What is a balanced scorecard?
Balanced Scorecard is a multi-dimensional framework created by Dr. Robert Kaplan and Dr. David Norton that uses measurement to describe an organization’s strategy.
Kaplan and Norton identified four perspectives each representing an important face of the organization. They are
Ø External customer
Ø Internal process
Ø Innovation and Learning
These four perspectives are designed to balance
Ø The financial and the non-financial aspects
Ø Current performance with the future
Ø Short-term Vs Long-term goals
Some key terms
A perspective is a component into which the strategy is decomposed to drive implementation. Typically, there are four perspectives; financial, customer, internal and learning and growth. Others may be added or replace these based on a specific strategic need. A perspective is a major element of the strategy often representing a stakeholder category or point of view.
An objective is a statement of strategic intent. An objective states how a strategy will be made operational. Generally, the objectives form the building blocks for the overall strategy of the organization.
A measure is a performance metric that will reflect progress against an objective. A measure must be quantifiable. The measures communicate the specific behavior required to achieve the objective and become the actionable statement of how the strategic objective will be accomplished. Leading measures are predictors of future performance, while lagging measures are outcomes.
A target is a quantifiable goal for each measure. The set of targets found on the Balanced Scorecard become the overall goals of the organization. Targets create opportunity to succeed, help the organization monitor progress toward strategic goals, and communicate expectations.
5. Cause and Effect Linkages
Objectives are related to one another through cause and effect relationships. The cause and effect linkages are similar to “if-then” statements. For example, if an airline decreases the on-ground turn-around time (objective 1), then the airline will require fewer planes (objective 2) and customers will be more satisfied with on-time take off (objective 3)and corporate profitability will increase (objective 4). These cause and effect linkages should be explicit.
6. Strategic Initiatives
Strategic initiatives are those action programs (discretionary investments or projects) that drive strategic performance. These are the activities that groups will focus on to ensure attainment of strategic results. All initiatives underway in an organization should be aligned with the strategy in the Balanced Scorecard.