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What is Balanced Scorecard?
Balanced Scorecard (BSC) is a concept helping you translate
strategy into action. BSC starts from the company vision and
strategies, from here critical success factors are defined.
Measures are constructed that aid target-setting and
performance measurement in areas critical to the strategies.
Hence, Balanced Scorecard is a performance measurement
system, derived from vision and strategy, and reflecting the
most important aspects of the business. The Balanced
Scorecard (BSC) concept supports strategic planning and
implementation by federating the actions of all parts of an
organization around a common understanding of its goals, and
by facilitating the assessment and upgrade of strategy.
Traditional performance measurement, focusing on external
accounting data, was quickly becoming obsolete and something
more was needed to provide the information age enterprises
with efficient planning tools. For this purpose Kaplan &
Norton introduced four different perspectives from which a
company's activity can be evaluated:
Financial perspective (how do we perceive our shareholders?)
Customer perspective (how do we perceive our
customers?)
Process perspective (in what processes should we
excel to succeed?)
Learning and innovation perspective (how will we
sustain our ability to change and improve?)
Figure 1:Create a Balanced Scorecard: You have to
identify a vision. Where is the organization going? By
identifying strategies you learn about how you will get
there. Define Critical Success Factors and perspectives,
which means you have to ask what do we have to do well in
each perspective. Thereafter ask how do we measure that
everything is going the expected way? Then it is necessary
think about evaluating your Scorecard. Consider how do we
ensure that we are measuring the right things? Based on this
work you should create action plans and plan reporting and
operation of the Scorecard. How do we manage the Scorecard?
Which persons should have reports and what should the
reports look like?
Figure 2:The picture shows a very general example of a
Scorecard. Where are we going? The vision: "We should
dominate the market." How? By focusing on cost efficiency,
high quality and by investing in new technologies. In which
perspectives should we excel at what? Responsibilities and
action plans for achieving targets set are defined. You can
easily create a Scorecard, but to create a manageable
scorecard is a completely different thing!
The benefits of applying Balanced Scorecard can be
summarized as follows:
Balanced Scorecard helps align key performance measures
with strategy at all levels of an organization.
Balanced Scorecard provides management with a
comprehensive picture of business operations.
The methodology facilitates communication and
understanding of business goals and strategies at all levels
of an organization.
The balanced scorecard concept provides strategic
feedback and learning.
Balanced Scorecard helps reduce the vast amount of
information the company's IT systems process into
essentials.
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