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. The phrase 'Balanced scorecard' is
commonly used in two broad forms:
1. As individual scorecards that contain measures to manage performance, those scorecards
may be operational or have a more strategic intent; and
2. As a Strategic Management System, as originally defined by Kaplan & Norton.
The critical characteristics that define a balanced scorecard are:
Its focus on the strategic agenda of the organization concerned
The selection of a small number of data items to monitor
A mix of financial and non-financial data items.

Within the strategy management context, all three of these characteristic closed-loop control
elements need to be derived from the organizations strategy and also need to reflect the ability
of the observer to both monitor performance and subsequently intervene - both of which may be
constrained. Initially, Balanced Scorecard emerged as a performance management system, over a
period of time it has come to be known as a strategy management system, with its ultimate aim
being the achievement of long term financial performance. Balanced scorecard is seen as a
strategic management system enabling business leaders to meet the challenge of strategy
execution. Two of the ideas that underpin modern balanced scorecard designs concern facilitating
the creation of such a control - through making it easier to select which data to observe, and
ensuring that the choice of data is consistent with the ability of the observer to intervene.

Kaplan and Norton describe the innovation of 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
measures are inadequate, however, for guiding and evaluating the journey that information age
companies must make to create future value through investment in customers, suppliers,
employees, processes, technology, and innovation."

Adapted from Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic Management
System, Harvard Business Review (January-February 1996): 76.

CHARACTERISTICS OF BALANCED SCORECARD

The characteristics of the balanced scorecard and its derivatives is the presentation of a mixture
of financial and non-financial measures each compared to a 'target' value within a single concise
report. The report is not meant to be a replacement for traditional financial or operational reports
but a succinct summary that captures the information most relevant to those reading it. It is the
method by which this 'most relevant' information is determined (i.e., the design processes used to
select the content) that most differentiates the various versions of the tool in circulation. The
balanced scorecard indirectly also provides a useful insight into an organizations strategy - by
requiring general strategic statements (e.g. mission, vision) to be precipitated into more specific /
tangible forms.

The first versions of balanced scorecard asserted that relevance should derive from the corporate
strategy, and proposed design methods that focused on choosing measures and targets associated
with the main activities required to implement the strategy. As the initial audience for this was
the readers of the Harvard Business Review, the proposal was translated into a form that made
sense to a typical reader of that journal - managers of US commercial businesses. Accordingly,
initial designs were encouraged to measure three categories of non-financial measure in addition
to financial outputs - those of "customer," "internal business processes" and "learning and
growth." These categories were not so relevant to non-profits or units within complex
organizations (which might have high degrees of internal specialization), and much of the early
literature on balanced scorecard focused on suggestions of alternative 'perspectives' that might
have more relevance to these groups.
DESIGN OF BALANCED SCORECARD
The original thinking behind a balanced scorecard was for it to be focused on information
relating to the implementation of a strategy, and 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 nonfinancial 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.
FIRST GENERATION BALANCED SCORECARD
The first generation of balanced scorecard designs used a "4 perspective" approach to identify
what measures to use to track the implementation of strategy. `The original four "perspectives"
proposed were:

 Financial: encourages the identification of a few relevant high-level financial measures. In

particular, designers were encouraged to choose measures that helped inform the answer to
the question "How do we look to shareholders?" Examples: cash flow, sales growth,
operating income, return on equity.
Customer: encourages the identification of measures that answer the question "How do
customers see us?" Examples: percent of sales from new products, on time delivery, share of
important customers purchases, ranking by important customers.
Internal business processes: encourages the identification of measures that answer the
question "What must we excel at?" Examples: cycle time, unit cost, yield, new product
introductions.
Learning and growth: encourages the identification of measures that answer the question
"How can we continue to improve, create value and innovate?". Examples: time to develop
new generation of products, life cycle to product maturity, time to market versus competition.
SECOND GENERATION BALANCED SCORECARD
In the mid-1990s, an improved design method emerged. In the new method, measures are
selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or
"strategy map". With this modified approach, the strategic objectives are distributed across the
four measurement perspectives, so as to "connect the dots" to form a visual presentation of
strategy and measures. In this modified version of balanced scorecard design, managers select a
few strategic objectives within each of the perspectives, and then define the cause-effect chain
among these objectives by drawing links between them to create a "strategic linkage model". A
balanced scorecard of strategic performance measures is then derived directly by selecting one or
two measures for each strategic objective. This type of approach provides greater contextual
justification for the measures chosen, and is generally easier for managers to work through. This
style of balanced scorecard has been commonly used since 1996 or so: it is significantly different
in approach to the methods originally proposed, and so can be thought of as representing the
"2nd generation" of design approach adopted for balanced scorecard since its introduction.
THIRD GENERATION BALANCED SCORECARD

