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Understanding the Balanced Scorecard

What is the Balanced Scorecard?

Expert Paul Niven describes the balanced scorecard as, “a carefully selected set of quantifiable measures derived from an organization’s strategy.” (Balanced Scorecard: Step-by-Step, 2006)

The tool can be used to communicate, measure, and execute a strategic management plan. That’s a pretty big task, so there are a few documents that support the balanced scorecard:

  • A statement outlining the organization’s vision, mission, and strategy.
  • A strategy map, which outlines the objectives required to execute the strategy as well as the links between them.
  • A tactical action plan, which breaks down the objectives into initiatives and projects.

The scorecard is then created and used to create and implement the tactical action plan. It typically focuses on four perspectives of the business:

  • Customers
  • Finance
  • Internal processes
  • Employee learning and growth

The balanced scorecard is not a fad or a quick fix. It requires a significant investment in time and resources. In most organizations, it takes one to three years to complete the design and implementation process. Then, resources must be invested to monitor, report, and communicate results, and to evaluate and update the scorecard.

The Need for the Balanced Scorecard

With this shift in how businesses work, it makes sense that we also need a new way to measure and manage success. In 1990, Robert Kaplan (a professor at Harvard University) and David Norton (a Boston consultant) examined this need through a research project. They presented their results in the January-February 1992 edition of the Harvard Business Review, in an article called, “The Balanced Scorecard: Measures that Drive Performance.” Over the next several years, they published more articles in the Harvard Business Review, and companies started trying the strategy out. Kaplan and Norton’s first book, The Balanced Scorecard, was published in 1996.

Since then, half of all Fortune 1000 organizations have adopted the scorecard. As well, Kaplan and Norton (as well as others) have written many books refining the scorecard, evolving it into a strategic management system, and adapting it for various uses. The Harvard Business Review has even called it one of the most influential ideas of the 20th century!

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