Definition (short)
– The Balanced Scorecard (BSC) is a strategic performance framework that evaluates an organization using a balanced mix of financial and non‑financial measures. It was developed to give leaders a fuller view of organizational health than finance-only metrics.
Key idea
– Instead of judging success solely by past financial results, the BSC adds measures tied to customers, internal operations, and organizational learning/innovation. The four perspectives work together to link day‑to‑day activities to long‑term strategy.
The four BSC perspectives (what to measure)
1. Financial — traditional monetary results (e.g., revenue growth, profitability). These show whether strategy is delivering economic value.
2. Customer — measures of customer outcomes (e.g., satisfaction, retention, on‑time delivery). These indicate market acceptance.
3. Internal process — metrics about how well core operations perform (e.g., cycle time, defect rates). These identify operational bottlenecks.
4. Learning & innovation (also called innovation and learning) — indicators of future capacity (e.g., product development speed, employee skills). These are leading signals of future performance.
Why Kaplan & Norton created it (short)
– The BSC was introduced by Robert Kaplan and David Norton in the early 1990s to correct the blind spots of finance‑only measurement. Their research showed that process capabilities, customer outcomes and organizational learning drive future financial performance, so management should measure those areas, too.
How the BSC works (practical steps)
1. Translate strategy into objectives mapped to each of the four perspectives (create a strategy map showing cause‑and‑effect links).
2. For each objective, choose 1–3 Key Performance Indicators (KPIs) that reflect progress and are measurable.
3. Set explicit targets and timeframes for each KPI and define the initiatives that will move the needle.
4. Put data collection in place (dashboards, reporting cadence).
5. Review results regularly (monthly/quarterly), discuss deviations, and reallocate resources or adjust initiatives.