Balanced Scorecard: An Overview

The Balanced Scorecard (BSC) is a strategic planning and management system that organizations use to align business activities with the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals. It was developed by Drs. Robert Kaplan and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance[2][3][4][5][6][7][8][9][10][11][12][13][14][15].

Historical Development

The concept of the Balanced Scorecard was introduced in 1992 through a Harvard Business Review article titled “The Balanced Scorecard—Measures that Drive Performance.” Kaplan and Norton, the creators of the BSC, argued that organizations should measure not just financial outcomes but also other key performance indicators to get a more accurate and comprehensive view of their performance[1][2][11].

The BSC framework has evolved over time, with Kaplan and Norton publishing several books that expand on the concept, including “The Balanced Scorecard: Translating Strategy into Action” (1996) and “The Strategy-Focused Organization” (2000). These works have helped to refine the BSC into a more comprehensive strategic management tool[2][11].

The Four Perspectives

The Balanced Scorecard suggests that organizations should evaluate themselves from four different perspectives, each with its own set of objectives, measures (KPIs), targets, and initiatives:

1. Financial Perspective: Focuses on financial performance and the use of financial resources. Common measures include profitability, growth, and shareholder value[4][7].
2. Customer Perspective: Looks at the organization from the standpoint of the customer or key stakeholders. Measures may include customer satisfaction, market share, and customer retention[4][7].
3. Internal Process Perspective: Examines the quality and efficiency of internal processes that create value for customers. Measures often focus on process efficiency, quality, and the ability to innovate[4][7].
4. Learning and Growth Perspective: Considers human capital, infrastructure, technology, culture, and other capacities that are key to breakthrough performance. Measures might include employee satisfaction, training and development, and information system capabilities[4][7].

Uses and Benefits

The Balanced Scorecard is used by a wide variety of organizations, including business and industry, government, and nonprofit organizations worldwide. It helps these entities:

• Communicate what they are trying to accomplish.
• Align day-to-day work with strategy.
• Prioritize projects, products, and services.
• Measure and monitor progress towards strategic targets[4][6][12].

The BSC has been adopted by many organizations as a way to improve strategic planning, enhance strategy communication and execution, align projects and initiatives with strategy, manage performance information more effectively, and improve organizational and process alignment[6][12].

Implementation

Implementing a Balanced Scorecard typically involves the following steps:

1. Preparation: Define the mission, vision, and strategic goals of the organization.
2. Development: Create a strategy map that tells the company’s story through objectives and measures.
3. Cascading: Break down high-level strategic objectives into specific goals for business units and teams.
4. Execution: Use the BSC as a framework for tracking and managing strategy, monitoring progress, and making informed decisions[9][17].

Evolution and Adaptation

Over the years, the Balanced Scorecard has evolved from a simple performance measurement system to a full-fledged strategic planning and management system. It has been adapted to various industries and sectors, reflecting the diverse needs and strategies of different organizations. The BSC has also been influential in the development of other strategic frameworks and performance management tools[2][5][14].

In conclusion, the Balanced Scorecard remains a relevant and widely used tool for strategic management, providing a comprehensive framework that balances financial and non-financial measures and aligns day-to-day operations with long-term strategic objectives.

Citations: [1] https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2 [2] https://www.clearpointstrategy.com/blog/brief-balanced-scorecard-history-four-takeaways [3] https://www.spiderstrategies.com/blog/the-benefits-of-the-balanced-scorecard/ [4] https://balancedscorecard.org/bsc-basics-overview/ [5] https://en.wikipedia.org/wiki/Balanced_scorecard [6] https://bernardmarr.com/7-benefits-of-a-balanced-scorecard/ [7] https://www.investopedia.com/terms/b/balancedscorecard.asp [8] https://www.sciencedirect.com/science/article/pii/S0007681322000258 [9] https://www.officetimeline.com/balanced-scorecard [10] https://worldofwork.io/2019/08/balanced-scorecards/ [11] https://www.linkedin.com/pulse/history-balanced-scorecard-system-part-1-james-creelman [12] https://www.clearpointstrategy.com/blog/companies-using-the-balanced-scorecard [13] https://www.techtarget.com/searchcio/definition/balanced-scorecard-methodology [14] https://bernardmarr.com/balanced-scorecard-part-1-a-brief-history/ [15] https://hbr.org/1993/09/putting-the-balanced-scorecard-to-work 

The six stages of the Kaplan/Norton strategy execution system are:

