Balanced Scorecard

1. What is Balanced Scorecard (BSC)?

The Balanced Scorecard is a performance-measurement tool originated by Dr. Robert S. Kaplan and Dr. David P. Newton. The introduction of BSC in 1992 was described as unconventional and even revolutionary, considering that it involved supplementing traditional financial measures with strategic non-financial metrics to provide management with a more "balanced" view of performance.

The BSC encompasses four perspectives, which are: financial, customer, process, and learning & growth. The financial and customer measures measure "what" the organization wants to achieve with regards to its two most important stakeholders – customers and shareholders. The process and learning & growth measures "how" the organization wants to create value in terms of business processes and employee capabilities.

2. How is it used?

Creating a BSC involves incorporating a strategy map, objectives and measures, as shown in the figure.

Every strategy must be composed of "competitive advantage" and "scope." The competitive advantage positions the company in terms of how it wants to differentiate or outperform its competitors. The scope assigns which resources to allocate, how employees and management will be able to achieve the competitive advantage. A strategy map, then, illustrates the causal relation between each strategy. Objectives are usually written down as "action phrases," and describe the steps to achieve each strategy. Objectives should be translated into measures, and should be specific, measurable, attainable, realistic, and time-bound. Targets are then assigned to each measure so that the level of performance and rate of improvement can be assessed.

The first step is to identify the financial strategy. Then, the customer perspective is identified since

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