The Balanced Scorecard (BSC) is...
A management tool based upon financial and non-financial measures of a company’s performance.
The term was created in a 1992 Harvard Business Review article by Robert Kaplan (a Harvard Business School professor, pictured
right) and a management consultant, David
Norton (pictured below). They followed this up in 1996 with a book, The Balanced
The BSC has been applied successfully by many companies including the British retailer, Tesco.
How the BSC works...
It measures four areas of performance that are vital to a company’s success, motivating
employees to achieve them through challenging strategic targets three to four years ahead (e.g. to achieve 100%
customer satisfaction in two years time).
The performance measures of each area are:
Profitability measures like return on capital and economic value added (EVA) – see analysing accounts.
Market share and customer satisfaction, retention, acquisition and profitability.
3. Internal business processes(the organization’s key
activities like marketing, innovation and production/operations)
Their quality, speed, cost and effectiveness in delivering new solutions to customers’ problems.
4. Learning and growth
Employee satisfaction, retention and productivity.
The BSC shows that financial performance is dependent on success in the other three areas.
Kaplan and Norton’s 1996
book, The Balanced Scorecard, has four gems:
“If you can’t measure it, you can’t manage
Measuring something is essential to controlling and achieving it.
“The Balanced Scorecard not only measures change, it fosters
The BSC’s aim is to enable the organization to respond as quickly and effectively as possible to changing
customer requirements. Measuring performance is the means to achieving it.
“The BSC not only measures what has happened but also inspires people to
change and improve”.
You can have the best financial controls in the world, but, if you haven’t motivated and talented people, you
won’t get results.
“When organizations make the critical transition from vision to action,
they experience the real excitement and gain the real value from developing a Balanced
The BSC is concerned with translating a customer and employee driven strategy into action. Cost cutting will be
damaging, if it harms an organization’s relationship with its customers and employees.
Robert Kaplan and
David Norton, The Balanced Scorecard
(1996) – see above.