What is it?
The Balanced Scorecard concept, popularised by Robert S Kaplan and David P Norton, is a performance management tool that encompasses the financial measures of an organisation and key non-financial measures relating to customers or clients, internal processes, and organisational learning and growth needs. It places these into a concise ‘scorecard’ that can be used to monitor performance.
Early implementations of the Balanced Scorecard tended to focus on including a balance of measures in the four domains or perspectives rather than on execution of strategy, but over time it has become a widely used strategic management tool. The Balanced Scorecard process attempts to identify important links between financial performance and the underlying customer, internal processes and organisational metrics. This creates a mechanism for translating the strategic vision into concrete actions necessary to achieve success.
This characteristic of the Balanced Scorecard places strategy at the core of management. When implemented properly, it can be used to align measures, actions and rewards to create a proper focus on the execution of strategic initiatives and achievement of strategic objectives, rather than a sole focus on the annual budget.
The widespread adoption of the Balanced Scorecard is due in part to its flexibility. Many companies have implemented their own variations to suit their strategic purposes. The Tesco ‘Steering Wheel’, for example, includes five perspectives, capturing their commitment to the community in addition to their financial, customer, operations and people aspects.
The Balanced Scorecard has also been successfully adapted for use by not-for-profit and public sector organisations. While the top line financial objectives of for-profit organisations are replaced by mission-related objectives, the process of identifying relevant stakeholder, internal process and resource measures serves much the same purpose.
The Balanced Scorecard
Adapted from Robert S Kaplan and David P Norton, Using the Balanced Scorecard as a strategic management system, Harvard Business Review (January-February 1996)
What benefits does the Balanced Scorecard provide?
The Balance Scorecard provides a means to clarify, articulate and communicate strategy. It is a shorthand way of putting all key measures into a ‘dashboard’ that can be used to monitor results. By including non-financial measures, it can be used to show how the non-financial aspects of performance, such as customer satisfaction, drive financial performance.
The Balanced Scorecard is a useful tool for motivating employees and focusing their attention on factors that are deemed to be critical to long-term performance rather than simply short-term financial results.
Questions to consider when implementing a Balanced Scorecard
- Do we have sufficient buy-in from top management?
- Are we willing to engage in a more participatory strategy and performance management process?
- Are we committed to the organisational change effort necessary for successful implementation?
- To what extent will our current management information systems be able to support implementation? What are the costs and benefits of making these changes?
- What are we already doing that we can incorporate into our scorecard? What do we need to modify or stop doing?
- Are we prepared to focus our reporting around the scorecard
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Implementation of the Balanced Scorecard and an alternative costing system at the Royal Botanic Garden Edinburgh
The Royal Botanic Garden Edinburgh (RBGE) first adopted the Balanced Scorecard (BSC) in 2004. The Senior Management Group (SMG), which was responsible for strategy development, used the BSC to answer the ‘who, what, why, where, when’ questions prompted by the four perspectives as they related to the services that the RBGE provides to external stakeholders.
The original BSC created by the RBGE was employed as the basis of strategy and performance reviews. However, the prospect of a strategic review by an international peer group, along with an imperative to demonstrate alignment to the Scottish Government’s National Outcomes, prompted a deeper look at the organisation’s strategic objectives and underlying perspectives.
The ensuing revisions included improved alignment between the RBGE’s ‘impact’ perspective and its ‘activity’ perspective. This review also led to the development of an objective costing system linked to an existing performance management system that improved monitoring of performance against strategic objectives.
Related and similar practices
Tool: Strategy mapping tool
Articles and whitepapers: Balanced Scorecard Institute
Article: Balanced Scorecard