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Clarifying and communicating vision and strategy into

action. Explanation of Balanced Scorecard of Kaplan and
Norton. ('92)
History of the Balanced Scorecard Upgrade to
Premium:
In 1992, an article by Robert Kaplan and David Norton entitled
"The Balanced Scorecard - Measures that Drive Performance" in the • Consultants
Harvard Business Review caused a lot of attention for their method, • Trainers
and led to their business bestseller, "The Balanced Scorecard:
Translating Strategy into Action", published in 1996. • Professors
• Business
Schools
The financial performance of an organization is essential for its
success. Even non-profit organizations must deal in a sensible way
with funds they receive. However, a pure financial approach for 12manage in:
managing organizations suffers from two drawbacks: • Hotels
• It is historical. Whilst it tells us what has happened to the • Airplanes
organization, it may not tell us what is currently happening.
Nor it is a good indicator of future performance. • Trains
• It is too low. It is common for the current market value of an • Remote
organization to exceed the market value of its assets. Tobin's-q Areas
measures the ratio of the value of a company's assets to its
market value. The excess value is resulting from intangible
assets. This kind of value is not measured by normal financial
reporting.
The 4 perspectives of the Balanced Scorecard
The Balanced Scorecard method of Kaplan and Norton is a strategic
approach, and performance management system, that enables
organizations to translate a company's vision and strategy into
implementation, working from 4 perspectives:
1. Financial perspective.
2. Customer perspective.
3. Business process perspective.
4. Learning and growth perspective.
This allows the monitoring of present performance, but the method
also tries to capture information about how well the organization is
positioned to perform in the future.

Benefits of the Balanced Scorecard

Kaplan and Norton cite the following benefits of the usage of the
Balanced Scorecard:
• Focusing the whole organization on the few key things needed
to create breakthrough performance.
 • Helps to integrate various corporate programs. Such as:
quality, re-engineering, and customer service initiatives.
• Breaking down strategic measures towards lower levels, so
that unit managers, operators, and employees can see what's
required at their level to achieve excellent overall
performance.
1. 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, and
managers will make sure to provide it. In fact, there is often more than
sufficient handling and processing of financial data. With the
implementation of a corporate database, it is hoped that more of the
processing can be centralized and automated. But the point is that the
current emphasis on financial issues leads to an unbalanced situation
with regard to other perspectives. There is perhaps a need to include
additional financial related data, such as risk assessment and cost-
benefit data, in this category.

2. The customer perspective

Recent management philosophy has shown an increasing realization
of the importance of customer focus and customer satisfaction in any
company. These are called 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 seem (still) good. In developing metrics for satisfaction,
customers should be analyzed. In terms of kinds of customers, and of
the kinds of processes for which we are providing a product or service
to those customer groups.

3. The Business Process perspective

This perspective refers to internal business processes. Measurements
based on this perspective will show the managers how well their
business is running, and whether its products and services conform to
customer requirements. These metrics have to be carefully designed
by those that know these processes most intimately. In addition to the
strategic management processes, two kinds of business processes
may be identified:
• Mission-oriented processes. Many unique problems are
encountered in these processes.
• Support processes. The support processes are more repetitive
in nature, and hence easier to measure and to benchmark.
Generic measurement methods can be used.
4. Learning and Growth perspective
This perspective includes employee training and corporate cultural
attitudes related to both individual and corporate self-improvement. In
a knowledge worker organization, people are the main resource. In the
current climate of rapid technological change, it is becoming
necessary for knowledge workers to learn continuously. Government
agencies often find themselves unable to hire new technical workers
and at the same time is showing a decline in training of existing
employees. Kaplan and Norton emphasize that 'learning' is something
more than 'training'; it also includes things like mentors and tutors
within the organization, as well as that ease of communication among
workers that allows them to readily get help on a problem when it is
needed. It also includes technological tools such as an Intranet.

The integration of these four perspectives into a one graphical

appealing picture, has made the Balanced Scorecard method very
successful as a management methodology.

