What Is The Balanced Scorecard?

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Understanding the balanced scorecard

Once a concept primarily associated with balancing financial and strategic objectives, the balanced scorecard has now evolved into a holistic, all-encompassing management strategy.

Organizations now use the balanced scorecard to:
Communicate what they are trying to accomplish.
Ensure that all employees are aligned in their day to day activities and values.
Prioritize the implementation of products, services, and projects.
Define strategic targets and then measure and monitor progress toward them.

By focusing on these four distinct areas, balanced scorecards reinforce good behavior in each and encourage growth and learning according to company objectives. If objectives are not being met, then businesses can identify and then address factors which hinder performance.

Balanced scorecards, or BSCs, are used extensively in business, industry, government, and non-profit settings worldwide. Many of the largest companies in the US, Europe, and Asia are using this system – and for good reason. A recent study by Bain & Co discovered that it was the fifth most widely used management tool globally. Harvard Business Review editors also called the BSC system one of the most influential ideas of the past 75 years.

The four perspectives of the balanced scorecard

The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. Each has a proven track record of the effectiveness of several decades of use in business, and each is outlined briefly below.

Financial

For many businesses, the financial perspective is concerned with meeting shareholder expectations and making a profit. This perspective is often the easiest to define and measure, but it is nonetheless a major focus of any balanced scorecard. If the business is not making money, then it hints at problems in other perspectives which must be addressed.

Customer

The focus of the customer perspective is the implementation of measures directly related to customer satisfaction. Satisfaction can be gauged when analyzing customer feedback on a business’s products and services around metrics such as quality, price, and availability.

Internal processes

Otherwise known as business processes, these define how well a business is operating. Often, the success of business operations is defined by the ability to meet customer needs. However, managing internal processes also means identifying any gaps, delays, shortages, or waste and then addressing them accordingly.

Learning and growth

This perspective looks at the culture of an organization. Are employees aware of the latest industry trends? Does the organization encourage progressive and collaborative communication between employees? Or are processes hampered by red tape? Most importantly, do employees have fair and easy access to training and other opportunities that enhance their growth?

Key takeaways:

The balanced scorecard is a strategic planning and management system that businesses use to get a more “balanced’ view of their performance.
The balanced scorecard has evolved from humble beginnings to be a holistic framework for business growth.
The balanced scorecard consists of four primary objectives with a track record of enabling businesses to become successful.