The Balanced Scorecard

The Balanced Scorecard

According to the Balanced Scorecard Institute, the balanced scorecard (BSC) is a strategic planning and management system that is used extensively in business and industry, government, and non-profit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals. My previous cost management textbook by Horngreen, Foster, Datar, and Gowing, states that the balanced scorecard is an important tool to measure the success of competitive corporate strategy. The article that I decided to discuss, The Balanced Scorecard: Here and Back, depicts the way in which the BSC has developed into this definition presented above. The article discusses the reason why the initial BSC was developed, the way it developed, and possible future new directions that the BSC can take. I thoroughly analysed this article, as well as a few external sources, to present this paper on the progress of the balanced scorecard and its use in successful business strategy.

The balanced scorecard was developed by Robert S. Kaplan ad David P. Norton, with the aim of helping organizations achieve breakthrough results by placing strategy at the heart of the organization. It is understandable why such a system was developed, to replace the focus on financial measures of performance. Focusing solely on financial performance metrics can indicate short run performance, but does not address the issues of achieving long term goals. If a regular person, with no knowledge of accounting is given a set of financial ratios and other quantitative reports, he/she may not be able to analyse this information, and see how it will lead to achievement of the organization's strategy. There is no strong linkage between the financial measures, and the direction the organization should proceed in. Intangible assets such as customer and supplier relationships, innovative product development, and intellectual capital, are where most of the value creating activities of an organization comes from. The tangible assets simply assist in realizing those goals, as long as a firm plan and a set direction are achieved. I believe this is why the BSC is so important to business today.

The four common perspectives of the BSC recommended by Kaplan and Norton are financial, customer, internal and innovation and learning (also referred to as learning and growth). These perspectives incorporate both internal and external performance measures, and also address both short term and long term implications. I believe that a very useful feature of the BSC is its ability to bring together in one single report, a means of measuring performance. The BSC evolved to focus more on strategy, linking strategic objectives