individual objectives and incentives to successful
strategy implementation
• Integrate the strategy with ongoing management processes
 Disadvantages of BSC
• It takes time
• It is high Implementation of cost
• Too many or too little measurements
• Scorecard responsibilities do not filter down.