The balanced scorecard is a planning and management system that helps align business to strategy while also improving communication between multiple groups and stakeholders. As this article on balancedscorecard.org explains, the balanced scorecard was developed by doctors Robert Kaplan and David Norton to help give a more balanced view of performance inside of an organization (where, previously, only financial data was available for comparison). Focusing on elements such as the customer, learning and growth, internal business processes, and financial success, the balanced scorecard proved to be fundamental to understand all elements of the business and how they interact with each other. The article goes on:
This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to ‘balance’ the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.
It is important to note that the balanced scorecard is not meant to replace more traditional methods of financial data. In fact, Kaplan and Norton emphasize the importance of traditional financial data alongside the balanced scorecard in order to understand and visualize all possible angles of data and the business. The scorecard needs to balance this data, however, in order for full value to be realized.
Next, consider “the customer perspective,” which takes into account customer satisfaction and requirements. As the article explains, seeing a decline in customer satisfaction over time can indicate a future issue – even when the current outlook is positive. A further emphasis included in the scorecard ins that of learning over training. With the inclusion of mentors, the balanced scorecard allows for an understanding of different “perspectives” based on role. For example, consider the “business process perspective” which examines internal business processes. Typically (and as a best practice), the metrics created in this perspective are done by internal experts.
Finally, consider the learning and mentoring perspective, which (as mentioned previously) emphasizes a cultural development of shared or collected knowledge. It is in this perspective that workers enter “a continuous learning mode” which helps drive the organization to becoming a learning organization.
One of the final elements discussed by the article explains strategy mapping. This is the process wherein a story is told to help illustrate a logical connection between strategic objectives through cause and effect. It is in this process that the balanced scorecard demonstrates it’s ability to help organizations have more visibility and a common language between organizations.