Balanced Scorecard

Definition

The balanced scorecard is a strategic performance management framework that helps organizations measure and track progress towards their goals and objectives. It provides a comprehensive view of an organization's performance by considering financial, customer, internal business processes, and learning and growth perspectives.

5 Must Know Facts For Your Next Test

1. The balanced scorecard was developed by Robert Kaplan and David Norton in the 1990s as a way to measure an organization's performance beyond just financial metrics.
2. The four perspectives of the balanced scorecard (financial, customer, internal business processes, and learning and growth) provide a comprehensive view of an organization's performance.
3. The balanced scorecard aligns an organization's strategic objectives with its day-to-day operations, ensuring that everyone is working towards the same goals.
4. The balanced scorecard helps organizations identify and address potential bottlenecks or areas for improvement by providing a holistic view of their performance.
5. Implementing the balanced scorecard requires careful planning, communication, and alignment of the organization's strategy, objectives, and measures.

Review Questions

• Explain how the balanced scorecard supports strategic management and the formulation of a strategy.
  • The balanced scorecard is a key component of strategic management, as it helps organizations align their strategic objectives with their day-to-day operations. By considering financial, customer, internal business processes, and learning and growth perspectives, the balanced scorecard provides a comprehensive view of an organization's performance, enabling it to identify strategic priorities and formulate effective strategies to achieve its long-term goals.
• Describe the role of the balanced scorecard in planning firm actions to implement strategies and measuring and evaluating strategic performance.
  • The balanced scorecard plays a crucial role in planning firm actions to implement strategies and measuring and evaluating strategic performance. It helps organizations translate their strategic objectives into specific, measurable goals and key performance indicators (KPIs) across the four perspectives. This enables them to monitor progress, identify areas for improvement, and make informed decisions to ensure the effective implementation and evaluation of their strategies.
• Analyze how the balanced scorecard supports performance management and management by objectives, and how it relates to the control- and involvement-oriented approaches to planning and controlling.
  • The balanced scorecard is closely aligned with performance management and management by objectives (MBO) approaches. By setting clear, measurable objectives and linking them to specific KPIs, the balanced scorecard helps organizations track and manage their performance towards their strategic goals. Additionally, the balanced scorecard supports both the control-oriented and involvement-oriented approaches to planning and controlling. The control-oriented approach is reflected in the use of KPIs and performance measures, while the involvement-oriented approach is seen in the way the balanced scorecard engages and aligns employees at all levels of the organization towards the achievement of shared objectives.

Related terms

Strategic Management: The process of formulating, implementing, and evaluating decisions that enable an organization to achieve its long-term objectives.

Strategic Analysis: The systematic examination of an organization's external and internal environment to understand its competitive position and identify strategic options.

Performance Management: The process of setting goals, measuring progress, and providing feedback to ensure that an organization and its employees are working towards the achievement of its strategic objectives.