Notes What is Balanced Scorecard?

The Balanced Scorecard method is a strategic approach arnd performance management

system that enables the organisations to translate its vision and strategy into
implementation. The Balanced Scorecard is a conceptual framework for translating an
organization's vision into a set of performance indicators distributed among four
perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth.
Indicators are maintained to measure an organization's progress toward achieving its
vision. Other indicators are maintained to measure the long term drivers of success.
Through this scorecard, an organization monitors both its current performance (finances,
customer satisfaction, and business process results) and its efforts to improve processes,
motivate and educate employees, and enhance information systems - its ability to learn
and improve. A Balanced Scorecard enables us to measure not just how we have been
doing, but also how well we are doing ('current indicators" and can expect to do in the
future ("leading indicators"). This in turn gives us a clear picture of reality.
The Balanced Scorecard is a way of:
1 Measuring organizational, business unit's or department's success

2 Balancing long-term and short-term actions

3. Balancing different measures of success

(a) Financial
(b) Customner

(c) Internal Operations

(d) Human Resource System & Development (learning and growth)
Four Kinds of Measures

The scorecard seeks to measure a business from the following perspectives:

1 Financialperspective: Measures reflecting financial performance, for example,
number of debtors, cash flow or return on investment. The financial performance of
an orgarnization is fundamental to its success. Even non-profit organisations must
make the books balance. Financial figures suffer from two major drawbacks
2. Customer perspective: This perspective captures the ability of the organization to
provide quality goods and services, effective delivery, and overall customer
satisfaction for both Internal & External customers. For example, time taken to
process a phone call, results of customer surveys, number of complaints or
competitive rankings.
3 Business Process perspective: This perspective provides data regarding the internal
business results against measures that lead to financial success and satisfied
customers. To meet the organizational objectives and customers expectations,
organizations must identify the key business processes at which they must excel.
Key processes are monitored to ensure that outcomes are satisfactory. Internal
business processes are the mechanisms through which performance expectations
are achieved. For example, the time spent prospecting new customers, number of
units that required rework or process cost.
Contd..
4. Learning and Growth perspective: This perspective captures the ability of employees,
information systems, and organizational alignment to manage the business and
adapt to change. Processes willonly succeed if adequately skilled and motivated
employees, supplied with accurate and timely information, are driving them. In
order to meet changing requirements and customer expectations, employees are
being asked to take on dramatically new responsibilities that may require skills,
capabilities, technologies, and organizational designs that were not available before.
It measures the company's learning curve for example, number of employee
suggestions or total hours spent on staff training.
Objectives, Measures, Targets and Initiatives
Within each of the balanced scorecard financial customer, internal process, and learning
perspectives, the organisation must define the following:
1. Strategic objectives - the strategy for achieving that perspective.
2. Measures - how progress for that particular objective will be measured.
3. Targets - the target value sought for each measure
4. Initiatives - what will be done to facilitate reachingg out the target.

The balanced scorecard provides an inter-connected model for measuring performance

and revolves around four distinct perspectives - financial, customer, internal processes,
and innovation and learning. Each of these perspectives is stated in terms of the
organisation's objectives, performance measures, targets, and initiatives, and all are
harnessed to implement corporate vision and strategy.
The name also reflects the balance between the short-and long-term objectives, between
financial and non-financial measures, between lagging and leading indicators and between
external and internal performarnce perspectives.
Under the balance scorecard system, financial measures are the outcome, but do not give
a good indication of what is or will be going on in the organization. Measures of customer
satisfaction, growth and retention is the current indicator of company performance, and
internal operations (efficiency, speed, reducing non-value added work, minimizing quality
problems) and human resource systems and development are leading indicators of
company performance.
Robert S Kaplan and David Norton the architects of the balanced scorecard approach,
recognized early that long-term improvement in overall performarnce was unlikely to
happen through technology only and hence placed greater emphasis on organizational
learning and growth. These, in turn, consist of the integrated development of employees,
information, and systems capabilities.
Context and Strategy
Just as financial measures have to be put in context, so does measurement itself. Without
a tie to a company strategy, more importantly, as the measure of company strategy, the
balanced scorecard is useless. Amission, strategy and objectives must be defined. Measures
of that strategy must be agreed upon to and actions need to be taken for a measurement
system to be fully effective. Otherwise, it will appear as if the organisation is standing at
a crossroad but unaware of which path to take.
Contd...
Purpose of the Balanced Scorecard
Kaplan and Norton found that organisations are using the scorecard to:
1. Clarify and update strategy
2 Communicate strategy throughout the company
3. Align unit and individual goals with strategy
4 Link strategic objectives to long term targets and annual budgets
5. Identify and align strategic initiatives
6 Conduct periodic performance reviews to learn about and improve strategy.
The Process of Building a Balanced Scorecard
Kaplan and Norton suggest following four step process for building a scorecard:
1. Define the measurement architecture

2 Specify strategic objectives

3. Choose strategic measures
4. Develop the implementation plan
Benefits of Balanced Scorecard

Some of the benefits include:

1, Translation of strategy into measurable parameters
2. Communication of the strategy to all stakeholders
3. Alignment of individual goals with the orgarnisation's strategic objectives
4 Feed-back of implementation results to the strategic planning process

5. Preparing the organisation for the Change - It provides for a front-end justification
as well as a focus and integration for the continuous improvement, re-engineering
and transformation process
Balanced Scorecard for Enhancing Performance
In such constantly shifting environments, management must learn to continuously adapt
to new strategies that can emerge from capitalizing on opportunities or countering threats.
A properly constructed balanced scorecard can provide management with the ideal tool in
reacting to the turbulent environment and helping the organisation to correct the course
to success.

Scorecard provides managers with feedback, thus, enabling them to monitor and adjust
the implementation of their strategy - even to the extent of changing the strategy itself. In
today's information age, organisations operate in very turbulent ernvironments. Planned
strategy though initiated with the best of intentions and with the best available information
at the time of planning may no longer be appropriate or valid for contemporary conditions.
As companies have applied the balanced scorecard, they have begun to recognize that the
scorecard represents a fundamental change in the underlying assumptions about
performance measurement.
The scorecard puts strategy and vision, not control, at the centre. It establishes goals but
assumes that people will adopt whatever behaviours and take whatever actions are
Contd...
 necessary to arrive at those goals. The measures are designed to pull people toward the
overall vision. Senior managers may know what the end result should be, but they cannot
tell employees exactly how to achieve that result, because the conditions in which employees
operate are constantly changing.
This new approach to performance measurement is consistent with the initiatives under
way in many organisations: cross-functional integration, customer supplier partnerships,
global scale, continuous improvement, and team rather than individual accountability.
By combining the financial, customer, internal process and innovation, and organizational
learning perspectives, the balanced scorecard helps managers understand, at least implicitly,
many interrelationships. This understanding can help managers transcend traditional
notions about functional barriers and ultimately lead to improved decision making,
problem solving and enhanced performance. The balanced scorecard keeps organisations
moving forward.