So, what is the Balanced Scorecard?
In short, it’s a strategy management system that enables your organization to set, track, and achieve its key business strategies and objectives. Its strength is its ability to translate the sometimes-vague hopes of a company’s vision and mission statements into the practicalities of managing the business better at every level.
Two professors, Kaplan and Norton, from Harvard Business School developed the Balanced Scorecard in the 1990s. They had recognized that most businesses tended to rely solely on financial measures as an indicator of how they were performing. Financial measures are necessary, but they only reveal what happened in the past. They provide no indication of what might happen in the future.
To deal with this problem, Robert Kaplan and David Norton developed the Balanced Scorecard, with four “perspectives” or ways of looking at your organization.
- Financial perspective– keeps focus on your financial health
- Customer perspective– keeps focus on your customer satisfaction and performance
- Business process perspective– puts focus on those processes that are most likely to deliver value to your customer
- Learning & growth perspective– puts focus on the internal capabilities and organizational capacity you need to improve the processes that are customer-critical
These four realms are not simply a collection of independent perspectives. Rather, there is a logical connection between them – learning and growth lead to better business processes, which in turn lead to increased value to the customer, which finally leads to improved financial performance; And these relationships are best shown through a technique called Strategy Mapping. When you are a for-profit company, the financial perspective is at the top. When you are a not-for-profit, the customer perspective is at the top.
A strategy map is a visual representation of how your organization plans to deliver on its mandate and achieve its vision. It can be a very powerful story-telling tool. Read our latest article “What is strategy mapping and how it is different from results mapping” here.
Adura has helped dozens of organizations use the Balanced Scorecard framework to develop their strategic plan and visually communicate it through strategy maps. When companies invest in learning this framework, it pays off during strategy execution and measurement.
- Harvard Business Review: Putting the Balanced Scorecard to Work
- The Institute Way: Simplify Strategic Planning and Management with the Balanced Scorecard
- Balanced Scorecard for Dummies
- Robert S. Kaplan and David P. Norton, The Balanced Scorecard: Translating Strategy into Action
Footnote: Some content for this page was adapted from Balanced Scorecard for Dummies and the Balanced Scorecard Institute.