balanced scorecard (BSC)

Definition Management practice that attempts to complement drivers of past performance (financial measures) with the drivers of future performance, such as customer satisfaction, development of human and intellectual capital, and learning. Standard balanced scorecards do not include environmental considerations. Proposed by Robert Kaplan (co-inventor of activity based accounting) and David Norton in 1996.

The Balanced Score Card

Customers

Internal business processes

Learning & Growth Financial performance

Implementing the Score card objectives, measures, targets & Initiatives

To achieve our vision, how should we appear to our customers? To satisfy our shareholders and customers, what business processes must we excel at?

To achieve our vision, how will we sustain our ability to change & improve?
To succeed financially, how should we appear to our shareholders?

Achieving long term objectives through short term actions

Often the linkage between short term financial measures and long term strategic objectives is weak Because of this weak linkage, implementation often is ineffective strategy

Using the balanced score card, companies can strengthen the linkage between long term strategy and short term tactics

Four processes to link long term objectives with short term actions

Translating the vision

Communicating and linking

Business planning Feedback and learning

Translating the vision

Helps build a consensus around the companys vision and strategy

Helps arrive at an integrated set of objectives and measures that describe the long term drivers of success

Communicating the linkage

Helps link strategy to departmental and individual objectives This marks a change in approach from evaluating departments by financial performance and tying individual incentives to short term financial goals

Business Planning
Enables companies to integrate their business and financial plans Helps in aligning diverse initiatives with strategic goals

Feedback & Learning

Builds capacity for strategic learning

Short term results can be monitored closely Strategies can be modified to reflect real time learning

Possible implementation sequence

Clarify the vision, build consensus Communicate to middle managers Develop business unit score cards Eliminate non strategic investments Launch corporate change programs Review business unit score cards

Refine the vision after re-examining cross business issues

Communicate the balanced score card to the entire company Establish individual performance objectives Update long range plan and budget Conduct monthly and quarterly reviews Conduct annual strategy review Link everyones performance to the balanced scorecard

Conclusion
Balanced score card can be used to:

clarify and update strategy

communicate strategy throughout the company align unit and individual goals with the strategy

link strategic objectives to long term targets & annual budgets

identify and align strategic initiatives

conduct periodic performance reviews to learn about and improve strategy