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    Balanced Scorecard Definition

    A balanced scorecard is a performance metric used to identify and improve various internal functions and their resulting external outcomes.

    Small Business Entrepreneurship

    Balanced Scorecard

    Reviewed by Sandra Lim

    Updated Mar 13, 2019

    What Is a Balanced Scorecard

    A balanced scorecard is a performance metric used in strategic management to identify and improve various internal functions of a business and their resulting external outcomes. It is used to measure and provide feedback to organizations. Data collection is crucial to providing quantitative results, as the information gathered is interpreted by managers and executives, and used to make better decisions for the organization.

    Balanced Scorecard

    Understanding Balanced Scorecards

    The balanced scorecard was first introduced by accounting academic Dr. Robert Kaplan and business executive and theorist Dr. David Norton. It was first published in 1992 in the Harvard Business Review article "The Balanced Scorecard—Measures That Drive Performance." Both Kaplan and Norton took previous metric performance measures and adapted them to include nonfinancial information.

    [Important: Companies can easily identify factors hindering business performance and outline strategic changes tracked by future scorecards.]

    Purpose Behind the Balanced Scorecard

    The balanced scorecard is used to reinforce good behavior in an organization by isolating four separate areas that need to be analyzed. These four areas, also called legs, involve learning and growth, business processes, customers, and finance.

    The balanced scorecard is used to attain objectives, measurements, initiatives, and goals that result from these four primary functions of a business. Companies can easily identify factors hindering business performance and outline strategic changes tracked by future scorecards.

    The balanced scorecard can provide information about the company as a whole when viewing company objectives. An organization may use the balanced scorecard to implement strategy mapping to see where value is added within an organization. A company also utilizes a balanced scorecard to develop strategic initiatives and strategic objectives.

    The Four Legs of the Balanced Scorecard

    Information is collected and analyzed from four aspects of a business:

    Learning and growth are analyzed through the investigation of training and knowledge resources. This first leg handles how well information is captured and how effectively employees utilize the information to convert it to a competitive advantage over the industry.Business processes are evaluated by investigating how well products are manufactured. Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or waste.Customer perspectives are collected to gauge customer satisfaction with quality, price, and availability of products or services. Customers provide feedback about their satisfaction with current products.Financial data such as sales, expenditures, and income are used to understand financial performance. These financial metrics may include dollar amounts, financial ratios, budget variances, or income targets.

    These four legs encompass the vision and strategy of an organization and require active management to analyze the data collected. The balanced scorecard is thus often referred to as a management tool rather than a measurement tool.

    Key Takeaways

    A balanced scorecard is a performance metric used in strategic management to identify and improve a business's various functions and their resulting outcomes.

    It was first introduced in 1992 by David Norton and Robert Kaplan, who took previous metric performance measures and adapted them to include nonfinancial information.

    The balanced scorecard involves measuring four main aspects of a business: learning and growth, business processes, customers, and finance.

    स्रोत : www.investopedia.com.cach3.com

    What is a balanced scorecard and how does the methodology work?

    Learn more about the balanced scorecard, a management system aimed at translating an organization's strategic goals into a set of performance objectives.

    DEFINITION

    balanced scorecard

    Linda Tucci, Industry Editor -- CIO/IT Strategy

    Katie Terrell Hanna

    What is a balanced scorecard (BSC)?

    The balanced scorecard is a management system aimed at translating an organization's strategic goals into a set of organizational performance objectives that, in turn, are measured, monitored and changed if necessary to ensure that an organization's strategic goals are met.

    A key premise of the balanced scorecard approach is that the financial accounting metrics companies traditionally follow to monitor their strategic goals are insufficient to keep companies on track. Financial results shed light on what has happened in the past, not on where the business is or should be headed.

    The balanced scorecard system aims to provide a more comprehensive view to stakeholders by complementing financial measures with additional metrics that gauge performance in areas such as customer satisfaction and product innovation.

    The business performance management framework was laid out in a 1992 paper published in the Harvard Business Review by Robert S. Kaplan and David P. Norton, who are widely credited with having developed the balanced scorecard system.

    Here is how Kaplan and Norton began their 1992 paper:

    What you measure is what you get. Senior executives understand that their organization's measurement system strongly affects the behavior of managers and employees.

    Executives also understand that traditional financial accounting measures, like return on investment and earnings per share, can give misleading signals for continuous improvement and innovation -- activities today's competitive environment demands.

    The traditional financial performance measures worked well for industrial age companies, but they are out of step with the skills and competencies companies are trying to master today.

    What are the four balanced scorecard perspectives?

    The balanced scorecard approach examines performance from four perspectives.

    Financial analysis, which includes measures such as operating income, profitability and return on investment.Customer analysis, which looks at investment in customer service and retention.Internal analysis, which looks at how internal business processes are linked to strategic goals.The learning and growth perspective assesses employee satisfaction and retention, as well as information system.

    Why use the balanced scorecard?

    Kaplan and Norton cited two main advantages to the four-pronged balanced scorecard approach.

    First, the scorecard brings together disparate elements of a company's competitive agenda in a single report.

    Second, by having all important operational metrics together, managers are forced to consider whether one improvement has been achieved at the expense of another.

    The four-pronged balanced scorecard approach for translating strategic goals into a set of performance objectives.

    "Even the best objective can be achieved badly," the authors stated in their 1992 treatise. Faster time to market, for example, can be achieved by improving the management of new product introductions.

    It can also be accomplished, however, by making products that are only incrementally different from the existing ones, thus diminishing the company's competitive advantage in the market long term.

    What are examples of a balanced scorecard?

