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BALANCED SCORECARD

The Balanced Scorecard (BSC) is a strategy performance management tool a semi-standard structured report, supported by design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions It is perhaps the best known of several such frameworks (it was the most widely adopted performance management framework reported in the 2010 annual survey of management tools undertaken by Bain & Company.) Since its original incarnation in the early 1990s as a performance measurement tool, the BSC has evolved to become an effective strategy execution framework. The BSC concept as put forth by Drs. Robert S. Kaplan and David P. Norton is now seen as a critical foundation in a holistic strategy execution process that, besides helping organizations articulate strategy in actionable terms, provides a road map for strategy execution, for mobilizing and aligning executives and employees, and making strategy a continual process.

History

Organizations have used systems consisting of a mix of financial and non-financial measures to track progress for quite some time. One example of a such a system was created by Art Schneiderman in 1987 at Analog Devices, a mid-sized semi-conductor company; the Analog Devices Balanced Scorecard[6] was similar to what is now recognised as a "First Generation" Balanced Scorecard design.[7] Subsequently Art Schneiderman participated in an unrelated research study in 1990 led by Dr. Robert S. Kaplan in conjunction with US management consultancy Nolan-Norton, and during this study described his work on performance measurement. Subsequently, Kaplan and David P. Norton included anonymous details of this use of balanced scorecard in a 1992 article.[8] Kaplan and Norton's article wasn't the only paper on the topic published in early 1992[9] but the 1992 Kaplan and Norton paper was a popular success, and was quickly followed by a second in 1993.[10] In 1996, they published the book The Balanced Scorecard.[11] These articles and the first book spread knowledge of the concept of balanced scorecard widely, and has led to Kaplan and Norton being seen as the creators of the concept.

While the "balanced scorecard" terminology was coined by Art Schneiderman, the roots of performance management as an activity run deep in management literature and practice. Management historians such as Alfred Chandler suggest the origins of performance management can be seen in the emergence of the complex organisation - most notably during the 19th Century in the USA.[12] More recent influences may include the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers (who created the tableau de bord – literally, a "dashboard" of performance measures) in the early part of the 20th century. The tool also draws strongly on the ideas of the 'resource based view of the firm'[13] proposed by Edith Penrose. However it should be noted that none of these influences is explicitly linked to original descriptions of balanced scorecard by Schneiderman, Maisel, or Kaplan & Norton.

Kaplan and Norton's first book, The Balanced Scorecard, remains their most popular. The book reflects the earliest incarnations of balanced scorecards - effectively restating the concept as described in the second Harvard Business Review article. Their second book, The Strategy Focused Organization, echoed work by others (particularly in Scandinavia[14]) on the value of visually documenting the links between measures by proposing the "Strategic Linkage Model" or strategy map. They have since published three additional books on "Strategy Maps", "Alignment" and "The Execution Premium", which together address issues and expand insights gained by the consultants at the Palladium Group, the firm they co-founded, during BSC implementation.

Design[edit]

Design of a balanced scorecard ultimately is about the identification of a small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance 'meets expectations'. The idea behind this is that by alerting managers to areas where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of the organization they lead.

The original thinking behind a balanced scorecard was for it to be focused on information relating to the implementation of a strategy, and, perhaps unsurprisingly, over time there has been a blurring of the boundaries between conventional strategic planning and control activities and those required to design a Balanced Scorecard. This is illustrated well by the four steps required to design a balanced scorecard included in Kaplan & Norton's writing on the subject in the late 1990s:

1. Translating the vision into operational goals;

2. Communicating the vision and link it to individual performance;

3. Business planning; index setting

4. Feedback and learning, and adjusting the strategy accordingly.

These steps go far beyond the simple task of identifying a small number of financial and non-financial measures, but illustrate the requirement for whatever design process is used to fit within broader thinking about how the resulting Balanced Scorecard will integrate with the wider business management process. This is also illustrated by books and articles referring to Balanced Scorecards confusing the design process elements and the balanced scorecard itself. In particular, it is common for people to refer to a "strategic linkage model" or "strategy map" as being a balanced scorecard.

Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the Balanced Scorecard itself has no role in the formation of strategy. In fact, balanced scorecards can comfortably co-exist with strategic planning systems and other tools.

Original design method

The earliest balanced scorecards comprised simple tables broken into four sections - typically these "perspectives" were labeled "financial", "customer", "internal business processes", and "learning and growth". Designing the balanced scorecard required selecting five or six good measures for each perspective.

Many authors have since suggested alternative headings for these perspectives, and also suggested using either additional or fewer perspectives. These suggestions were

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