Quality Glossary Definition: Balanced Scorecard
A management system that provides feedback on both internal business processes and external outcomes to continuously improve strategic performance and results.
The balanced scorecard (BSC) is a strategic management tool that views the organization from different perspectives, usually the following:
- Financial: The perspective of your shareholders
- Customer: What your customers experience and perceive
- Business Process: The key processes you use to meet and exceed customer and shareholder requirements
- Learning and Growth: How you foster ongoing change and continuous improvement
For each of these perspectives, the balanced scorecard prompts you to develop metrics, set performance targets and collect and analyze data. Your scorecard thus offers an efficient mechanism for reviewing strategy implementation based on measurement.
Read the Back to Basics article A Tool for Anyone (open access) for tips on creating balanced scorecards and to see an example.
Benefits of a Measurement–Based System
A balanced scorecard can help your organization both articulate and act upon your vision and strategy. Use it to take these actions.
- Facilitate effective and consistent communication because everyone speaks a shared language of metrics.
- Drive focus around key requirements.
- Facilitate reviews on a regular basis.
- Ensure organizational alignment.
More than Financials
Developed by Robert Kaplan and David Norton in the early 1990s, the balanced scorecard is more than a measurement system. It is a management system. By bringing together measures around internal processes and external outcomes, a balanced scorecard supports continuous improvement at the level of strategic performance and results.
In their book The Balanced Scorecard: Translating Strategy into Action, Kaplan and Norton describe the balanced scorecard as a necessary move away from overreliance on financial measures. According to Kaplan and Norton, because financial measures report on the past, they offer “an adequate story for industrial age companies” but not “information age companies.” In the information age, organizations must “create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”
A strictly financial approach for managing organizations is not complete, as it doesn’t capture the landscape of the business and isn’t an indicator of the future. Evaluating organizational performance in a balanced manner on the parameters that influence your business becomes crucial for better management.
Contributed by C. L. N. Prabhu, a Six Sigma Consultant, ASQ Six Sigma Black Belt and BSC practitioner. Prabhu represents the Six Sigma Consulting Group of Satyam Computer Services Limited.