The Balanced Scorecard has become a very popular approach to linking corporate-level shareholder (or other stakeholder) and strategic goals to more specific business units, departments and individual goals. The scorecard approach, devised by Robert Kaplan and David Norton, is a mechanism for cascading down strategy into specific operating goals. Because it is readily adaptable, organisations in the public, private and not-for-profit sectors are able to adopt the Scorecard although the approach used in each sector differs slightly.

What is the Balance Scorecard?
The Balanced Scorecard is a management tool designed to articulate, execute and monitor strategy using a mix of financial and non-financial measures. It is more than a performance measurement tool and, if implemented appropriately, should help an organisation to align and focus all its resources on its strategy. Even for many large complex organisations, the adoption of the Scorecard has proven a valuable tool in linking vision and strategy to day-to-day actions.

Principles
The name Balanced Scorecard is slightly misleading in the sense that you are not keeping score or adding things up. Rather it is about translating the vision and strategy into objectives and measures across a balanced set of perspectives. There should be a balance between external measures relating to shareholders and customers and internal measures relating to critical business processes such as innovation, learning and growth. Crucially, the Scorecard depicts strategy as a series of cause-effect relationships between the critical variables, for example, improving customer service should help to improve financial performance. It is necessary to define what is important for the particular business. This is why organisations may have very different scorecards. Each business will need to decide what is important to measure.

The Balanced Scorecard translates vision and strategy into four perspectives:

1. Financial - How do we look to shareholders?

   This perspective is composed of measures such as cash flow, sales and income growth and profits and return on capital employed or return on net assets. It can also include comparative measures such as net margin versus the rest of the industry. The types of measures used will depend on the strategy being pursued. For example, in trying to increase shareholder value there are generally two generic strategies - revenue growth and productivity strategy. Each of these strategies will be pursued in a different manner and will require tailored measures. A productivity strategy being driven by improved cost structure, for example, will want to achieve lower cost per unit.

2. Customers - How do customers see us?

   This perspective comprises measures such as goals for new products, on-time delivery and defect and failure levels. It is in this perspective that a company's customer-value proposition should be evident; for example, are you pursuing a strategy based on operational excellence, customer intimacy or product leadership? Again, the measures used in this perspective will depend on the strategy being pursued. For example, a company pursuing a customer intimacy strategy will focus on particular differentiators to fulfil this strategy such as high-level service from employees and rewarding customer loyalty. From the measures, it should be possible to identify the strategy being pursued.

3. Internal business perspective

   At what must we excel? This perspective relates to internal business processes such as productivity, cycle time, quality and cost measures. Strategy should determine the measurement emphasis for internal business processes so that measures will relate to the value proposition a company is trying to support. Typical measures in different groupings will vary. If it is not an organisation's aim to pursue a strategy based on product leadership for example, measures to do with the innovation process, which will play a supportive rather than primary role, should only focus on the basic requirements for the organisation.

4. Learning and growth

   To achieve our vision, how will we sustain our ability to change and improve? Measures in this perspective will relate to facilitating a motivated and trained workforce. Measures would typically fall into three areas: strategic competencies, strategic technologies and a climate for action (e.g. personal growth through employee feedback and alignment to higher-level strategic objectives).

The Balanced Scorecard in the public sector
It is only in very recent years that organisations in the public and non-profit sectors have begun to make use of the Balanced Scorecard, perhaps because at first sight it appears to be a tool designed for profit-making businesses. Whilst in the public sector optimising the use of resources, particularly finance, is key, organisations do not exist primarily to maximise returns.

The original architecture of the Balanced Scorecard places the four perspectives in a hierarchy, with the financial perspective at the top. Where maximising profits is not the main objective of an organisation, this is obviously not appropriate. It is usually the case that the strategic objectives of public organisations are not measurable simply in financial terms. This can be reflected in a Scorecard with a slightly different structure and emphasis. For example it may mean changing the order of the perspectives in the hierarchy so that the customer perspective appears at the top, or it may involve introducing an overall objective or mission which is supported by all four of the perspectives.

To use the Balanced Scorecard as an effective tool for strategic management, it is important to recognise that it is just that - a tool to be adapted as appropriate to the needs of the organisation rather than one which has to be applied in the same way in every organisation.

In essence, the Balanced Scorecard can be a really useful tool because the range of measures (not just the financial ones) can help staff understand more readily how they can contribute to the strategic success of the organisation. It also provides executives with a framework that is an effective tool to translate a company’s vision and strategy into a coherent set of performance measures.