Balanced scorecard

Question

What is a balanced scorecard?

Answer

Unlike most financial tools which simply analyse the financial performance of a company, the balanced scorecard is a tool that is used to measure the performance of a business in several areas against its strategic goals. A combination of financial and non-financial measures are used in the balanced scorecard, these include: learning and growth, business process, customer as well as financial. The learning and growth perspective requires you to assess how the organisation performs in respect of training and development. It can include things such as looking at the corporate culture of an organisation with respect to the approach to self-improvement. The business process perspective requires you to assess the internal processes in place at an organisation. This allows for an assessment of how well the business is being run and whether its products and/or services are meeting the requirements of customers. The customer perspective requires you to assess how well the organisation is doing in terms of serving its customers. For example, you could focus on how satisfied customers are with products or services produced by an organisation. The financial perspective requires you to assess traditional financial performance of a business by using common metrics such as liquidity, ROCE, and many more (Kaplan and Norton, 1996).

References

Kaplan, R.S., and Norton, D. (1996). Using the balanced scorecard as a strategic management system. Harvard Business Review, 74(1), pp. 75-78.