Question

The balanced scorecard method is a framework for aiding executives with key performance indicators of the firm. Describe in detail the balanced scorecard method along with the four dimensions of this model.

Answer 1

The concept of balanced scorecard was given by Robert Kaplan and David Norton in the year 1992. The article titled ‘The balance scorecard-measures that drive performance’ was published in Harvard Business Review.

Balanced scorecard is a performance measurement technique to evaluate, improve and provide feedback to an organization. A balanced scorecard is a comprehensive method with key areas of a business that are studied to evaluate and improve. The results of the balanced scorecard help the organization to identify its strengths and weaknesses. Balanced scorecard also gives organization strategic alternatives.

Balanced score is an enhanced and improved methodology because of its inclusion on non-financial measures. The previous methods mainly focused on financial metrics. Performance measurement of an organization through just financial metrics misleads an organization. Therefore, balanced scorecard provides a comprehensive evaluation of an organization that will help them to identify where they stand in an industry and set suitable strategy.

Balanced scorecard evaluates an organization through four different metrics namely financial perspective, customer, perspective, internal perspective and innovation and learning perspective. The precise measurement of these four perspectives enables the manager to comprehensively review an organization without having to deal with large number of metrics.

Four dimensions of balanced score card:

1. Financial perspective: Financial perspective deals with the question: How do we look to shareholders? Financial performance indicates whether the organization is contributing to the overall growth of an organization. Goals of financial measurement include profitability and value of the shares. Financial data is calculated firm sales, expenditure, income etc.

2. Customer perspective: Customer perspective answers the question: How do our customers see us? Goals of customer perspective are new products, responsive supply, preferred supplier and customer partnership. Customer perspective measures the satisfaction of the customers with regard to its products, price quality etc.

3. Internal perspective: Internal perspective answers the question: What we must excel at? Customer satisfaction can be maintained only thorough excellent internal processes. The goals of internal perspective include technological adaptability, manufacturing excellence, design productivity new product introduction. Internal processes is measured and evaluated by gaps, delays, shortages, wastage etc.

4. Learning perspective: Learning perspective answers the question: Can We Continue to Improve and Create Value? Customer satisfaction and improvement in internal processes require learning and innovation in organization. The goals of learning perspective include technology leadership, manufacturing learning, product focus and time to market. Learning perspective is analyzed through training and knowledge resources in an organization.