Quality Glossary Definition: Balanced scorecard Show
A balanced scorecard (BSC) is defined as a management system that provides feedback on both internal business processes and external outcomes to continuously improve strategic performance and results. By bringing together measures around internal processes and external outcomes, a balanced scorecard supports continuous improvement at the level of strategic performance and results. The balanced scorecard is a strategic management tool that views the organization from different perspectives, usually the following:
For each of these perspectives, the balanced scorecard prompts you to develop metrics, set performance targets and collect and analyze data. Your scorecard thus offers an efficient mechanism for reviewing strategy implementation based on measurement.
Read the Quality Progress Back to Basics article "A Tool for Anyone" for tips on creating balanced scorecards and to learn more about the above example. The Benefits of a Balanced ScorecardA balanced scorecard can help your organization both articulate and act upon your vision and strategy. Use it to:
The History of the Balanced ScorecardDeveloped by Robert Kaplan and David Norton in the early 1990s, the balanced scorecard is more than a measurement system—in fact, it's a management system. In their book The Balanced Scorecard: Translating Strategy Into Action, Kaplan and Norton describe the balanced scorecard as a necessary move away from over reliance on financial measures. According to Kaplan and Norton, because financial measures report on the past, they offer "an adequate story for industrial age companies" but not "information age companies." In the information age, organizations must "create future value through investment in customers, suppliers, employees, processes, technology, and innovation." A strictly financial approach for managing organizations is not complete, as it doesn’t capture the landscape of the business and isn’t an indicator of the future. Evaluating organizational performance in a balanced manner on the parameters that influence your business becomes crucial for better management. Balanced Scorecard ResourcesUniform Maker Sews Up Success With Scorecard (PDF) Read how a clothing manufacturer institutes a balanced scorecard to cut out inefficiencies and iron out problems at its facilities. Driving Focus and Alignment With the Balanced Scorecard: Why Organizations Need a Balanced Scorecard (PDF) Learn how the scorecard connects strategies and measures to ensure that an organization attains its vision. Bearing the Gift of Royal Performance Indicators (PDF) Enjoy and learn from this medieval tale of goals, objectives and strategic planning. A strategic planning framework that companies use to assign priority to their products, projects, and services; communicate about their targets; and plan their routine activities What is a Balanced Scorecard?A balanced scorecard is a strategic planning framework that companies use to assign priority to their products, projects, and services; communicate about their targets or goals; and plan their routine activities. The scorecard enables companies to monitor and measure the success of their strategies to determine how well they have performed.  The balanced scorecard acts as a structured report that measures the performance of company management. The management team can be evaluated against Key Performance Indicators (KPIs) to show their contributions to the strategy and attainment of the targets set forth. Success is measured against the specified goals or targets to determine the rate at which the business is growing and how it compares to its competitors. Other personnel in the organizational hierarchy can depend on the balanced scorecard to show their contribution to the growth of the business, or their suitability for job promotions and salary reviews. The key features of a balanced scorecard include a focus on a strategic topic relevant to the organization, and the use of both financial and non-financial data to create strategies. Summary
Four Perspectives of the Balanced ScorecardThe following are the key areas that a balanced scorecard focuses on: 1. Financial perspectiveUnder the financial perspective, the goal of a company is to ensure that it earns a return on the investments made and manages key risks involved in running the business. The goals can be achieved by satisfying the needs of all players involved with the business, such as the shareholders, customers, and suppliers. The shareholders are an integral part of the business since they are the providers of capital; they should be happy when the company achieves financial success. They want to be sure that the company is continually generating revenues and that the organization meets goals such as improving profitability and developing new revenue sources. Steps taken to achieve such goals may include introducing new products and services, improving the company’s value proposition, and cutting down on the costs of doing business. 2. Customer perspectiveThe customer perspective monitors how the entity is providing value to its customers and determines the level of customer satisfaction with the company’s products or services. Customer satisfaction is an indicator of the company’s success. How well a company treats its customers can obviously affect its profitability. The balanced scorecard considers the company’s reputation versus its competitors. How do customers see your company vis-à-vis your competitors? It enables the organization to step out of its comfort zone to view itself from the customer’s point of view rather than just from an internal perspective. Some of the strategies that a company can focus on to improve its reputation among customers include improving product quality, enhancing the customer shopping experience, and adjusting the prices of its main products and services. 3. Internal business processes perspectiveA business’ internal processes determine how well the entity runs. A balanced scorecard puts into perspective the measures and objectives that can help the business run more effectively. Also, the scorecard helps evaluate the company’s products or services and determine whether they conform to the standards that customers desire. A key part of this perspective is aiming to answer the question, “What are we good at?” The answer to that question can help the company formulate marketing strategies and pursue innovations that lead to the creation of new and improved ways of meeting the needs of customers. 4. Organizational capacity perspectiveOrganizational capacity is important in optimizing goals and objectives with favorable results. The personnel in the organization’s departments are required to demonstrate high performance in terms of leadership, the entity’s culture, application of knowledge, and skill sets. Proper infrastructure is required for the organization to deliver according to the expectations of management. For example, the organization should use the latest technology to automate activities and ensure a smooth flow of activities. Related ReadingsThank you for reading CFI’s guide to Balanced Scorecard. To keep advancing your career, the additional CFI resources below will be useful:
What is internal process in balance scorecard?The internal process perspective is concerned with the processes that create and deliver the customer value proposition. It focuses on all the activities and key processes required in order for the company to excel at providing the value expected by the customers both productively and efficiently.
What are the 4 performance measures in a balanced scorecard?The balanced scorecard involves measuring four main aspects of a business: Learning and growth, business processes, customers, and finance.
Is balanced scorecard internal or external?A balanced scorecard (BSC) is defined as a management system that provides feedback on both internal business processes and external outcomes to continuously improve strategic performance and results.
Which of the following is a financial measure of success in a balanced scorecard?Which of the following is a financial measure of success in a balanced scorecard? Explanation: The balanced scorecard can be benchmarked for success by a firm's sales growth metric.
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Which of the following is an internal business process measure in a balanced scorecard?
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