In the late 1990s, the design approach had evolved yet again. One problem with the "second
generation" design approach described above was that the plotting of causal links amongst
twenty or so medium-term strategic goals was still a relatively abstract activity. In practice it
ignored the fact that opportunities to intervene, to influence strategic goals are, and need to be,
anchored in current and real management activity. Secondly, the need to "roll forward" and test
the impact of these goals necessitated the creation of an additional design instrument: the Vision
or Destination Statement. This device was a statement of what "strategic success", or the
"strategic end-state", looked like. It was quickly realized that if a Destination Statement was
created at the beginning of the design process, then it was easier to select strategic activity and
outcome objectives to respond to it. Measures and targets could then be selected to track the
achievement of these objectives. Design methods that incorporate a Destination Statement or
equivalent (e.g. the results-based management method proposed by the UN in 2002) represent a
tangibly different design approach to those that went before, and have been proposed as
representing a "third generation" design method for balanced scorecards.
Design methods for balanced scorecards continue to evolve and adapt to reflect the deficiencies
in the currently used methods, and the particular needs of communities of interest (e.g. NGO's
and government departments have found the third generation methods embedded in results-based
management more useful than first or second generation design methods). This generation
refined the second generation of balanced scorecards to give more relevance and functionality to
strategic objectives. The major difference is the incorporation of Destination Statements. Other
key components are strategic objectives, strategic linkage model and perspectives, measures and
initiatives.
PERSPECTIVES OF THE BALANCED SCORECARD
The balanced scorecard suggests that we view the organization from four perspectives, and to
develop metrics, collect data and analyze it relative to each of these perspectives:
The Learning & 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 -- the only repository of knowledge -- are the main
resource. In the current climate of rapid technological change, it is becoming necessary for

knowledge workers to be in a continuous learning mode. Metrics can be put into place to
guide managers in focusing training funds where they can help the most. In any case,
learning and growth constitute the essential foundation for success of any knowledge-worker
organization.
Kaplan and Norton emphasize that 'learning' is 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; what the Baldrige criteria call "high performance work systems."
The Business Process Perspective: This perspective refers to internal business processes.
Metrics based on this perspective allow the managers to know how well their business is
running, and whether its products and services conform to customer requirements (the
mission). These metrics have to be carefully designed by those who know these processes
most intimately; with our unique missions these are not something that can be developed by
outside consultants.
The Customer Perspective: Recent management philosophy has shown an increasing
realization of the importance of customer focus and customer satisfaction in any business.
These are 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 look good.
In developing metrics for satisfaction, customers should be analyzed in terms of kinds of
customers and the kinds of processes for which we are providing a product or service to those
customer groups.
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
do whatever necessary to provide it. In fact, often there is more than enough 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 financials leads to the "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.
STRATEGY MAPPING OF BALANCED SCORECARD
Strategy maps are communication tools used to tell a story of how value is created for the
organization. They show a logical, step-by-step connection between strategic objectives (shown
as ovals on the map) in the form of a cause-and-effect chain. Generally speaking, improving
performance in the objectives found in the Learning & Growth perspective (the bottom row)
enables the organization to improve its Internal Process perspective Objectives (the next row up),
which in turn enables the organization to create desirable results in the Customer and Financial
perspectives (the top two rows).

