Balanced scorecard:

Definition
 Is an important tool of any strategic management system.
 It uses performance measurements within a framework of strategic hypotheses.
 Kaplan and Norton emphasized that BSC should be used as communicating, informing and learning
system as a strategic measurement to define strategy for competitiveness and future excellence not a
controlling system.

(BSC) was published in1992 by Robert Kaplan and David Norton. Uses of BSC:
 measuring current performance in financial terms ,
 BSC evaluates the firms efforts to improve future by using:
o learning and growth
o internal business process,
o customer,
o Finance
Scorecard signifies quantified performances measure.

Balanced signifies that the system is balanced in:

1. short-term and long term objectives
2. financial and non-financial measures
3. Performance drivers (leading indicators) with outcome measures (lagging indicators)
4. Internal performance and external performance measure.

The organizational balanced scorecard includes:

 The organizational mission.
 Vision.
 Core values.
 Critical success factors.
 Objectives.
 Performance measures.
 Targets and improvement actions.

The Balanced Scorecard Functions:

1- Translates vision into strategy
2- Make strategy actionable
3- Measure and manage results
4- Aligns the organization.
5- Improve accountability.
6- Communicate measuring results with clarity.

|Page1
Levels of BSC:
Strategy is communicated and translated into 3 levels:
1. Organization level BSC
2. Business functions and units balanced scorecards.
3. Team scorecards and Personal balanced scorecards.
Ultimately, each employee is stimulated to contribute to the shared organizational strategy.

What is measured by BSC?

Perspectives
The balanced scorecard suggests that we view the organization from four perspectives, and to develop
metrics, collect data and analyze it relative to each of these perspectives:
1- The Learning & Growth Perspective
This perspective includes:
 employee training
 corporate cultural attitudes related to both
o individual self improvement.
o corporate self-improvement.
 Kaplan and Norton emphasize that 'learning' is more than 'training'
 it also includes things like mentors and tutors within the organization to solve problems when needed.
|Page2
 2- The Business Process Perspective
 This perspective refers to internal business processes.
 Metrics based on this perspective allow the managers to know how well their business is running,
and whether its products and services conform to customer requirements (the mission).
 These metrics have to be carefully designed by those who know these processes most
intimately; not by outside consultants.

3- The Customer Perspective

 Recent management philosophy has shown an increasing realization of the importance of customer
focus and customer satisfaction in any business.
 These are leading indicators: if customers are not satisfied, they will eventually find other suppliers
that will meet their needs. Poor performance from this perspective is thus a leading indicator of future
decline, even though the current financial picture may look good.
 In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers
and the kinds of processes for which we are providing a product or service to those customer groups.

4- The Financial Perspective

 Kaplan and Norton do not disregard the traditional need for financial data.
 Timely and accurate funding data will always be a priority
 But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard
to other perspectives.

A chain of Cause-and-Effect Logic

 Balanced scorecard maps an organizational strategic objectives into performance metrics in four
perspectives each perspective has "objectives, measurements, targets (KPIs), and initiatives" these
perspectives are;
o financial perspective,
o customer perspective,
o internal business perspective,
o learning and growth perspective.
 Sometimes we may add 5th perspective as environmental perspective.

These perspectives provide feedback as how well strategic plan is executing, so that adjustments can be made
as necessarily. The 4 perspectives form a chain of cause and effect relationship:
Learning and growth  better business process  higher customer loyalty and satisfaction 
higher return on capital employed.

This cause-and-effect logic is one of the most important elements of best-practice Balanced Scorecards. It
allows companies to create a truly integrated set of strategic objectives.

Strategic objectives, Measure, Targets, Initiatives;

For each of the BSC 4 perspectives the firm must define;
 Strategic Objectives: what is the strategy to achieve that perspective
 Measure: how the progress in that objective will be measured.
 Targets: target value sought for each measure.
 Initiatives: what needed to be done to facilitate the reaching of the targets.

|Page3
 Example:

Strategy Mapping
Strategy maps are communication tools used to tell a story of how value is created for the organization. They
show a logical, step-by-step connection between strategic objectives (shown as ovals on the map) in the form
of a cause-and-effect chain. Generally speaking, improving performance in the objectives found in the
Learning & Growth perspective (the bottom row) enables the organization to improve its Internal Process
perspective Objectives (the next row up), which in turn enables the organization to create desirable results in
the Customer and Financial perspectives (the top two rows).

Balanced Scorecard Software

o The balanced scorecard is not a piece of software. Unfortunately, many people believe that implementing
software amounts to implementing a balanced scorecard. Once a scorecard has been developed and
implemented, however, performance management software can be used to get the right performance
information to the right people at the right time.
o Automation adds structure and discipline to implementing the Balanced Scorecard system, helps
transform disparate corporate data into information and knowledge, and helps communicate performance
information.

BSC as a tool for managing Change:

|Page4