The Balanced Scorecard
StratNavApp.com uses the balanced scorecard as a framework for organising goals that highlights their different natures and the relationships between them.
Contents
- Introduction
- The Four Perspectives of the Balanced Scorecard
- Cause and Effect Relationships between the Perspectives
- Origins of the Balanced Scorecard
Introduction
StratNavApp.com uses the balanced scorecard as a framework for organising goals that highlights their different natures and the relationships between them.
As the name implies, the Balanced Scorecard Framework also helps to maintain a balance between:
- Financial and non-financial considerations,
- Shareholder/owner, staff and customer interests,
- Leading and lagging outcomes,
- Internal and external factors, and
- Hard and soft impacts
The Four Perspectives of the Balanced Scorecard
The balanced scorecard framework divides your goals in a business strategy into four perspectives.
- Financial goals are about how you create value to satisfy shareholders and invest in future opportunities.
They answer: what does success look like to the owners of the organisation? - Customer goals are about what your customers want and value.
They answer: What does success look like to the customers of the organisation? - Internal Business Processes goals are about getting better at what you do.
They answer: What processes does the organisation need to improve in order to deliver the customer and financial goals? - Learning and Innovation goals are about building the capabilities you will need to improve your business.
They answer: What capabilities does the organisation need to be able to thrive and to be able to continue to improve and adapt in the face of a changing and competitive environment? Also, what does success look like to the employees of the organisation?
Cause and Effect Relationships between the Perspectives
There is an implied cause and effect relationship between the four perspectives.
- Achieving your Learning and Innovation goals should enable you to achieve your Internal Business Process Goals.
- Achieving your Business Process goals should enable you to achieve your Customer goals.
- Achieving your Customer goals should enable you to achieve your Financial goals.
How many goals should an organisation have? An organisation should have 2 to 5 goals in each of those four perspectives. This means that an organisation should have 8 to 20 goals in total. Hint: Aim for somewhere in the middle of that range.
Origins of the Balanced Scorecard
The Balanced Scorecard (BSC) methodology was introduced in the early 1990s by Dr. Robert S. Kaplan, a professor at Harvard Business School, and Dr. David P. Norton, a management consultant. Initially presented in a 1992 Harvard Business Review article titled "The Balanced Scorecard—Measures that Drive Performance," the BSC was developed as a performance management tool that goes beyond traditional financial metrics to include non-financial aspects that are crucial for a company's success.
Kaplan and Norton observed that relying solely on financial outcomes was insufficient for capturing the full picture of a business's health and performance. They proposed the Balanced Scorecard as a more holistic approach that evaluates an organization's operations from four perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth. This method enables organisations to balance short-term objectives with long-term strategic goals, hard and soft metrics, and leading and lagging indicators, providing a more comprehensive view of performance and guiding strategic planning and execution. The BSC has since become a widely adopted strategic management tool, helping organizations across various industries align business activities to their vision and strategy, improve internal and external communications, and monitor performance against strategic goals.