Develop the Strategy

1. • Review and reaffirm mission and values

   • Craft vision statement with measurable target and timeline
   • Create a strategic change agenda to link vision to strategy
2. Plan the Strategy
   • Develop strategy maps and scorecards to translate strategy into objectives and measures
   • Select and fund strategic initiatives
3. Align the Organization
   • Align business units and support functions to the strategy
   • Align employees’ personal goals and incentives to strategic objectives
4. Plan Operations
   • Improve key processes to drive strategic objectives
   • Develop dashboards for operational process improvements
5. Monitor and Learn
   • Conduct strategy review meetings to monitor progress, identify issues, and adapt as needed
6. Test and Adapt the Strategy
   • Analyze performance data to evaluate and adjust the strategy
   • Consider whether the strategy is being implemented poorly or if the strategy itself is flawed

These six stages form a closed-loop, integrated management system designed to link strategy to operations and enable continuous improvement and adaptation. The system is supported by the Office of Strategy Management (OSM), which ensures that all processes required for successful strategy execution are performed on schedule throughout the year.

How It is Used

The Balanced Scorecard (BSC) is a central component of the Kaplan/Norton strategy execution system. It serves as a framework for translating an organization’s strategy into a set of performance objectives and measures across four perspectives:

Financial Perspective: Defines the financial objectives and measures that indicate whether the strategy is being executed successfully.

Customer Perspective: Identifies the customer objectives and measures that align with the strategy, such as customer satisfaction, retention, and acquisition.

Internal Process Perspective: Focuses on the internal processes that are most critical for achieving customer and financial objectives. This perspective includes operational management, customer management, innovation, and regulatory and social processes.

Learning and Growth Perspective: Identifies the intangible assets (human capital, information capital, and organization capital) that are required to support the internal processes and drive strategic success.

The Balanced Scorecard is developed in Stage 2 (Plan the Strategy) of the strategy execution system. It is closely linked to the strategy map, which visually represents the cause-and-effect relationships among the strategic objectives across the four perspectives.

The BSC plays a crucial role throughout the strategy execution system:

In Stage 3 (Align the Organization), the BSC is used to align business units, support functions, and employees’ personal goals and incentives to the overall strategy.
In Stage 4 (Plan Operations), the BSC’s strategic objectives and measures guide the improvement of key processes and the development of operational dashboards.
In Stage 5 (Monitor and Learn), the BSC provides the foundation for strategy review meetings, where progress and issues are monitored, and adaptations are made as needed.
In Stage 6 (Test and Adapt the Strategy), BSC performance data is analyzed to evaluate the effectiveness of the strategy and make necessary adjustments.
In summary, the Balanced Scorecard is an integral tool within the Kaplan/Norton strategy execution system, serving as a framework for translating, communicating, and monitoring the organization’s strategy across four key perspectives.

How to Conduct an Engagement Using Balanced Scorecard

When conducting a consulting engagement to apply the Balanced Scorecard (BSC), you would typically follow a structured approach that aligns with the strategy execution system. Here’s a high-level outline of the steps involved:

1. Assess the organization’s readiness and secure commitment
   • Evaluate the organization’s current strategic planning and performance management processes
   • Gain commitment from senior leadership to adopt the BSC approach
2. Develop or clarify the strategy (Stage 1)
   • Review the organization’s mission, values, and vision
   • Conduct a strategic analysis (e.g., SWOT, PESTEL) to identify key strategic themes and objectives
   • Create a strategic change agenda if necessary
3. Plan the strategy (Stage 2)
   • Facilitate workshops with the leadership team to develop the strategy map
     • Identify strategic objectives across the four BSC perspectives
     • Establish cause-and-effect relationships among the objectives
   • Develop the Balanced Scorecard
     • Select measures and targets for each strategic objective
     • Identify strategic initiatives to drive performance
4. Align the organization (Stage 3)
   • Cascade the BSC to business units and support functions
   • Assist in aligning employees’ personal goals and incentives to the BSC
5. Plan operations (Stage 4)
   • Help identify and map key processes that support the strategic objectives
   • Develop operational dashboards aligned with the BSC
6. Implement and monitor (Stage 5)
   • Assist in setting up strategy review meetings
   • Provide guidance on monitoring progress and making data-driven decisions
7. Review and adapt (Stage 6)
   • Conduct periodic reviews to evaluate the effectiveness of the BSC
   • Help refine the strategy and BSC based on performance data and insights
8. Provide ongoing support
   • Offer training and coaching to build internal capabilities
   • Assist in establishing an Office of Strategy Management (OSM) to sustain the BSC approach

Throughout the engagement, the consulting team should work closely with the organization’s leadership and key stakeholders to ensure buy-in, knowledge transfer, and long-term success. The engagement may also involve change management and communication efforts to foster a culture of strategic focus and continuous improvement.