Balanced Score Card

THE BALANCED SCORECARD

The balance scorecard was developed by Robert Kaplan and David Norton in 1992. The scorecard allowed companies to track financial results while monitoring progress in building the capabilities needed for growth. Balanced scorecards combine both qualitative and quantitative

Measures, acknowledge the expectations of different stakeholders and relate an assessment of performance to choice of strategy (Johnson, Scholes & Whittington, 2008). Previous performance measurement tools often relied on performance metrics which can overemphasize on the short term whereas to be successful over a long period a company needs to make a balanced approach to performance measurement

The methodology examines performance in four areas:

a) Financial analysis, the most traditionally used performance indicator, includes assessments of measures such as operating costs and return-on-investment;

b) Customer analysis looks at customer satisfaction and retention;

c) Internal analysis looks at production and innovation, measuring performance in terms of maximizing profit from current products and following indicators for future productivity; and finally,

d) Learning and growth analysis explores the effectiveness of management in terms of measures of employee satisfaction and retention and information system performance.

The financial perspective relates to how the company's implementation and execution of the organization's strategy affects the bottom line. Some measurements include those related to cash flow, sales growth and market share, as well as measures of operating income and return on equity.

The customer perspective includes 4 categories: lead time (i.e., time from order receipt to delivery), quality (e.g., defect levels and on time delivery), performance, and service.

The internal business perspective includes the business processes that have the greatest impact on customer satisfaction, such as those that affect cycle...