What is the balanced scorecard and how does it work?

The Balanced Scorecard (BSC) is a strategic management tool that helps organizations translate their mission and vision into actionable objectives and measures across four key perspectives: financial, customer, internal processes, and learning and growth. The BSC was developed by Robert Kaplan and David Norton in the early 1990s as a way to overcome the limitations of traditional financial measures in capturing the full range of an organization’s performance.

The four perspectives of the Balanced Scorecard are:

  1. Financial Perspective: This perspective focuses on financial performance measures such as revenue growth, profitability, return on investment, and cash flow.
  2. Customer Perspective: This perspective focuses on measures of customer satisfaction, retention, loyalty, and market share.
  3. Internal Processes Perspective: This perspective focuses on measures of internal efficiency, productivity, and quality. It seeks to identify and improve critical internal processes that directly impact customer satisfaction and financial performance.
  4. Learning and Growth Perspective: This perspective focuses on measures of employee training and development, innovation, and knowledge management. It seeks to build and sustain the organization’s intellectual capital and capacity for innovation and improvement.

The BSC works by helping organizations identify and prioritize the key objectives and measures that align with their strategy and vision. It provides a framework for tracking progress, communicating results, and making informed decisions about resource allocation and performance improvement. By balancing financial and non-financial measures across multiple perspectives, the BSC encourages a more holistic and balanced view of organizational performance.