Balanced Scorecard

Originally published in May 2011 on Dr. Özgür Zan's original management blog, and preserved here in its original form.

Norton and Kaplan developed the balanced scorecard concept to address the perceived shortcomings in financially oriented performance measurement systems. The balanced scorecard approach supplements traditional financial measures with non-financial measures focused on at least three other perspectives: customers, internal business processes, and learning and growth. Norton and Kaplan contend that “balanced scorecard” concept provides a powerful means for translating a firm’s vision and strategy into a tool that effectively communicates strategic intent and motivates performance against established strategic goals. Balanced Scorecard has four perspectives.

• Financial perspective includes short-term and long-term financial returns such as Return on investment and net income.

• Customer perspective shows an increasing realization of the importance of customer focus and customer satisfaction

• Business process perspective focus on production and operating statistics.

• Learning and Growth perspective focuses on how well resources and human capital are being managed for the company’s future. Like introduction of new products.

Norton and Kaplan argues that development of a BSC provides a number of mechanisms for linking long-term strategic objectives with short-term actions:

1-      BSC forces managers to develop consensus around the firm’s vision and strategy

2-      BSC allows managers to communicate the firm’s strategy throughout the organization

3-      BSC helps firms to allocate resources and set priorities considering long-term strategic objectives

4-      BSC provides strategic feedback and promotes learning through monitoring short-term strategic results, thereby allowing the firms to modify objectives or strategies before financial measures are down.