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The Balanced Scorecard

The Balanced Scorecard (BSC), created by Arthur Schneiderman and popularised by Kaplan & Norton, is a commonly used framework for setting organisational performance measures along four dimensions:

  1. How do customers see us?
  2. What internal processes must we excel at?
  3. How can we continue to improve and create value?
  4. How do we look to shareholders?
Balanced scorecard
The Balanced Scorecard links performance measures (after Kaplan & Norton, 1992)

Potential limitations of the Balanced Scorecard

It’s always good idea to forge strong connections between strategy and measurement, and the BSC can be a great tool when used well, but it’s not foolproof. I’ve worked in or with a number of organisations that tried to use the BSC with varying degrees of success.

For example, one organisation used contract fulfillment as a customer satisfaction indicator, and then couldn’t understand why its customers complained all the time. (If you’re not sure why this was a mistake, answer this – last time you had to pull out a contract and read the small print, was that because you were happy with the service you were receiving?)

This sort of basic misinterpretation of the data created a false sense of security by concealing rather than revealing the real issues within an ailing business.

If used carelessly, the Balanced Scorecard can also foster too much balance. We can all think of organisations that try to do a little bit of everything, and excel at nothing. This often signals a lack of direction.

How to obtain results from the Balanced Scorecard

Strategy is essentially about aligning resources and competencies inside the business with trends in the external business environment. Therefore, to be effective, goals and measures in the BSC must promote positive behaviours inside the business which directly connect with what’s happening outside the business.

When done well, the BSC can help management and staff step outside their normal boundaries and view the business from four different angles, which can be very helpful.

For example, to really understand ‘how do we look to our customers’ the business has to understand how its customers make decisions, what sort of cues customers use to make relative judgments between competing offers, what factors encourage those customers to stick with one offering, or switch to something else, and then use those cues to measure the health of the business.

That’s a potentially powerful way to generate new insights.

Please contact us if you would like to talk about improving strategy in your organisation.

Posted in Decreasing costs, Increasing revenue, Positioning for the future, Quality, Two-way communication