A Balanced Scorecard is a framework that focuses on shareholder, customer, internal and learning requirements of a business in order to create a system of linked objectives, measures, targets and initiatives which collectively describe the strategy of an organization and how that strategy can be achieved. ” The Balanced scorecard retains the traditional financial measures and complements them with measures that are drivers of future performance.
The objectives and measures of the scorecard are derived from an organizations vision and strategy and these view organizational performance.
The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results.
When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. The balanced scorecard is a tool developed by Kaplan and Norton to articulate, execute and monitor strategy using a mix of financial and non-financial measures.
It is designed to translate vision and strategy into objectives and measures across four balanced perspectives: financial, customers, internal business processes and learning and growth. It focuses on all the activities that generate financial results rather than the financial side alone.
The scorecard depicts strategy as a series of cause-and-effect relationships between critical variables and gives a framework for ensuring that strategy is translated into a coherent set of performance measures. The use of a hierarchy of scorecards cascading through the organisation ensures that strategy and performance measurement is closely aligned.
The Balanced Scorecard can act as both a control system and a management tool. In other words, it can be used for monitoring performance as well as for strategic planning. Its versatility may be one of the reasons why so many companies have chosen to adopt it.