Balanced Scorecard
The Balanced Scorecard is a strategic planning and management system that organizations use to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals. Here's an in-depth look at this concept:
History
The Balanced Scorecard was developed by Dr. Robert S. Kaplan and Dr. David P. Norton in the early 1990s 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. Their work was first published in the Harvard Business Review in 1992, introducing the concept to a wider audience.
Concept
The core idea behind the Balanced Scorecard is that managers should not focus solely on financial outcomes but should consider several perspectives:
- Financial Perspective: How do we look to shareholders? This typically includes measures like profitability, growth, and shareholder value.
- Customer Perspective: How do customers see us? Metrics here might include customer satisfaction, retention, and market share.
- Internal Business Process Perspective: What must we excel at? This focuses on operational management and includes metrics on process efficiency, quality, and cycle time.
- Learning and Growth (or Innovation and Learning) Perspective: Can we continue to improve and create value? This perspective looks at employee training, corporate cultural attitudes, and the ability to innovate.
Application
The Balanced Scorecard translates an organization's mission and vision statements and overall business strategy into specific, quantifiable goals and metrics. Here are some key applications:
- Strategic Alignment: Aligning all business activities to the vision and strategy.
- Performance Monitoring: Using the scorecard to track progress towards strategic goals.
- Strategic Feedback: Providing feedback around both the internal business processes and external outcomes to continually improve strategic performance and results.
- Communication: Facilitating communication of the strategy throughout the organization by translating it into understandable terms.
Development
Over time, the Balanced Scorecard has evolved:
- In 1996, Kaplan and Norton published their first book on the topic, detailing how to implement the system.
- The approach has since been expanded to include strategy maps, which visually link the objectives in the four perspectives to illustrate how value is created.
- Further developments include linking the Balanced Scorecard with Performance Management systems and enterprise resource planning (ERP) systems for more integrated strategic management.
Impact and Adoption
The Balanced Scorecard has been widely adopted by businesses, governments, and non-profits across the globe. Its impact includes:
- Enhancing strategic focus and operational efficiency.
- Improving communication and understanding of strategy across all levels of an organization.
- Facilitating the measurement of previously intangible assets like human capital and organizational culture.
- Enabling organizations to align individual performance objectives with corporate strategy.
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