Balanced score card
• The balance scorecard is used as a strategic planning and a
management technique.
• This is widely used in many organizations, regardless of
their scale, to align the organization's performance to its
vision and objectives.
• As the name depicts, the balanced scorecard concept was
developed not only to evaluate the financial performance
of a business organization, but also to address customer
concerns, business process optimization, and enhancement
of learning tools and mechanisms
• The scorecard is also used as a tool, which improves the
communication and feedback process between the
employees and management and to monitor performance
of the organizational objectives.
• The balanced scorecard is divided into four main areas and a
successful organization is one that finds the right balance
between these areas.
• 1. Financial Perspective - This consists of costs or measurement
involved, in terms of rate of return on capital (ROI) employed
and operating income of the organization.
• Just because we're taking a balanced look at your organization
doesn’t mean that we want to ignore traditional financial
measures. Quite the contrary, the financial perspective is a
major focus of the balanced scorecard.
• Are you making money?
• Are your shareholders happy?
• The financial health of your organization may be a lagging
indicator showing the result of past decisions, but it’s still
incredibly important. Money keeps companies alive, and the
financial perspective focuses solely on that.
• 2. Customer Perspective - Measures the level of customer
satisfaction, customer retention and market share held by
the organization.
• The customer perspective focuses on the people who
actually buy your products and services.
• Are you winning new business?
• How about keeping your existing customers happy?
• How are you viewed in your industry compared to your
competitors?
• Customer satisfaction is a great forward-looking indicator of
success. The way you treat your customers today directly
impacts how much money you’ll make tomorrow.
• 3. Business Process Perspective - This consists of measures
such as cost and quality related to the business processes.
• The internal business processes perspective looks at how
smoothly your business is running. Efficiency is important
here. It’s all about reducing waste, speeding things up, and
doing more with less.
– Are there unneeded obstacles standing between new
ideas and execution?
– How quickly can you adapt to changing business
conditions?
• This perspective also encourages you to take a step back
and get a little philosophical about your company.
– Are you providing what your customers actually want?
– What should you be best at?
• 4. Learning and Growth Perspective - Consists of measures
such as employee satisfaction, employee retention and
knowledge management.
– The learning and growth perspective looks at your overall
corporate culture.
– Are people aware of the latest industry trends?
– Is it easy for employees to collaborate and share knowledge,
or is your company a mess of tangled bureaucracy?
– Does everyone have access to training and continuing
education opportunities?
• Technology also plays a major role in learning and growth.
• Are people able to use the latest devices and software,
• The four perspectives are interrelated. Therefore, they do
not function independently. In real-world situations,
organizations need one or more perspectives combined
together to achieve its business objectives.
• For example, Customer Perspective is needed to determine
the Financial Perspective, which in turn can be used to
improve the Learning and Growth Perspective.
• Features of Balanced Scorecard
• From the above diagram, you will see that there are four
perspectives on a balanced scorecard. Each of these four
perspectives should be considered with respect to the following
factors.
• When it comes to defining and assessing the four perspectives,
following factors are used:
• Objectives - This reflects the organization's objectives such as
profitability or market share.
• Measures - Based on the objectives, measures will be put in
place to gauge the progress of achieving objectives.
• Targets - This could be department based or overall as a
company. There will be specific targets that have been set to
achieve the measures.
• Initiatives - These could be classified as actions that are taken to
meet the objectives.
• The Need for a Balanced Scorecard
• Following are some of the points that describe the need for
implementing a balanced scorecard:
• Increases the focus on the business strategy and its
outcomes.
• Leads to improvised organizational performance through
measurements.
• Align the workforce to meet the organization's strategy on a
day-to-day basis.
• Targeting the key determinants or drivers of future
performance.
• Improves the level of communication in relation to the
organization's strategy and vision.
• Helps to prioritize projects according to the timeframe and
other priority factors.