A balanced scorecard examines an organization from which perspectives?
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BSC – What is a Balanced Scorecard?The Balanced Scorecard (BSC) is a strategy execution framework that links vision & strategy to actionable initiatives. Show
Idea in shortThe Balanced Scorecard, referred to as the BSC, is a framework to implement and manage strategy. It links a corporate vision to strategic objectives, measures, targets, and initiatives. It balances financial measures with performance measures and objectives related to all other parts of the organization. It is a business performance management tool. Dr. Robert Kaplan & Dr. David Nortonoriginally published The Balanced Scorecard as a paperin 1992. Although Kaplan & Norton published the 1st paper, Art Schneiderman, who created a similar system in 1987 atAnalog Devices, is believed to be the original creator. The major difference that Kaplan & Norton introduced into this methodology is the balance across all organizational functions. Kaplan and Norton describe the innovation of the balanced scorecard as follows:
In the early days of BSC, most companies predominantly focused on the financial measure. For example, revenue growth & profitability. However, the BSC approach advocates looking at an organization across four Perspectives to establish a causal relationship to define, measure & manage the expected financial outcomes. What is Balanced Scorecard?The BSC is not just a scorecard, it is a methodology. It starts by identifying a small number of financial & non-financial objectives related to strategic priorities. Then, it looks at measures, setting targets for the measures & finally the initiatives. Hence, this approach forces organizations to think about how they can measure the objectives. Subsequently, they can identify the projects to drive those objectives. As a result, this approach helps avoid creating costly projects that have no impact on the strategy. The focus on financial & non-financial objectives brings about the balance. The objectives, also called Perspectives, are: Financial, Customer, Internal Processes & Organizational Capacity. The early years of BSC considered each perspective independently of the others. However, over time, organizations discovered the surprising ways that these perspectives affect each other. Jack Welchimplies BSC in his quote:
Eventually, it turned out that the there is a causal relationship among the perspectives. For example, changes in the Organizational Capacity will drive changes in Business Processes. In turn, these impacts will affect Customers & shape the financial results. Furthermore, new perspectives don’t necessarily guarantee a causal relationship. The result might be a useful scorecard. But, it would not be a balanced scorecard. In brief, the four scorecard perspectives are:
FinancialThe financial objectives & measures help answer the questions:
Just because we’re taking a balanced look at an organization doesn’t mean that we should ignore traditional financial measures. Quite contrary, the financial perspective is a major focus of the balanced scorecard. Financial objectives are usually the easiest to define & measure. However, creating only the financial objective does not provide a road map to achieve this objectives. By linking the financial perspective with other perspectives, we can clearly define projects & direct investments. The financial health of an organization is a lagging indicator. The financial indicators show the result of past initiatives & decisions. Yet, it’s still incredibly important. As the saying goes,Cash is King. Finance is what keeps companies alive; the financial perspective focuses solely on that. CustomerThese are objectives & measures that are directly related to am organization’s customers. In other words, this perspective focuses on customer satisfaction. Customer satisfaction is a great forward-looking indicator of success. The way you treat your customers today directly impacts how much money you’ll make tomorrow. The customer perspective focuses on the people who buy products & services. This perspective helps answer the questions:
It is always important to take a step outside & view your company or organization from your customers viewpoint. You need to understand what they want from you, not necessarily, what you can do for them. Internal ProcessesThese are objectives & measures that determine how well a business is running. The internal business processes perspective looks at how smoothly your business is running. This perspective also helps understand whether the products or services conform to customer expectations. In other words, this perspective helps define what you could / should be best at. Some of the biggest cost items can be reduced by streamlining internal processes. It’s all about reducing waste, speeding things up, & doing more with less. Efficiency is important here. As consultants, this is also the best area to focus on to generate new & creative ideas. This perspective helps answer the questions:
Moreover, this perspective also encourages you to take a step back & get a little philosophical about your client. OrganizationThese are objectives & measures concerning how well the people perform, their skills, training, company culture, leadership & knowledge base. This area also includes infrastructure & technology. This is the area where most investments happen. This perspective helps answer the question:
BSC & Information collectionThe Balanced Scorecard has made it very easy to communicate the way you talk about your strategy. Nevertheless, having a strategy & discussing it is only one piece of the puzzle. For your scorecard to be effective, you need to be able to execute your strategy. This includes managing it, making decisions around it, collecting information & implementing it. Organizational PerspectivesYou can analyze this perspective by investigating the available training & knowledge resources. Similarly, evaluate how well the organization captures information & experience, how effectively the employees use the information & to convert it to a competitive advantage over the industry Internal processesEvaluate how well products are manufactured. In addition, analyze operational management to identify any gaps, delays, bottlenecks, shortages, or waste Customer perspectivesGauge customer satisfaction in terms of quality, price, and availability of products or services. Usually, customers are willing provide feedback about their satisfaction with current products & services. You an easily extrapolate the current satisfaction levels to predict future customer sentiment around products & services. Financial dataReview the numbers, such as sales, expenditures, and income are used to understand financial performance. Generally, financial metrics may include dollar amounts, financial ratios, budget variances, or income targets. In summary, the four perspectives encompass the vision & strategy of an organization.
