Balanced Scorecard

Definition

The balanced scorecard is a strategic management and performance measurement framework that helps organizations align their business activities to the vision and strategy of the company. It provides a balanced view of organizational performance across four key perspectives: financial, customer, internal business processes, and learning and growth.

5 Must Know Facts For Your Next Test

1. The balanced scorecard translates an organization's mission and strategy into a comprehensive set of performance measures that provide the framework for a strategic measurement and management system.
2. The four perspectives of the balanced scorecard (financial, customer, internal business processes, and learning and growth) provide a balance between short-term and long-term objectives, as well as between outcome measures and performance drivers.
3. Balanced scorecard measures are derived from an organization's vision and strategy, and they represent a tool that can be used to clarify and communicate strategy throughout the organization.
4. The balanced scorecard helps organizations focus on the few key measures that are the most critical for the current and future success of the business.
5. Effective implementation of the balanced scorecard requires aligning departmental and individual goals to the overall organizational strategy.

Review Questions

• Explain how the balanced scorecard can be used to control organizational performance in the context of the 6.5 Controlling topic.
  • The balanced scorecard is a key tool for controlling organizational performance within the 6.5 Controlling topic. By translating an organization's strategy into a comprehensive set of performance measures across the four perspectives (financial, customer, internal business processes, and learning and growth), the balanced scorecard provides a framework for monitoring and controlling progress towards strategic objectives. The performance measures serve as key performance indicators (KPIs) that allow managers to track the execution of the organization's strategy and make adjustments as needed to ensure the organization remains on track to achieve its goals.
• Describe how the balanced scorecard can be used for performance planning and evaluation in the context of the 8.5 Performance Planning and Evaluation topic.
  • The balanced scorecard is a crucial tool for performance planning and evaluation within the 8.5 Performance Planning and Evaluation topic. By aligning individual and departmental goals to the overall organizational strategy, the balanced scorecard provides a framework for evaluating employee and team performance in the context of the company's strategic objectives. The performance measures across the four perspectives serve as the basis for setting performance targets, monitoring progress, and assessing the effectiveness of the organization's strategy. This enables managers to make informed decisions about resource allocation, training and development, and other performance-related initiatives to drive continuous improvement.
• Analyze how the balanced scorecard can help organizations achieve a balance between short-term and long-term objectives.
  • The balanced scorecard is designed to provide a balanced view of organizational performance, which helps organizations achieve a balance between short-term and long-term objectives. By including financial measures (short-term) as well as customer, internal business processes, and learning and growth measures (long-term), the balanced scorecard ensures that organizations do not focus solely on short-term financial results at the expense of long-term value creation. This balance allows organizations to monitor their progress towards strategic goals while also addressing immediate operational needs. The balanced scorecard helps organizations avoid the trap of sacrificing long-term sustainability for short-term gains, enabling them to make informed decisions that support the overall strategic direction of the business.

Related terms

Strategic Management: The process of formulating, implementing, and evaluating business strategies to achieve organizational objectives.

Performance Measurement: The process of quantifying the efficiency and effectiveness of action with respect to organizational goals.

Key Performance Indicators (KPIs): Measurable values that demonstrate how effectively an organization is achieving key business objectives.