Objectives, Measures, Targets, and Initiatives

For each perspective of the Balanced Scorecard four things are
monitored (scored):
• Objectives: major objectives to be achieved, for example,
profitable growth.
• Measures: the observable parameters that will be used to
measure progress toward reaching the objective. For example,
the objective of profitable growth might be measured by
growth in net margin.
• Targets: the specific target values for the measures, for
example, 7% annual decline in manufacturing disruptions.
• Initiatives: projects or programs to be initiated in order to
meet the objective.
Double-Loop Feedback
In traditional industrial activity, "quality control" and "zero defects"
were important words. To shield the customer from receiving poor
quality products, aggressive efforts were focused on inspection and
testing at the end of the production line. A problem with these
approaches - as pointed out by Deming - is that the true causes of
defects could never be identified, and there would always be
inefficiencies because products with a defect are rejected. Deming
understood that variation is created at every step in a production
process, and the causes of variation need to be identified and repaired.
If this can be done, then there is a way to reduce the defects and
improve product quality indefinitely. To establish such a process,
Deming emphasized that all business processes should be part of a
system, with feedback loops. The feedback data should be examined
by managers to determine the causes of variation, and what are the
processes with significant problems. Then they can focus their
attention on repairing that subset of processes.

The balanced scorecard method includes feedbacks around internal

business process outputs. As in TQM. Additionally, the Balanced
Scorecard provides a feedback for the outcomes of business strategies.
This creates a "double-loop feedback" process in the balanced
scorecard.
Outcome Metrics
You can't improve what you can't measure. Therefore metrics must be
developed based on the priorities of the strategic plan, which provides
the key business drivers and criteria for metrics managers most desire
to watch. Processes are then designed to collect information relevant
to these metrics and reduce it to numerical form for storage, display,
and analysis. Decision makers examine the outcomes of various
measured processes and strategies and track the results to guide the
company and provide feedback.

So the value of metrics is in their ability to provide a factual basis for

defining:
• Strategic feedback to show the present status of the
organization from many perspectives for decision makers.
• Diagnostic feedback into various processes to guide
improvements on a continuous basis.
• Trends in performance over time.
• Feedback around the measurement methods themselves.
Which measurements should be tracked?
• Quantitative inputs for forecast methods and for decision
support systems.
Management by Fact
The goal of measuring is to permit managers to see their company
more clearly - from many perspectives - and hence to make wiser
long-term decisions. A 1997 booklet on the Baldrige Criteria
summarizes this concept of fact-based management:

"Modern businesses depend upon measurement and analysis of

performance. Measurements must derive from the company's strategy
and provide critical data and information about key processes, outputs
and results. Data and information needed for performance
measurement and improvement are of many types, including:
customer, product and service performance, operations, market,
competitive comparisons, supplier, employee-related, and cost and
financial. Analysis entails using data to determine trends, projections,
and cause and effect - that might not be evident without analysis. Data
and analysis support a variety of company purposes, such as planning,
reviewing company performance, improving operations, and
comparing company performance with competitors' or with 'best
practices' benchmarks."

"A major consideration in performance improvement involves the

creation and use of performance measures or indicators. Performance
measures or indicators are measurable characteristics of products,
services, processes, and operations the company uses to track and
improve performance. The measures or indicators should be selected
to best represent the factors that lead to improved customer,
operational, and financial performance. A comprehensive set of
measures or indicators tied to customer and/or company performance
requirements represents a clear basis for aligning all activities with the
company's goals. Through the analysis of data from the tracking
processes, the measures or indicators themselves may be evaluated
and changed to better support such goals."

Cautionary note on using the Balanced Scorecard

You tend to get what you measure. People will work to achieve the
explicit targets which are set. For example, emphasizing traditional
financial measures may encourage short-term thinking. The Core
Group Theory by Kleiner provides further clues on the mechanisms
behind this. Kaplan and Norton recognize this, and urge for a more
balanced set of measurements. But still, people will work to achieve
their scorecard goals, and may ignore important things which have no
place on their scorecard.

