A performance measurement system is a process developed to implement an organizations strategy effectively. This involves identification of the critical factors that impact overall success. When the strategic factors are correctly identified, measured, and rewarded regularly, employees are made aware of them and are thus motivated to achieve those goals that ultimately result in the overall success of the company. While profitability is an obvious component, there are many other factors that determine both the short and long term goals necessary for company growth and overall performance. The Balanced Scorecard ( BSC ) is one example of a performance measurement system designed to analyze goals from multiple perspectives. The resulting balance that the system fosters culminates in goal congruence and encourages employees to continually act in the best interest of the company (Anthony & Govindarajan, ch. 11, pg. 496). This paper will review the fundamentals of BSC, its historical evolution, and the results achieved from its application in several company case studies.
What is the Balanced Scorecard?
The seminal article, 'The Balanced Scorecard - Measures that Drive Performance' by R. Kaplan & D. Norton, 1992, clearly demonstrates the theory and implementation of BSC. The system is comprised of both financial and operational measures that are derived from a company's strategic objectives. Effective measurement is thus the key component for motivating breakthrough improvements in critical areas (Kaplan, Norton 1993). The "Scorecard" in BSC refers to a means of recording and communicating performance and results. "Balanced" refers to balance among measures, performance indicators, outcome and output measures, horizontal measures and vertical accountability. The framework is designed to improve results via development of high priority actions and resources that compliment the overall company strategy. It is therefore a mechanism to drive change by measurement of future orientated strategies with aggressive goals...