The Balanced Scorecard is a management system that enables organizations to translate their strategies into specific goals and actions and track the consequent results.
This system was developed in the early 1990’s by Robert Kaplan and David Norton, from Harvard Business School, after realizing that organizations could not rely only on financial metrics to measure their performance and to plan for the future. They first perceived the Balanced Scorecard 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.
Since it was first designed, the Balanced Scorecard has evolved from its early use as a performance measurement framework to a strategic planning and management system which organizations can use to deploy and track their strategies after these have been developed.
The design of a Balanced Scorecard requires the identification of a small number of financial and nonfinancial measures, attaching targets to them and the necessary actions to meet them. In order to do this, organizations need to follow these four steps:
- Translating the strategy into operational goals;
- Communicating the strategy and linking it to individual performance;
- Business planning; index setting
- Feedback and learning, and adjusting the strategy accordingly.
The Balanced Scorecard will allow managers and leaders review the results of each action and determine if the results are as expected.
Any organization can use this management system to improve their performance and to align strategies with actions. Some of the benefits that come from using a Balanced Scorecard are:
- Helps align key performance measures with strategy at all levels of an organization.
- Provides management with an overview of business operations.
- Improves communication and understanding of business goals and strategies at all levels of an organization.
- Provides strategic feedback and learning.
- Actions are continually measured and evaluated against the organization’s goals.
- Improves decisions and promotes better solutions.
The Balanced Scorecard has gone through three “generations”, each one differing in its perspective and approach. Nonetheless, today, the system has been improved to suit a wider range of organizations and its design methods have changed to facilitate its development and use.
The Balanced Scorecard helps managers focus on their strategies and how these are implemented, but it does not play a role in their development. Nonetheless, this system can co-exist with strategic planning systems and other tools available for organizations to define their strategies.
It’s important to mention that this system is not a replacement for traditional financial or operational reports, but a tool that will give a well-rounded view of an organization’s performance in order to continuously improve its strategic performance and results.
