Balanced Scorecard
A strategic performance management framework that translates an organization's vision and strategy into a set of performance measures distributed across four perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth.
Definition
The Balanced Scorecard (BSC) is a strategic planning and management system used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more balanced view of organizational performance.
Origin & Context
The concept was first introduced in a 1992 Harvard Business Review article, The Balanced Scorecard: Measures that Drive Performance, by Robert Kaplan and David Norton.
Why It Matters
It provides a framework for ensuring that strategy is not just a high-level plan, but is actively translated into action and monitored. It forces organizations to look beyond traditional financial metrics and consider the drivers of future success, such as customer satisfaction, process efficiency, and employee skills. For business architects, the BSC provides a direct link between the strategic objectives of the business and the capabilities required to achieve them.
Common Misconceptions
- Myth: The BSC is just a collection of KPIs.
- Reality: It is not a dashboard; it is a strategic management system. The power of the BSC is not in the individual measures, but in the cause-and-effect relationships between them, which form a strategy map.
- Myth: It is a one-time project.
- Reality: It is a continuous management process, not a one-off initiative.
Practical Example
A software company wants to increase revenue (Financial perspective). To do this, they need to increase customer retention (Customer perspective). To increase retention, they need to improve their customer support process (Internal Process perspective). To improve the support process, they need to train their support staff on a new CRM system (Learning and Growth perspective). The BSC connects these objectives and provides metrics for each.
Industry Applications
- Any
- The BSC is used across all industries, from manufacturing and services to healthcare and government. Its principles are universal, although the specific objectives and measures will vary significantly depending on the industry and strategy.
Related Terms
- Strategic Planning: The Balanced Scorecard is a key tool for executing and managing the outputs of the strategic planning process.
- Business Capability Model: Capability models can be used to identify the capabilities required to achieve the objectives in each BSC perspective.