What Is a Balanced Scorecard?

Traditionally, companies focus heavily on financially driven strategies without sufficiently considering other contributing perspectives. Because financial goals are usually backward looking, tending to be defined in terms of growth over historic numbers, they do not account for future market conditions or leverage objectives. Balanced Scorecard is a strategic management system that maps an organization's strategy into clear objectives, measures, targets, and initiatives, which are organized into four perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth. These perspectives are typically framed by questions, such as "To achieve our vision, how should we appear to our customers?" or "To succeed financially, how should we appear to our shareholders?" As a methodology, Balanced Scorecard provides businesses with the language to define strategies that cater to multiple, relevant perspectives. Much in the way that financial statements (income statement, cash flow statement, and balance sheet) describe the financial health of an organization, Balanced Scorecard provides a framework to communicate the strategy in a consistent and insightful way. Figure 12-11 depicts a representation of these four perspectives.

Figure 12-1 Representation of the Four Perspectives of Balanced Scorecard

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"The four perspectives of the scorecard permit a balance between short-term and long-term objectives, between desired outcomes and the performance drivers of those outcomes, and between hard objective measures and softer, more subjective measures." (Robert S. Kaplan, David P. Norton, "Linking the Balanced Scorecard to Strategy," California Management Review Reprint Series, 1996 by the Regents of the University of California CMR, Vol 39, Number 1, Fall 1996).

Oracle Scorecard and Strategy Management provides four default perspectives that you can use to define strategies that holistically include all relevant perspectives and to define strategy structures that ensure stability and success in all perspectives.

These four default perspectives, which are in support of the Balanced Scorecard methodology devised by Dr. Robert Kaplan and Dr. David Norton, are:

Financial —Used to identify financial measures that help to answer this question: "How do we look to our shareholders?"
Customer — Used to identify measures that help to answer this question: "How do customers see us?"
Internal Process — Used to identify measures that help to answer this question: "At what processes must we excel?"
Learning and Growth — Used to identify measures that help to answer this question: "How can we continue to improve and create value?"

You can customize the perspectives provided or create your own to best align objectives, key initiatives, and KPIs with your business competencies.

Note:

Kaplan and Norton's four perspectives reflect a specific organizational strategy. These perspectives and strategies would not necessarily be suitable for government, public-sector, or nonprofit organizations; therefore, the objectives and key questions should be amended and supplemented to capture the desired strategies.

See "What Is Oracle Scorecard and Strategy Management?" for more information on Oracle Scorecard and Strategy Management.

Best Practice:

Treat the balanced scorecard as a living document. The process of assessing objectives, initiatives, and so on is reiterative. The process should provide not only quantitative, but qualitative insight into the health of your organization and should guide your organization in a timely fashion to achieving your desired results.