Evolution of the Balanced Scorecard

In 2002, Cobbold and Lawrie developed a classification of Balanced
Scorecard designs based upon the intended method of use within an
organization. They describe how the Balanced Scorecard can be used
to support three distinct management activities, the first two being
management control and strategic control. They assert that due to
differences in the performance data requirements of these
applications, planned use should influence the type of BSC design
adopted. Later that year the same authors reviewed the evolution of
the Balanced Scorecard as shown through the use of Strategy Maps as
a strategic management tool, recognizing three distinct generations
of Balanced Scorecard design.

Book: Robert S. Kaplan, David P. Norton - The BSC: Translating

Strategy into Action -
Book: Paul R. Niven - BSC Step-by-Step: Maximizing Performance
and Maintaining Results -
Book: Paul R. Niven - BSC Step-by-Step for Government and
Nonprofit Agencies -
Balanced Scorecard Forum

Recent User Comments

"I am working on a project
related to BSC on
Brijesh BSC for engineering services, can
Dave - I Engineering anyone share their 2
ndia Services idea/experience in this
field.?"

"Hello. I am doing an MBA

in health care management.
It is challenging to find
Balanced literature on balanced score
Andrew
Score Card card on projects done in
Lihoma - 1
in African African health care industry.
Malawi
Hospitals Is there anyone who can
assist me on this issue.
Please."

Washington "What fomula do you

Formula use to calculate the
Mehlo - Zimbabw 9
for BSC
e BSC?"

"You must first assess the

level of alignment in your
organization. Based on this
you proceed with tracking
performance on the SBU
level and then cascade to the
Create individual level or
Johan
Strategic performance contract level.
Hough -
Aligment + Having done this for more 7
South than 80 companies, the
Line-of-
Africa important issue is to get
sight
100% line-of-sight or
strategic alignment. This
means that everybody must
be able to "see" her or his
contribution in terms of the
strategic objectives."
 "My organization has
conducted a BSC project
and now faces the
problem how to proceed.
There are jobs that are not
Mahetem Individual divisible to individual
Merawi - BSC performers. In such cases 2
Ethiopia Measurement where cascading is a
problem, how can we
measure the performances
of individual
performers?"
Best User Comments
"I designed the BSC for
a few organisation and
they were surprised by
A. Balanced the statistics. One firm
Pushpdhanva - Score was appreciated and 55
INDIA Card even awarded also, for
that technique. It totally
depends how well it is
designed."

Paul Best "I am collecting Best 51

Thompson - Practices Practices for successful
USA on BSC? Balanced Scorecard
implementation. Kaplan
and Norton already
mention the following 5
principles:
1. Mobilize change
through executive
leadership (ownership and
active involvement in the
change project)
2. Translate the strategy
into operational terms
(using the 4 perspectives
and a strategy map)
3. Align the organization
to the strategy
(coordination amongst
business units, staff units
and shared-service
centers)
4. Make strategy
 everyone's everyday job
(communication,
education, align personal
objectives, link
compensation)
5. Make strategy a
continual process (regular
strategy meetings and
update BSC and strategy
map)
Who can contribute
more?"

"I am new to this tecnique kindly

guide to this activity that how
Pooja - should i proceed to introduce this
Balance technique in my organisation . 48
India
Kindly guide me with your
valuable suggestions."

"Does anyone have

experience or knowledge of
using the BSC in a budget
A Long- BSC in formulation process? Has
Green - Budget anyone used the BSC as a 30
USA Formulation tool to support, defend or
increase/decrease budgets?"

Alan - BSC "I didn't notice the steps 29

UK Implementation towards actually
Process implementing the
Balanced Scorecard in the
article, so here is my
attempt: 1. Management
defines Mission and
Vision (Why are we here
and How does the future
looks like?). 2.
Management defines
Critical Success Factors
(When will be
successful?). 3. Create
initial Balanced Scorecard
(Expert) 4. Define Key
Performance Indicators
 and refine BSC. (Each
CSF is worked out in one
or a few KPIs). Any
builds?"

"Would it be possible to
develop a Balanced
Scorecard for our
BSC for finanical institutions in
Norma
Finanicial the USA? And could such
Simons - 21
Institutions in a system avert another
USA
the USA? meltdown and be linked
to the controls that we
need to put in place?"

