Balanced Scorecard

Essay by windyhill2000University, Master'sA+, April 2004

download word file, 3 pages 4.3

In response to a concern that many senior executives were focusing exclusively on financial measurements such as return on investment and earnings per share to run their businesses, Robert Kaplan and David Norton introduced the concept of the Balanced Scorecard (BSC) in 1992. While these metrics are undeniably important, it would be detrimental to the long-term success of a company to rely exclusively on these short-term metrics. Utilization of a BSC allows management to shift their focus away from short-term measurements and provides a method for performance metrics to be tied more closely to a firm's strategy and long-term vision. (Leauby & Wentzel, 2002)

Kaplan and Norton define the BSC as "a comprehensive set of performance measures that provides a framework for a strategic measurement and management system". The BSC consists of financial measures indicating the results of actions already taken as well as operational measures that drive future financial performance.

The BSC gives managers information on four different perspectives: customer satisfaction, internal business process, innovation and learning, and financial. Using these operational measures drives future financial performance and allows a firm to simultaneously monitor their progress in building capabilities and acquiring necessary intangible assets needed for future growth. Acquiring the necessary intangible assets enables an organization to:

retain existing loyal customers while efficiently and effectively growing market share;

introduce innovative products and services;

produce high-quality products/services at a lower cost with shorter lead times;

use employee skills and motivation for continuous process improvements; and

deploy new technology, systems, and databases.

(Kaplan & Norton 1996)

In 1993, Kaplan and Norton reported in a Harvard Business Review article that each company's scorecard must contain a set of measures suited to improving business performance as judged by its own stakeholders. Scorecards must be customized to fit a company's mission, strategy, technology, and...