Cause and effect relationships should be well defined among the four perspectives. Additionally, the measures should include a mix of both outcome measures as well as performance drivers. These need to be linked to financial measures. Correspondingly, BSC is a management tool rather than a measurement tool. SummaryThe real value of a perspectives-based approach is that it provides a framework to describe business strategy. It focuses on objectives & measures that allow you to, both inform & influence to achieve the strategy. APAMLAHarvardVancouverChicagoIEEE Think Insights (December 10, 2022) BSC – What is a Balanced Scorecard?. Retrieved from https://thinkinsights.net/strategy/balanced-scorecard/. "BSC – What is a Balanced Scorecard?." Think Insights - December 10, 2022, https://thinkinsights.net/strategy/balanced-scorecard/ Think Insights March 3, 2020 BSC – What is a Balanced
Scorecard?., viewed December 10, 2022, Think Insights - BSC – What is a Balanced Scorecard?. [Internet]. [Accessed December 10, 2022]. Available from: https://thinkinsights.net/strategy/balanced-scorecard/ "BSC – What is a Balanced Scorecard?." Think Insights - Accessed December 10, 2022. https://thinkinsights.net/strategy/balanced-scorecard/ "BSC – What is a Balanced Scorecard?." Think Insights [Online]. Available: https://thinkinsights.net/strategy/balanced-scorecard/. [Accessed: December 10, 2022] Was this article helpful? × We appreciate your feedback! We will use your feedback to improve the quality and diversity of our content. The more feedback you provide, the better our content will be. Meanwhile, please feel free to:
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I am Mithun Sridharan, Founder & Author of Think Insights and INTRVU. I am a Global Industry Advisor at a leading cloud technology company, where I advise CxOs & Executives at global corporations on their strategic initiatives. Previously, I served on leadership and executive roles at global Management Consulting & technology firms, such as KPMG, Sapient Consulting, Oracle, and EADS. My insights on this website are based on my 1st-hand client engagement experiences across Capital Markets, Automotive and Hi-tech verticals. Please feel free connect with me on LinkedIn. Related PostsWhat are the perspectives of balanced scorecard?The four perspectives of a traditional balanced scorecard are Financial, Customer, Internal Process, and Learning and Growth.
Why are there 4 perspectives on a balanced scorecard?The balanced scorecard is anchored on four perspectives, which include financial, business process, customer, and organizational capacity. It enables entities to discover their shortcomings and come up with strategies to overcome them.
What are 3 parts of a balanced scorecard?To put the balanced scorecard to work, companies should articulate goals for time, quality, and performance and service and then translate these goals into specific measures.
What is a balanced scorecard in an organization?Quality Glossary Definition: Balanced scorecard. A balanced scorecard (BSC) is defined as a management system that provides feedback on both internal business processes and external outcomes to continuously improve strategic performance and results.
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