Balance Scorecard

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 Introduction
In 1992, Robert S. Kaplan and David Norton
introduced the balanced scorecard, a concept for
measuring a company's activities in terms of its vision
and strategies, to give managers a comprehensive
view of the performance of a business.
The key new element is focusing not only on financial
outcomes but also on the human issues that drive
those outcomes, so that organizations focus on the
future and act in their long-term best interest.
The strategic management system forces managers to
focus on the important performance metrics that drive
success. It balances a financial perspective with
customer, process, and employee perspectives.
Measures are often indicators of future performance.
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 Process
Implementing the scorecard typically
includes four processes:
Translating the vision into operational goals;
Communicate the vision and link it to
individual performance;
Business planning;
Feedback and learning and adjusting the
strategy accordingly.

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 Components
Balanced Scorecard is simply a concise report featuring a set of
measures that relate to the performance of an organization.
By associating each measure with one or more expected values
(targets), managers of the organization can be alerted when
organizational performance is failing to meet their expectations.
The Balanced Scorecards comprised simple tables broken into four
sections - typically these 'perspectives' were labeled "Financial",
"Customer", "Internal Business Processes", and "Learning &
Growth".
Designing the Balanced Scorecard simply required picking five
or six good measures for each perspective.
In the new method, selection of measures was based on a set of
'strategic objectives' plotted on a 'strategic linkage model' or
'strategy map'.
Since the late 1990s, various improved versions of Balanced
Scorecard design methods have emerged - examples being The
Performance Prism, Results Based Management and Third
Generation Balanced Scorecard for example.
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 Key Performance Indicators
According to each perspective of the balanced scorecard there are a
number of KPIs.
Financial
Cash Flow
ROI
Financial Result
Return on capital employed
Return on equity
Customer
Delivery Performance to Customer - by Date
Delivery Performance to Customer - by Quantity
Internal Business Processes
Number of Activities
Opportunity Success Rate
Learning & Growth
Investment Rate
Illness rate
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 Perspectives
Kaplan and Norton do not explicitly define what a perspective means, but they list the four
main perspectives that an organization (whether profit or non profit) must have:
Financial perspective: In profit organizations, this involves the shareholders, while in non
profit organizations, it involves those subsidizing or financing the organization.
Customer perspective: The customer perspective is concerned with:
Customer selection
Customer acquisition
Customer retention
Customer growth
Internal (business) process perspective: Involves:
Operations management processes
Customer management processes
Innovation processes
Social and regulatory processes.
Learning and growth perspective: This involves developing the human, information and
organizational capital.
Some important facts about the perspectives and their ordering:
The perspectives are arranged in descending order of measurability, urgency, tangency and
visibility.
The organization's mission, vision, core values, and main goals are in terms of the higher
perspectives.
TTT are in terms of lower perspectives. 5AUGUST 2015
The detailed strategies
 Mission and Vision
The mission of an organization is a concise, internally focused
statement of the reason for the organization's existence, the basic
purpose towards which its activities are directed, and the values
guiding its employees' activities. The mission is linked with some
core values. It also describes how to compete and deliver value to
customers.
The vision of an organization is a concise statement describing the
organization's middle to long term goals. It is external, market
oriented, and should express in a colorful and visionary manner how
the organization wants to be perceived by the world. The main
differences between mission and vision are:
The mission is internally focused, while the vision is externally
focused
The mission is in the very long term, while the vision is middle to
long term
A strategy means selecting a set of activities in which an
organization will excel to create a sustained difference in the market
place. The strategy map is akin to a macro view of the strategies
followed by the organization. TTT
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 Customer perspective
Kaplan and Norton discuss an important notion, the value
proposition. The concept is based on earlier work done by the
influential economist and business theorist, Michael Porter. The
value proposition is the mix of commodity, quality, price, service and
warranty that the organization offers to its customers. The value
proposition is aimed at targeting certain customers, that is, it has
certain target segments. Kaplan and Norton talk of four broad
classes of value propositions:
Best buy or Low total cost: Affordable prices, reliable quality, quick
service. For instance, Southwestern Airlines, a much touted case in
business studies, adopted a best buy strategy.
Product leadership and innovation: The cutting edge products or
industry leaders. Companies like Ericsson, Motorola offer such a
value proposition.
Customer complete solutions: Tailor made for the customer's
individual needs and preferences. IBM offers customer complete
solutions.
Lock in: The concept was introduced by Michael Porter. The
organization tries to get a large number
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where they are left with practically no alternative but to buy their
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 Internal process perspective
A crucial fact brought out by Kaplan and Norton is that the nature of the
value proposition determines the kind of internal processes on which to
focus more. The approximate correspondence between the primary value
proposition and the primary internal process perspective is as follows:
Best buy corresponds to the operations management perspective
Customer complete solutions corresponds to the customer management
perspective
Product leadership and innovations corresponds to the innovations
perspective
Operations management processes
Customer management processes
Innovation Processes
Regulatory and social processes There are four dimensions to regulatory
and social processes:
Environment: Issues such as energy and resource consumption, and emissions into
the air, water and soil
Safety and health: Safety hazards to employees
Employment practices: Diversity of employees
Community investment:

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 Learning and growth
perspective
Though the intangible assets of an organization are the most
powerful means by which to effect permanent change in the
organization, the idea of strategy maps is to plan in a top
down way -- start with the needs of the higher perspectives
and work downwards to figure out what is needed at the level
of the human, organization and information capital.
Human capital
Kaplan and Norton outline the following multi step strategy for
improving human capital:
Identify the strategic job families
Develop the competency profile
Assess the human capital readiness
Formulate a plan for improving the human capital

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 Learning and growth
perspective
Information capital
There are three areas of information capital application:
Transaction processing applications: This involves the day to day,
repetitive tasks.
Analytic applications: This involves statistical analysis used to
understand and improve
Transformation applications: This involves change in the nature of
business
Organization capital
Organization has the following four elements:
Culture: This describes the perception across the company of its
goals, mission, and policies.
Leadership and accountability
Alignment: Linking rewards to performance
Teamwork: A system of global knowledge management .
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 References
Douglas W. Hubbard "How to Measure Anything: Finding the Value of Intangibles in
Business" John Wily & Sons, 2007. ISBN 978-0470110126
Cobbold, I. and Lawrie, G. (2002a). The Development of the Balanced Scorecard as a
Strategic Management Tool. Performance Measurement Association 2002
Cobbold, I and Lawrie, G (2002b). Classification of Balanced Scorecards based on their
effectiveness as strategic control or management control tools. Performance
Measurement Association 2002.
Kaplan R S and Norton D P (1992) "The balanced scorecard: measures that drive
performance", Harvard Business Review Jan Feb pp71-80.
Kaplan R S and Norton D P (1993) "Putting the Balanced Scorecard to Work", Harvard
Business Review Sep Oct pp2-16.
Kaplan R S and Norton D P (1996) "Using the balanced scorecard as a strategic
management system", Harvard Business Review Jan Feb pp75-85.
Kaplan R S and Norton D P (1996) Balanced Scorecard: Translating Strategy into Action
Harvard Business School Press
Kurtzman J (1997) "Is your company off course? Now you can find out why", Fortune Feb
17 pp128- 30
Niven, Paul R. (2006) "Balanced Scorecard. Step-by-step. Maximizing Performance and
Maintaining Results".

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