Balanced Scorecard (BSC):

An Introduction

Prof Saurabh Pandya

Faculty, Strategic Management, XLRI Jamshedpur
MBA – NMIMS, Mumbai | FPM (PhD) – IIM Bangalore
BALANCED SCORECARD
AN INTRODUCTION
Balanced Scorecard (BSC)
• Performance measurement –> Performance
management –> Strategic Management tool
• Provides a more comprehensive assessment of
the state of the organization
• Revolutionized conventional thinking about
performance metrics
• It is a misnomer that BSC is an HR tool – actually
a Strategy tool applicable to entire organization
• But HR department is generally the custodian
and implementer of this tool
• Vision & Strategy is at the core
BSC – A bridge between the present
and the future (Knowing-Doing gap)
• Addresses gap between an organization’s strategies
and their implementation by employees
• Link a company’s long-term strategies with short-
term actions
• Not a replacement for financial measures, but their
complement
• Track financial results
• Monitor progress in building the capabilities and
acquiring the intangible assets needed for future
growth
• Ability to exploit intangible assets > Ability to invest
in and manage physical assets
Cascading nature of balanced scorecard
 Financial & Strategic Objectives*
Financial Objectives Strategic Objectives
• ‘x’ % increase in revenues • ‘x’ % market share
• ‘x’ % inc. in profits (PAT) • Lower costs than rivals
• ‘x’ % inc. in EPS • Better quality & customer
• ‘x’ % inc. in dividend payout service
• ‘x’ % profit margin • ‘x’ % revenues from sale of
• ‘x’ % ROE or ROCE new products
• Increased shareholder • Broader or deeper
value (upward stock price) technological capabilities
• Bond / credit ratings of ‘x’ • Wider product line
• Internal cash flow of ‘x’ • Better brand name
• Stronger S&D capabilities
* Crafting & Executing Strategy (19e) by
Thompson et al.
• New product introduction
BSC Constituents / Perspectives
Four constituents or Components (OMTI)
perspectives of a BSC within each of the four
• Financial constituents
• Marketing • Objectives
(Customer) • Measures
• Internal Business • Targets
Process
• Initiatives
• Learning & Growth
(knowledge &
innovation)
Using the Balanced Scorecard as a Strategic Management System by Kaplan &
Norton (HBR, 1996 & 2007)
BSC Perspectives – Questions to Ask
It is about translating vision & strategy through
four perspectives
• Financial
• How should we appear to our shareholders?
• Marketing (Customer)
• How do customers view us?
• Internal Business Process (IBP)
• What processes must we excel at?
• (to satisfy shareholders & customers)
• Learning & Growth (L&G)
• Can we continue to improve and create value?
 BSC – Criteria for Components..
Perspective / Criteria
Component
Financial • Cash flow
• Return on equity
• Return on assets

Customer • Ability to anticipate customers’

(Marketing) needs
• Effectiveness of customer service
• Percentage of repeat business
• Communications with customers
 BSC – Criteria for Components*
Perspective / Criteria
Component
Internal • Asset utilization improvements
Business • Improvement in employee morale
Process • Reduced attrition or turnover rates

Learning & • Improvements in innovation ability

Growth • Number of new products
compared to competitors
• Increase in employees’ skills

* Strategic Management by Hitt, Ireland, Hoskisson & Manikutty (9th ed.)

Four Characteristics of a BSC*
These distinctive features make the BSC more than
just a measurement system
• It is a top-down reflection of the company’s mission
(vision) and strategy
• It is forward-looking
• It integrates external and internal measures
• It helps a company focus
Thus, it serves as a means for motivating and
implementing breakthrough performance

*Putting the Balanced Scorecard to Work by Kaplan & Norton

(HBR, 1993)