CRITICISM OF THE BALANCED SCORECARD

The balanced scorecard has attracted criticism from a variety of sources. Most have come from
the academic community, who dislike the empirical nature of the framework: Kaplan and Norton
notoriously failed to include any citation of earlier articles in their initial papers on the topic.
Some of this criticism focuses on technical flaws in the methods and design of the original
balanced scorecard proposed by Kaplan and Norton. Other academics have simply focused on
the lack of citation support. A second kind of criticism is that the balanced scorecard does not
provide a bottom line score or a unified view with clear recommendations: it is simply a list of
metrics (e.g. Jensen 2001). These critics usually include in their criticism suggestions about how
the 'unanswered' question postulated could be answered, but typically the unanswered question
relate to things outside the scope of balanced scorecard itself (such as developing strategies) (e.g.
Brignall)
A third kind of criticism is that the model fails to fully reflect the needs of stakeholders putting bias on financial stakeholders over others. Early forms of Balanced Scorecard proposed
by Kaplan & Norton focused on the needs of commercial organizations in the USA - where this
focus on investment return was appropriate. This focus was maintained through subsequent
revisions. Even now over 20 years after they were first proposed, the four most common
perspectives in Balanced Scorecard designs mirror the four proposed in the original Kaplan &
Norton paper. For instance, the balanced scorecard does not address important aspects of
nonprofit strategy such as social dimensions, human resource elements, political issues and the
distinctive nature of competition and collaboration in nonprofit settings. Thus, the model seems
to be less effective in nonprofit organizations as the models strategy, cause-and-effect
relationships and its four linked perspectives are incompatible to the unique nonprofit
environment.

THE INSTITUTE
The Balanced Scorecard Institute (BSI), a Strategy Management Group company, provides
consulting, training, and professional certification services to commercial, government, and nonprofit organizations worldwide. BSI specializes in helping organizations:
Become a high-performance organization
Increase focus on strategy and results
Improve organizational performance by measuring what matters
Align the work people do on a day-to-day basis with organization vision and strategy
Focus on the drivers of future performance
Improve communication of the organizations vision and strategy
Prioritize projects & initiatives
Transform the organization and build buy-in to change
Build complete strategic management systems
Improve strategic processes
Organizations leverage BSIs expertise in a number of different ways. Some simply
purchase The Institute Way and implement a system on their own, some have employees attend
a Training or Certification workshop to more effectively build internal capacities, and others
bring our expert consultants onsite to facilitate strategic actions to improve performance, build
strategic management systems, provide on-site technical support, and coach leaders and
managers how to execute strategy and create high performance organization.
THE TEAM OF THE INSTITUTE
BSI is a trusted advisor and counselor to hundreds of organizations throughout the world. We
are a global organization with three domestic U.S. offices and partner offices in eight countries
internationally. They have established a reputation as great teachers that emphasize the practical
application of academic best practices, as BSI courses are short on dry lecture and academic
theory and long on hands-on team exercises and interactive discussion for maximum adult
learning, engagement, retention and fun.
Their consulting practice leverages this teaching-based approach during the engagement to

ensure we not only deliver a flawless strategic balanced scorecard system, but that the client
team also develops the internal capacity to update and maintain their strategic scorecard system
for years to come. BSI associates also have a long tradition as thought leaders in the field of
strategic management, performance measurement and related fields, authoring books, white
papers, articles, case studies, and blogs, most of which are available on this website or through
participation in BSIs regular conferencing events.

BSI consultants and trainers are passionate and dedicated to client success.

THE PROCESS
BSIs services are organized around BSIs award-winning framework, Nine Steps to Success TM.
This approach, detailed in the book The Institute Way, is disciplined, consistent, logical and
thorough, meaning that clients can feel confident that words will be used consistently throughout
the organization and that important process steps havent been skipped or mixed. Training is an
integral part of the framework, as is coaching, change management, and problem solving. We
build organizational transformation and change management into the planning process from the
beginning using an approach designed to maximize engagement and buy-in from employees and
other stakeholders.
Organizations that use BSIs methodology learn to:

Use consistent terminology throughout the process

Develop a shared vision for the future

Create strategy maps that tell the story of the strategy and of value creation for customers

Measure performance the same way starting with desired outcomes and results

Prioritize action plan activities and execute strategy

Embrace a more effective way of communicating with employees, customers and other
stakeholders

