The Balanced Scorecard (BSC) is a performance management tool for measuring whether the small-scale operational activities of a company are aligned with its larger-scale objectives. By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests.
The underlying rationale is that the use of financial measures alone to control the firm is unwise. Organizations should instead also measure those areas where direct management intervention is possible. Early Scorecards achieved this balance by encouraging managers to select measures from three additional categories or perspectives: “Customer,” “Internal Business Processes” and “Learning and Growth.”
Adapted from The Balanced Scorecard by Kaplan & Norton
The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people — the only repository of knowledge — are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.
Kaplan and Norton emphasize that ‘learning’ is more than ‘training’; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call “high performance work systems.”
The Business Process Perspective
Metrics based on internal business processes allow the managers to know how well their business is running, and whether its products and services conform to customer requirements. These metrics have to be carefully designed by those who know these processes most intimately.
The Customer Perspective
If customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.
The Financial Perspective
Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. But the point is that the current emphasis on financials leads to the “unbalanced” situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.