The balanced scorecard is a performance measurement framework that translates an organization's mission and strategy into objectives across four perspectives: financial, customer, internal processes, and learning and growth. It provides managers a holistic view of key performance indicators to track strategic success. The balanced scorecard was developed in the early 1990s by Robert Kaplan and David Norton to overcome the shortcomings of financial measures alone in gauging long-term strategic performance.
2. Introduction
• The performance measures like contribution
margin, ROI etc focus on past financial
performance rather than on what managers are
doing to create future shareholders value
• An approach which provides the managers an
instrument to navigate future competitive success
• The balanced score card translate an
organization's mission and strategy into a set of
performance measures that provides the
framework for a strategic management and
measurement
3. • The balanced scorecard emphasis on achieving
financial objectives
• It measures organizational performance across
four balanced perspectives:
Financial
Customers
Internal business processes
Learning and growth
• Balanced score card technique was developed
by Robert Kaplan, Harvard Professor and David
Norton, a consultant
4. Meaning of Balanced Score Card
According to Atkinson, Banker, Kaplan and Mark
Young, to be balanced, performance
measurement system must meet two
requirements:
• Performance measurement system should
monitor both the organization's performance and
what management believes are the drivers of
performance on the organization's primary
objectives
• The performance measurement system should
measure the most critical aspects of organization
performance
5. Therefore, BSC is a system of performance
measurements that organizations uses to
tract performance on its objectives
It defines what relationships the organization
must develop with its employees, its suppliers
and the community to be successful with its
targeted customers
6. Perspectives in Balanced Score Card
• BSC recognizes that organizations are responsible
to different stakeholders group such as
employees, suppliers, customers, community and
shareholders
• BSC shows an organization's performance in
meeting its objectives relating to stakeholders
• The four perspectives in BSC are;
The financial perspective:
The BSC uses financial performance measures
such as net income and ROI, which arte common
language for analyzing and comparing the
companies
7. The Customer perspective:
• It focuses on the expectations of the firm’s
customers
• Co’s use the following performance measures
when considering the customer perspective;
Customer satisfaction
Customer retention
Market share
Customer profitability
Customer perspective in Non-profit Organizations
8. The internal business and production process
perspective:
• Supplier Relations
• Process improvement incentives
The learning and growth perspective:
• Focus on capabilities of people
• Employee satisfaction
• Employee retention
• Employee productivity
9. Four Perspectives of Balanced Score Card
Measures
Financial Is the company
achieving its financial
goal?
Operating income
Return on assets
Sales growth
Cash flow from operations
Reduction in Administration expenses
Customer Is the company
meeting customer
expectations?
Customer satisfaction
Customer retention
New customer acquisition
Market share, On time delivery
Internal process Is the company
improving internal
control process?
Defect rate
Number of suppliers
Material turnover
Percent of practical capacity
Innovation Is the company
improving its ability to
innovate?
Amount spent on employee training
Employee satisfaction, retention
Number of new products, number of
patents, sales of new products as a % of
total sales
10. Characteristics of Good Balanced Score Card
• BSC should highlight a company’s strategy by
focusing on cause and effect relationship
• BSC should help in communicating the strategy
formulated to all members of an organization
• A good BSC considers non-financial measures as a
part of a strategy or programme to achieve and
improve future financial performance
• The BSC limits the number of measures used by
identifying only the most critical ones
• Short run financial performance may have been
achieved by taking actions that hurt future
financial performance