EXPERIENCE OF BSI
BSI applies best practices gained from hundreds of consulting assignments and 5,000 trainees in
balanced scorecard, strategic performance management and measurement, strategic planning,
and change management to help executives, managers and analysts transform their organizations
into performance excellence organizations. No other consulting company has this unique set of
capabilities to help organizations align and become more strategy-focused:
It has been providing organizations with strategic planning, management and balanced
scorecard support for 15 years; It has trained over 5,000 people in 60 countries, and have
now certified over 1,800 balanced scorecard practitioners worldwide

 It is the original certifying body for balanced scorecard practitioners, offering our program
through our partnership with the George Washington University College of Professional
Studies since 2005
It is one of only five Registered Education Providers for the Association for Strategic
Planning
They are experts at developing meaningful performance measures and are the only
organization in the U.S. licensed to certify practitioners in the PuMP Performance Measure
methodology
The Alignment Optimization process that It offer through our partnership with Schelling
Point is the only vehicle in the world for directly measuring and improving organizational
alignment
It developed the Nine Steps to Success strategic planning and management framework in
1997, as a practical, non-academic approach to developing balanced scorecard systems

Their methodology has benefited a diverse group of organizations, such as Fluor

Corporation, The U.S. Department of Defense, Tolko Industries, The Ethiopian Federal
Ministry of Health, The National Marrow Donor Program/Be The Match Registry, The
U.S. Centers for Medicare and Medicaid Services, The Blue Man Group, Susan G. Komen
for the Cure, Suns wept Resorts, The Canadian Passport Office, Key Logic Systems, and
many more
THE BSI AWARD FOR EXCELLENCE
The Award for Excellence is an award given to organizations that demonstrate significant
breakthrough results using the balanced scorecard approach. These organizations use the

balanced scorecard to improve organizational performance. The Award for Excellence focuses on
improved organization strategic outcomes, including:
1. Becoming more strategy focused, and improving internal and external communication
around strategy,
2. Strategic alignment of people, processes, and strategy,
3. Effective use of performance measurement, analysis, and reporting to improve fact-based
decision making,
4. Sustainable change in the organizations ability to transform and adapt to changing
internal and external circumstances. The criteria for award selection are described
below.
AWARD CRITERIA
1. Strategy Focused: The organization uses strategy as a bridge to translate mission and
vision into action. A strategic operational plan is used to communicate the strategy to the
operating units and guide employee action and behavior. The strategy is communicated
clearly internally and externally as a result of the balanced scorecard effort. Performance
results are reported and communicated effectively, internally and to the organizations
external stakeholders. The balanced scorecard process includes several components that
work together to develop a more strategy focused organization and improve
communication clarity, including:
Clear use of language The organizations vision, mission, core values and strategy
are communicated with clarity. The organization uses common definition of terms,
two-way dialogue and transparency in reporting results.
Clear strategy and expected results - Leaders establish a clear picture of the future,
define expectations, build trust and commitment and rally the organization around
that Vision. There is a clear and compelling rationale for pursuing the future.
Strategic Themes and Results Leaders determine the 3-4 areas (strategic themes or
focus areas) in which the organization must excel in order to achieve its vision, fulfill
its mission, deliver on its differentiated customer value proposition, mitigate against
its challenges (weaknesses and threats), and leverage its enablers (strengths and
opportunities). Clear results are associated with each theme and the themes and
results have been clearly and continuously communicated to the organization.

 Strategy Mapping - The strategy of the organization is embodied in a strategy map

which effectively tells the story of the strategy. The map communicates clearly how
the organization creates value for customers, stakeholders, and employees by showing
the cause and effect links among the strategic objectives. The strategic objectives are
specific continuous improvement activities, balanced across the perspectives that
define the value proposition and make it actionable by operationalizing the goals and
involving the whole organization.
Clear strategic objectives The organization has simple action statements, or
strategic objectives that describe what must be done to be successful over time.
Strategic Objectives are the building blocks of a strategy; they make strategy
actionable for the whole organization. They are easy to understand and represent
continuous improvement.
Communication Plan There is a communications plan to support the change
management effort. The communication plan focuses on Vision, Mission, Objective
and need for change; is interactive; includes two-way communication and multiple
channels; is proactive; monitors feedback; uses plain language and publicly reports
and recognizes performance progress. The communication plan is effectively
executed and people understand why / how to participate in the change.
2. Organizational Alignment: Logical connections among vision, strategy, operations,
budgets, and employee behavior are established and clear. All structures and systems are
aligned with strategy, and organizational alignment is continuously improved.
Strategic Alignment The strategy is cascaded throughout the organization by
aligning day-to-day activities with the vision and building individual and collective
accountability for results.

