What is Balanced Scorecard?
Balanced scorecard is a strategic performance management tool which companies use to connect business activities to the vision and strategy of the company
Balanced scorecard definition (BSC)
Balanced scorecard is a strategic performance management tool which companies use to connect business activities to the vision and strategy of the company. The methodology of BSC was developed in 1992 by dr. Robert Kaplan and dr. David Norton.
The balanced scorecard manages four key elements of business:
- finance: how does a company look to its shareholders
- internal processes: how well the business is running and what should the company be best at
- customer satisfaction: how do the customers see the company and does it provide what they actually want
- knowledge and growth: how can the company improve and create value
How to measure the balanced scorecard
The balanced scorecard provides the balance between financial and non-financial measures and connects business strategy elements like mission, vision and core values with operational elements such as initiatives and objectives. Generally, there are no more than 20 measures spread across the financial and non-financial topics.
Measurement is taken through performance measures which are designed to be understood easily and acted upon quickly. Performance measures are divided into leading and trailing measures.
Benefits of balanced scorecards
Since the processes of collecting, reporting and distributing balanced scorecard information can be complicated and filled with procedural problems, simple organizations often delegate an individual who is in charge of the BSC activities, while more complex organizations use balanced scorecard reporting software to automate the production and distribution of these reports.
The balanced scorecard has become an extremely powerful tool to ensure alignment through strategy maps, improve communication through a common language, ultimately leading to a better performing organization that is intuned with its business strategy.