Balanced Scorecard Basics

Balanced Scorecard BasicsWhen you can measure what you are speaking about, and express
it in numbers, you know something about it; but when you cannot
measure it, when you cannot express it in numbers, your
knowledge is of a meager and unsatisfactory kind.
                                    —William Thompson (Lord Kelvin), 1824–1907 
 
Points to remember:
1. It was discovered in 1990 by Robert Kaplan, a professor at Harvard University, and David Norton, a consultant also from the Boston area and since then it is adopted by nearly half of the Fortune 1000 organizations.
2. It solves two majors problem
  • Effective organizational performance management
  • Successful strategy implementation
3. Financial measurements are not enough to
  • Forecast the future financial performance (Lehman Brother’s case)
  • Valuate of customers,employees, their relationships and information
  • Think in long term value creation
  • Give feedback at various levels of organization
What we need is a method of balancing the accuracy and integrity of our financial measures with the drivers of future financial performance of the organization.
4. The strategy story
  • Most discussed and debated topic on the business landscape
  • Implementation of strategy is more difficult and cause of failure than strategy
  • Strategy is not communicated and aligned to employees at various levels
Balanced Scorecard is the tool that answers both challenges.
 
What Is a Balanced Scorecard?
  • Carefully selected set of measures derived from an organization’s strategy
  • We might call financial measures lag indicators. They are outcomes of actions previously taken. The Balanced Scorecard complements these lag indicators with the drivers of future economic performance, or lead indicators.
  • Four perspectives:

 

Customer perspective
  • Customer satisfaction, customer loyalty, market share, and customer acquisition
Internal Process Perspective
  • Identify and excel the key processes the firm must execute at in order to continue adding value for customers
Learning and Growth Perspective
  • Employee skills, employee
  • satisfaction, availability of information, and alignment could all have a place
  • here.

Financial Measures

  • profitability, revenue growth and economic value added

We will discuss details in further posts.

 

References:

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