Visual displays of linkages between higher strategy

elements and operational strategic elements are used to articulate strategic alignment
throughout the organization. Each level of the organization (business/support units,
teams/individuals) have defined and documented how they contribute to the
organizations overall strategy.
Employee Accountability Personal objectives for individuals/teams that support the
business unit strategic objectives build accountability and align employees to
strategy.

 Strategic Resource Allocation Strategy is incorporated into the resource allocation

process, along with operations and capital investments to get a more complete picture
for financial planning
3. Fact-Based Decision-Making: The organization has demonstrated that it uses valid data,
analysis and performance information obtained through good performance measures to
better inform decision making surrounding financial management, customer and
stakeholder satisfaction, process improvement, and organization capacity planning and
utilization. The organization uses performance information to better inform strategic and
operational decisions by getting performance information to people who need it
anywhere in the organization when they need it.
Performance Measures and Targets Measurements are comprehensively used and
routinely revised based on continuous improvement.

They provide objective

evidence of progress on achieving results through strategic, operational, project and

personnel measurements. The Key Performance Indicators (KPIs) measure progress
of the organizations strategy and operations, and drive improvement to reach
established targets.
Performance Management An organizational culture is established that
incorporates measurement and accountability into leadership and management, and to
all employees.
4. Organizational Change and Transformation: The balanced scorecard system
incorporates organization change and transformation into the process and acts as an
enabler for that change to be successful. Performance information is used to help
facilitate transformation programs.
Long Term Commitment - The system has been integrated into the organizations
management processes and has been used for at least two years.
Sustainability Strategic thinking and management are embedded in the culture of
the organization. The necessary factors have been identified and acted upon to ensure
long term success of the management system such as: engaged leadership, change
management, fact-based decision making, motivated behaviors and a strong project
management discipline.

 Culture & Values The organization has established and defined core values which
provide ethical guidelines for decision making and daily conduct and form the basis
of the culture. Achievement of the Vision is dependent on people behaving as
expected within the culture needed to execute the strategy. The Vision and Values are
fully integrated into the organizations culture.
Executive Leadership Leaders demonstrate visible consistent commitment to the
process by staying engaged through the development and implementation of the
balanced scorecard strategic management system. Leaders and employees fully
engage in a continuous dialog based on a team-based culture.
Continuous Process Improvement Employees are empowered and trained, and a
formal process exists for improving process management.
5. Break-Through Results: A successful BSC implementation leads to the organization
executing its strategy and achieving break-through results and measurably making
progress toward its goals. This could be in the form of financial results, customer results
and/or desired organizational transformation such as changing the culture, improving
operational performance, ensuring long-term sustainability, etc.
Strategic Objectives - the organization has measurably improved performance on
strategic objectives by meeting or exceeding target performance on certain objectives
and can point to actions such as initiatives or improved performance on driver
objectives which resulted in the improvement in performance on the strategic
objective(s).
Decision Making The organization has decided to stop doing certain things or said
no to ideas and opportunities as a direct result of using its balanced scorecard for
data-driven decision making (e.g., cancelled a project, eliminated an existing work
process, redirected efforts, etc.) The organization has chosen to do something (e.g.,
decisions made, investments, divestments, changes to the organization, etc.) That
they might not have recognized or authorized if they werent using a balanced
scorecard. Furthermore, the organization can show how such decisions clearly
benefited the organization.
Strategic Initiatives the organization has chosen to undertake initiatives that it
might not have chosen to fund before using the BSC, and can point to how the

execution of these initiatives resulted in quantifiable improvement in strategic

performance.
Operational Performance by aligning Tier 2 business units to the organizations
strategy, the organization realizes an improvement in focus, alignment and the
execution of operational performance and can provide examples of how
improvements in operations has measurably impacted strategic performance.
Individual Performance when individuals are informed, empowered, and
accountable they make independent decisions that result in a positive impact on the
organizations strategic performance. Furthermore, individuals understand and can
articulate the big picture strategy and understand how they fit in; they can
effectively contribute.