The Balanced Scorecard: Translating Strategy into Action
The Balanced Scorecard (BSC) is a renowned business management system created by Robert Kaplan and David Norton. It connects long-term strategic goals with day-to-day operational activities to turn strategy into action. This book provides a detailed guide on how to use BSC to measure organizational performance from four perspectives: Financial, Customers, Internal Business Processes, and Learning & Growth.
What is The Balanced Scorecard (BSC)?
Introduced in 1992, the Balanced Scorecard (BSC) is a comprehensive framework designed to clarify, communicate, measure, and manage strategy. It helps managers track and manage overall performance and build new capabilities for their strategy-focused organization. The BSC translates an organization’s mission into goals and performance measures across four core perspectives:
- Financials
- Customers
- Internal Processes
- Learning & Growth
Building a Balanced Scorecard (BSC)
Strategy Development: Strategy involves hypotheses about how specific actions might lead to desired outcomes. The BSC helps clarify and translate these strategies into four perspectives, each with 4-7 key measurements.
The Financial Perspective
This perspective answers the question: “What financial performance do our shareholders expect?”
Strategic Objectives and Measures:
- Define expected financial results.
- Indicate if the company’s strategy execution is improving the bottom line.
Common Financial Measures:
- Improving profitability by increasing revenues, productivity, and asset utilization.
- Reducing costs and risks.
Stages of Financial Needs:
- Growth Stage: High investment in new products/markets, low returns on invested capital, negative cash flow.
- Sustain Stage: Maintain market share, earn solid returns on invested capital, focus on profitability.
- Harvest Stage: Maximize cash flow with minimal new investment.
Financial Strategy Themes:
- Revenue Growth: Expand offerings, reach new markets, enhance product value, adjust pricing.
- Cost Optimization: Lower direct and indirect costs, improve productivity, share resources.
- Asset Optimization: Optimize asset investment, working capital, and asset utilization.
The Customer Perspective
This perspective answers the question: “To fulfill our strategic vision, what do our customers need to see from us?”
Steps to Consider:
- Identify target customer/market segments.
- Set specific goals and measures for each segment.
Key Measurements:
- Market share, customer acquisition, customer retention.
- Product/service attributes, customer relationship, reputation.
The Internal Business Process Perspective
This perspective answers the question: “To satisfy customers and shareholders, what processes must we excel at?”
Key Internal Processes:
- Innovations: Developing new processes.
- Operations: Day-to-day processes that deliver value.
- Post-Sale Service: Processes that support customer satisfaction post-purchase.
The Learning and Growth Perspective
This perspective addresses the question: “To achieve our vision, how will we improve our capacity to change and grow?”
Focus Areas:
- Enhancing organizational capabilities.
- Bridging the gap between current capabilities and what is needed to achieve strategic success.
Implementing/Using the Balanced Scorecard
Successful implementation of the BSC involves four key steps:
- Clarify and Translate the Vision & Strategy:
- Senior management clarifies the vision and strategy, translating them into strategic objectives in the four areas.
- Communicate and Link Objectives & Measures:
- Communicate strategic objectives and link them to team and individual performance measures.
- Develop Plans and Set Targets:
- Identify changes and initiatives required to meet targets, develop implementation plans, allocate resources effectively.
- Create a Feedback Loop for Strategic Learning:
- Use feedback loops to review progress and refine strategies based on performance data.
Getting the Most from The Balanced Scorecard
The Balanced Scorecard is a powerful management system that provides a balanced view of short-term and long-term objectives, financial and non-financial measures, desired outcomes, and performance drivers.
Case Studies
Kaplan and Norton include detailed case studies of organizations like Rockwater, Metro Bank, Pioneer Petroleum, National Insurance, and Kenyon Stores to show how the BSC can be cascaded at various organizational levels.
About the Authors
Robert S. Kaplan is a Senior Fellow and Marvin Bower Professor of Leadership Development, Emeritus, at Harvard Business School. Known for his work in activity-based costing (ABC) and the Balanced Scorecard, he has authored numerous books and articles on performance management and strategic systems.
David P. Norton is a renowned business theorist and consultant, co-creator of the Balanced Scorecard. He co-founded the consulting firm Palladium Group, Inc., advising organizations worldwide on strategy execution. Norton has co-authored multiple books on strategic performance management with Kaplan.
For more detailed insights, case studies, and practical advice on implementing the balanced scorecard, readers are encouraged to explore the full book or visit the Balanced Scorecard Institute.
Top 6 Notable Quotes
- “Implementing a strategy begins by educating and involving the people who must execute it.”
- “Companies that try to be everything to everybody usually end up being nothing to anyone.”
- “A strategy is a set of hypotheses about cause and effect…a properly constructed Balanced Scorecard should tell the story of the business unit’s strategy.”
- “The scorecard provides a framework, a language, to communicate mission and strategy.”
- “Communication to employees about an organization’s vision and strategy should be viewed as an internal marketing campaign.”
- “Strategic planning must be linked to operational budgeting if action is to be tied to vision.”