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Balanced Scorecard

The balanced scorecard tries to improve internal and external communications and monitors organizational performance against strategic goals (1). The phrase was coined in the 1990s, but the roots of the balanced scorecard come from the pioneering work of General Electric and French process engineers in the 1950s (1). The balanced scorecard is a management system (not just a measurement system) that allows companies to simplify their vision and strategy and translate them into action. It provides feedback on both internal and external business processes (1).

Drs. Robert Kaplan and David Norton of Harvard Business School developed the framework to add strategic non-financial performance measures to complement traditional financial metrics¹. This gave managers and executives a more balanced view of organizational performance. The new balanced scorecard transforms an organization’s strategic plan from a passive document into the “marching orders” for the organization on a daily basis¹. It provides performance measurements, but also helps planners identify what should be done and measured. It enables executives to execute their strategies.

Kaplan and Norton describe the balanced scorecard as follows: “The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial matters are inadequate …”¹.

The balanced scorecard suggests that an organization be viewed through four perspectives. These include the learning and growth perspective, the business perspective, the customer perspective, and the financial perspective. The business prospective is one of the most important perspectives as it allows managers to know how well their business is running and whether products and services meet customer requirements. The balanced scorecard is not a piece of software. Once a scorecard has been developed, software can be used to get the information to the right people at the right time¹. Automation helps transform corporate data into information and knowledge and helps communicate performance information¹.

 

Reference:
1.  Balanced Scorecard Basics. Retrieved from https://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx

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