    In their 1993 paper, Putting the Balanced Scorecard to Work, Kaplan and Norton offered examples of how several companies applied the balanced scorecard, including Rockwater, an underwater engineering firm listed as a wholly-owned subsidiary of Brown & Root/Halliburton; Advanced Micro Devices; and Apple.

    The Apple case study is especially interesting in retrospect. According to the authors, Apple (then known as Apple Computer) developed a balanced scorecard to expand the focus of senior management beyond metrics such as gross margin, return on equity and market share.

    A small steering committee, versed in the strategic thinking of executive management, chose to include all four scorecard categories and develop measurements within each category.

    From the financial perspective of the scorecard, Apple emphasized shareholder value.

    For the customer perspective, it emphasized market share and customer satisfaction.

    For internal processes, it emphasized core competencies.

    For the innovation and improvement category, it stressed employee attitudes.

    Among the highlights of Apple's balanced scorecard planning are the following:

    Apple wanted to shift its classification from a technology and product-focused company to a customer-centric company. Recognizing that it had a diverse customer base, Apple decided to go beyond the standard customer satisfaction metrics available at the time and develop its own independent surveys that tracked key market segments around the world.

    Apple executives wanted employees to focus deeply on a few key competencies, including user-friendly interfaces, powerful software architectures and effective distribution systems.

    Apple wanted to measure employee commitment and alignment with the strategic goals. The company deployed comprehensive employee surveys -- as well as more frequent, small surveys of employees selected randomly -- in order to measure how well employees understood the company's strategy and whether or not the results they were asked to deliver by managers were consistent with it.

    स्रोत : www.techtarget.com

    What Is a Balanced Scorecard (BSC), How Is it Used in Business?

    A balanced scorecard (BSC) is a performance metric companies use to identify and improve internal functions and their resulting external outcomes.

    What Is a Balanced Scorecard (BSC)?

    The term balanced scorecard (BSC) refers to a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes. Used to measure and provide feedback to organizations, balanced scorecards are common among companies in the United States, the United Kingdom, Japan, and Europe. Data collection is crucial to providing quantitative results as managers and executives gather and interpret the information. Company personnel can use this information to make better decisions for the future of their organizations.

    KEY TAKEAWAYS

    A balanced scorecard is a performance metric used to identify, improve, and control a business's various functions and resulting outcomes.

    The concept of BSCs was first introduced in 1992 by David Norton and Robert Kaplan, who took previous metric performance measures and adapted them to include nonfinancial information.

    BSCs were originally developed for for-profit companies but were later adapted for use by nonprofits and government agencies.

    The balanced scorecard involves measuring four main aspects of a business: Learning and growth, business processes, customers, and finance.

    BSCs allow companies to pool information in a single report, to provide information into service and quality in addition to financial performance, and to help improve efficiencies.

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    Balanced Scorecard

    Understanding Balanced Scorecards (BSCs)

    Accounting academic Dr. Robert Kaplan and business executive and theorist Dr. David Norton first introduced the balanced scorecard. The Harvard Business Review first published it in the 1992 article "The Balanced Scorecard—Measures That Drive Performance." Both Kaplan and Norton worked on a year-long project involving 12 top-performing companies. Their study took previous performance measures and adapted them to include nonfinancial information.

    1

    Companies can easily identify factors hindering business performance and outline strategic changes tracked by future scorecards.

    BSCs were originally meant for for-profit companies but were later adapted for nonprofit organizations and government agencies.

    2

    It is meant to measure the intellectual capital of a company, such as training, skills, knowledge, and any other proprietary information that gives it a competitive advantage in the market. The balanced scorecard model reinforces good behavior in an organization by isolating four separate areas that need to be analyzed. These four areas, also called legs, involve:

    Learning and growth Business processes Customers Finance 1

    The BSC is used to gather important information, such as objectives, measurements, initiatives, and goals, that result from these four primary functions of a business. Companies can easily identify factors that hinder business performance and outline strategic changes tracked by future scorecards.

    1

    The scorecard can provide information about the firm as a whole when viewing company objectives. An organization may use the balanced scorecard model to implement strategy mapping to see where value is added within an organization. A company may also use a BSC to develop strategic initiatives and strategic objectives.

    1

    This can be done by assigning tasks and projects to different areas of the company in order to boost financial and operational efficiencies, thus improving the company's bottom line.

    Characteristics of the Balanced Scorecard Model (BSC)

    Information is collected and analyzed from four aspects of a business:

    Learning and growth are analyzed through the investigation of training and knowledge resources. This first leg handles how well information is captured and how effectively employees use that information to convert it to a competitive advantage within the industry.Business processes are evaluated by investigating how well products are manufactured. Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or waste.Customer perspectives are collected to gauge customer satisfaction with the quality, price, and availability of products or services. Customers provide feedback about their satisfaction with current products.Financial data, such as sales, expenditures, and income are used to understand financial performance. These financial metrics may include dollar amounts, financial ratios, budget variances, or income targets.

    1

    These four legs encompass the vision and strategy of an organization and require active management to analyze the data collected.

    The balanced scorecard analyzes is often referred to as a management tool rather than a measurement tool because of its application by a company's key personnel.

    Benefits of a Balanced Scorecard (BSC)

    There are many benefits to using a balanced scorecard. For instance, the BSC allows businesses to pool together information and data into a single report rather than having to deal with multiple tools. This allows management to save time, money, and resources when they need to execute reviews to improve procedures and operations.

    1

    Scorecards provide management with valuable insight into their firm's service and quality in addition to its financial track record. By measuring all of these metrics, executives are able to train employees and other stakeholders and provide them with guidance and support. This allows them to communicate their goals and priorities in order to meet their future goals.

    स्रोत : www.investopedia.com

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