"How does the

Francis
Generating balanced scorecard
Masereka - U 18
Cost Data make the generation of
ganda
cost data complex?"

"What is important for an

enterprise willing to
deploy a BSC tool, is to
adapt this concept to its
strategic management
purpose. I am now
helping a freight
forwarding company to
implement a BSC. Due to
the specificities in this
Dawei A new BSC sector, I find it necessary
ZHANG - with 6 to add two other 18
Chine perspectives perspectives (vendor,
socio-regulatory) in the
BSC applicable in this
company. With these six
perspectives, it seems that
we can measure the
company's performance
globally. I'm interested in
listening to your fresh
ideas about the BSC,
thanks."

Dipali - HR Use of "How can we use the 17

India Balance concept of balance
 scorecard for activities such
Scorecard as potential measurement,
career growth etc?"

"This gave a clear cut idea

about what the Balanced
Scorecard really means. But
how can we evaluate or judge
Efficiency the efficiency of the Balanced
Hari -
of Balanced Scorecard, management 16
India
Scorecard concept? How can we evaluate
the efficiency of using the
Balanced Scorecard concept?"

"The Balanced
Scorecard has been
proven a success in
corporate companies
because the unit of
measure is based on
financial success.
However, is it more
difficult to identify the
Unit of unit of measure in the
Ramdeen - Measurement public sector, mainly
because the unit of 15
Sweden of BSC in
Public Sector measurement is not
always financial,
depending on the
various levels of
government. This is my
opinion based on the
experience from the
public sector in
developing countries."

Earle S. The BSC is "I think the concept behind 11

Taylor - Now Being the Balanced scorecard is
Namibia Stretched an innovative one, and if
Beyond its the BSC is used within the
Optimality recommended structure
which the developers have
established, the model will
perform well. But the BSC
framework is quite broad
 and does allow some
flexibility in its application
outside and beyond the
four recommended
perspectives. It is in these
areas of flexibility that the
model shows lots of gaps
and imprecision. The
literature that is seeking to
track the model's
development seems to be
taking the high road that is
going way beyond the
model's optimality, and in
some instances, stretching
and promising
expectations that are not
realistic. This can be
dangerous."

"Can someone share

his/her experiences in
implementing the
Implementation Balanced Scorecard
Priyantha - of Balanced for performance
8
Sri Lanka Scorecards in the management in a
Banking Sector bank. I am trying to
improve the
effectiveness of the
existing system."

"The spiritual element is

Spiritual missing in the balanced
dr scorecard approach. Do you
Element in
tawfik - know the reason and how 7
Balanced
Egypt can we cover this gap
Scorecard
practically?"

HishamOsman - More "Actually we are 6

Sudan thinking and using the Balanced
challenging Scorecard method
needed without knowing it.
However we need to
challange our current
practices with more
thinking and apply it
 in a scientific way."

"How can the BSC help

Cristina BSC & adopting a target
Gabbiadini - Ita Target costing cost planning 4
ly Costing
tool?"

"I am intending to develop a

balanced scorecard for a
Otera Balanced university set up, however I
Chris - Scorecard for have no idea where to start 4
Kenya University from. Looking for like
minds to discuss the same
with me."

"When managing
projects, can a BSC add
value to that? Is it
possible to get more
transparency in the
process of projects when
Developing using a BSC? Some new
Hoving - Net
a BSC for research has proved that 4
herlands projects can be
Projects
managed/controlled by a
BSC. Do you agree that a
BSC can be a perfect tool
to control projects, and in
the end, measure the
success of a project?"

Laxminaraimhulu - Design a "How to design a 3

India BSC for BSC for power
Super generating station
Thermal already
Power established? Can
Generating the experts guide
Station me how to proceed
to design the
structure of BSC
for regional
executive director
having 3- 4 power
stations and a new
 project to start."

"How can a Balanced

Doha Sayed BSC & Scorecard be used to
Elganaini - Eg Reducing reduce logistic cost?" 3
ypt Logistic Cost

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