What is Balanced Scorecard

The Balanced Scorecard (BSC) is a performance management tool that focuses on the various parameters relating to performance of a company. It is particularly useful for measuring whether the day-to-day short-term activities of an organization are aligned with its long term vision and goals and for monitoring progress with the current strategies. The different units of a company prepare their own scorecards, which are then integrated to achieve the overall scorecard of the organization.

Balance scorecard was first publicized in 1992 by Robert S. Kaplan and David P. Norton. Since its publication, the concept has become an integral aspect of a company's research and consulting practices. The Balance Scorecard has constantly evolved from its roots, improving on Kaplan & Norton's original approaches, which were unworkable in practice. Even Kaplan and Norton themselves helped in the revision of Balanced Scorecards after enhancing their experiences for a decade since the publication of their article.

The Balanced Scorecard helps the policy makers to form profitable long term strategies, by providing them a more comprehensive view of their business. It also addresses business response to factors like climate change and greenhouse gas emissions. While forming strategies, the information from the Balanced Scorecard is necessarily considered. Data which is captured initially in the form of raw statistics, is converted into meaningful information with the help of this tool. While scanning the scorecards, it is good to start with the corporate-level scorecard and then view those of the business units, Human Resource department and so on.

A Balanced Scorecard offers an accurate assessment of a company's progress in relation to the strategies used. It can monitor the leading and lagging indicators and provides an effective way to communicate the findings to the rest of the organization. By doing so, the Balanced Scorecard helps organizations to achieve a degree of balance in all the different spheres of performance enhancement. Balanced Scorecards also encourage the managers of a company to select effective measures from the key performance indicators.

Performance Indicators of a Company
The Balanced Scorecard method of Kaplan and Norton focuses on performance indicators of a company and works form the following perspectives:

The Financial perspective: Most of the companies lay a lot of emphasis on financial aspects, which leads to an unbalanced situation with regard to other perspectives. Undoubtedly it is important to focus on financial-related data, such as risk assessment, return on investment, cost-benefit ratio, etc. but for the overall development, other perspectives should also be considered.

The Customer perspective: Customer satisfaction is one of the most important issues in any business. In case a customer or client is dissatisfied with the products or services, company eventually loses its business. Poor performance from this perspective can be a leading cause of future decline of the company and hence the customer's and client's needs should be analyzed thoroughly in order to form a good long term strategy.

Business Process perspective: This refers to the internal business processes and checks out whether the company's products and services stick to the basic mission statement. There are basically two kinds of business processes, namely mission-oriented processes and support processes.

Learning and Growth perspective: This includes the training of employees as they are the main resource for the benefit of an organization. It is necessary for the workers to be in a continuous learning mode, in order to face the challenges in the constantly changing scenario. Kaplan and Norton emphasize that learning is more than training, as it involves the emergence of mentors within the organization, who are ready to help in case a problem arises.

In addition to financial outputs and monetary gains, organizations should measure factors like process performance, market share, long term learning and skills development, in order to increase the overall output of the company.