Balanced Scorecard

1. How does the Balanced Scorecard approach differ from other approaches to performance measurement?

The Balanced Scorecard is different from other financial performance tools because it provides a map of a business’s strategic objectives in terms of performance metrics in four different perspectives looking forward. The Balanced Scorecard maps the business’s strategic goals in terms of financial, internal processes, customers, and learning and growth. Other performance measures provide information from past performance and are not suited for helping implement future strategic plans or predicting future performance. The Balanced Scorecard approach also factors in intangible assets such as customer loyalty and skilled staff.

The following is the basic categorization for balanced measures of firm performance.

I. Financial perspective-how do we look to investors? Measures that indicate whether the company’s strategy, implementation, and execution are contributing to bottom line improvement.

Cash flow

Sales growth

Market share

ROE

II. Customer perspective-how do customers see us? Customer concerns in four categories.

Time-measures time required for company to meet customers’ needs.

Quality-defect level as sent to customers.

Performance-how company’s products/services contribute to creating value for its customers.

Cost-not just price of goods/services, but what does it “cost” the customer when he finally uses it.

III. Internal/Operational perspective-what must be excelled at?

Business processes that have the greatest impact on customer satisfaction.

What competencies are needed to maintain market leadership?

IV. Innovation/Learning perspective-can we continue to improve and create value?

Ability to innovate, improve, and learn ties directly to company’s value.

Launch new products.

More value for customers.

Penetration of new markets.