The Balanced Scorecard is a management approach developed by Robert Kaplan and David Norton in the early 1990s as a means of measuring individual and corporate progress. While classical strategic management focuses almost solely on financial metrics, modern companies require a broader set of indicators. The “balanced” scorecard refers to the other measures of corporate activities which should be measured, balancing the financial activities. This is a management system that integrates strategic planning into the heart of corporate operations, and helps companies master the process of change on a continual basis.
Customer Metrics focus on measuring customer satisfaction, retention, costs of acquisition, profitability and market share. Many of the CRM concepts covered in the NAVIGATOR strategic training programme can be integrated into a Balanced Scorecard approach.
Business Processes are defined by Kaplan and Norton as all steps in the process between identifying a customer’s need and delivering customer satisfaction. These are split into three sub-processes: Innovation, Operations and After-Sales Service.
Learning and Growth metrics are the human-resources and knowledge-management-driven components. Enablers are defined as the Staff Competencies, Technology & Infrastructure and Climate for Action that permit learning and growth to take place in companies. Core measurements of learning and growth include employee retention, employee productivity and employee satisfaction, which are indicators of business results.
Financial Metrics include a targeted set of indicators which are determined based on strategic themes and business unit strategies. Strategic themes include revenue and growth mix; cost reduction and productivity; and asset utilisation. Business unit strategies include harvest; sustain; and growth.
Benefits of the Balanced Scorecard Approach
The advantages of a Balanced Scorecard for the enterprise are numerous:
- It requires managers and senior-level staff to think and act strategically, based on a comprehensive analysis of the key performance indicators in their business;
- It links productivity-enhancing measures and profitability with the strategic objectives of the company;
- It offers a spherical, 360 degree-based performance assessment method which takes competitive factors into account;
- It enables continual measurement of indicators, enabling the company to address problems as they arise, not after the fact;
- It emphasises performance measurement, not analysis for the sake of analysis.