balanced scorecard

Balanced Scorecard



Balanced Scorecard

Balanced Scorecard

In response to a concern that many senior executives were focusing exclusively on financial measurements such as return on investment and earnings per share to run their businesses, Robert Kaplan and David Norton introduced the concept of the Balanced Scorecard (BSC) in 1992. While these metrics are undeniably important, it would be detrimental to the long-term success of a company to rely exclusively on these short-term metrics. Utilization of a BSC allows management to shift their focus away from short-term measurements and provides a method for performance metrics to be tied more closely to a firm's strategy and long-term vision.

A successful scorecard limits the number of measures and prevents information overload. This allows management to see through to the company's competitive strategy. If an innovative suggestion is made, the scorecard may be modified. (Bruns, 1998)

Discussion

BSC can be defined as "a comprehensive set of performance measures that provides a framework for a strategic measurement and management system". The BSC consists of financial measures indicating the results of actions already taken as well as operational measures that drive future financial performance. The BSC gives managers information on four different perspectives: customer satisfaction, internal business process, innovation and learning, and financial. Using these operational measures drives future financial performance and allows a firm to simultaneously monitor their progress in building capabilities and acquiring necessary intangible assets needed for future growth.

Using a balanced scorecard can result in an improved bottom line by reducing process cost and improving productivity since performance measures may be linked with business strategy. Companies are able to align their strategic activities to their strategic plan. Strategy can be deployed and implemented on a continuous basis since feedback can be used to guide planning efforts. By measuring process efficiency, management can decide which improvements should be ...