Wednesday, August 24, 2011

Management Theories # 24 - Balanced Scorecard

The balanced scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization, improve internal and external communications and monitor organization performance against strategic goals.

The balanced scorecard suggests we view 4 critical perspectives of our business:

Learning & growth: includes training, learning, corporate culture and attitudes, self growth. Individuals are the main repository of knowledge of an organisation and the critical resource. Communication among workers is key, as is avoiding brain drain.

Business process: Metrics based on internal business processes allow management to monitor how well the business is running and wether it’s products/services are well accepted by clients.

Customer: Indicators on customer satisfaction and tools to improve and monitor customer relations are critical

Financial: Timely and accurate financial data is still a key to manage the business. Data should be centralised and of fast and easy access, but financial data should not be the only indicator, thus the original intention of the word “balanced”.

The Balanced Scorecard automates and centralizes the issuance and tracking of objectives, targets, measures and initiatives.

The Balanced Scorecard (BSC) began as a concept for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy. It was developed and first used at Analog Devices in 1987.

By focusing not only on financial outcomes but also on the human issues, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests.

The strategic management system helps managers focus on performance metrics while balancing financial objectives with customer, process and employee perspectives. Measures are often indicators of future performance. In 1992, Robert S. Kaplan and David P. Norton began publicizing the Balanced Scorecard through a series of journal articles. In 1996, they published the book The Balanced Scorecard.

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