Balanced Scorecard (BSC) is a management system devised by Harvard Business School Professor Robert Kaplan and Renaissance Solutions President David Norton, with information age business dynamics in mind.
It uses a broad range of “leading and lagging” indicators as mentioned below for evaluating the progress of a business towards its strategic goals.
(a) Customer perspective
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(b) Internal/business processes
(c) Learning and growth
(d) Financials
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The BSC is a proven approach to strategic management that imbeds the long-term strategy into the management system through the mechanism of measurement.
The BSC translates vision and strategy into a tool that effectively communicates strategic intent and motivates and tracks performance against the established goals’.
A vision describes the ultimate goal to be the best. A strategy is a slated understanding about how that goal is to be reached. The BSC provides a medium to translate the vision into a clear set of objectives.
These objectives are then further translated into a system of performance measurements that effectively communicate a powerful, forward-looking, strategic focus to the entire organization.
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In contrast to traditional, financially based measurement systems, the BSC glues an organization’s focus on future success by setting objectives and measuring performance from four distinct perspectives.
The learning and growth perspective directs attention to the basis of all future success the organization’s people and infrastructure.
Adequate investment in these areas is critical to all long-term success. The development of a true learning organization supports success in the next BSC perspective, the internal perspective. The Internal perspective focuses attention on the performance of the key internal processes which drive the business.
Improvement in internal processes now is a key lead indicator of financial success in the future. However, in order to translate superior processes into financial success, companies must first please their customers.
The customer perspective considers the business through the eyes of a customer, so that the organization retains a careful focus on customer needs and satisfaction.
Finally, the financial perspective measures the ultimate results that the business provides to its shareholders. Together, these four perspectives provide a balanced view of the present and future performance of the business.
Equally as important, the BSC is a communication system that bridges the gap between goals set at a high level, and the frontline workers whose performance is ultimately responsible for reaching them.
The BSC lets executives express to thousands of employees how their individual efforts contribute to the business’s success, and it lets employees tell executives what day-to-day realities affect their progress.
Business intelligence and internet technology are the foundations of BSC systems. Business intelligence systems take ground-level data – such as delivery times, sales figures, length of customer service calls, etc. – and translate it into a company-wide BSC summary which keep track of the successful and unsuccessful goals of the organization. Internet technology makes the system accessible to anyone in the business from anywhere.