Study notes

Balanced Scorecard

The balanced scorecard provides a relevant range of financial and non-financial information that supports effective business management.

Background to the balanced scorecard

  • No single measures can give a broad picture of the organisation’s health.
  • So instead of a single measure why not a use a composite scorecard involving a number of different measures.
  • Kaplan and Norton devised a framework based on four perspectives – financial, customer, internal and learning and growth.
  • The organisation should select critical measures for each of these perspectives.

Origins of the balanced scorecard

R.S. Kaplan and D.P. Norton -”The Balanced Scorecard- measures that drive performance”. Harvard Business Review, January 1992

  • -”The Balanced Scorecard”, Harvard University Press, 1996.
  • “Kaplan and Norton suggested that organisations should focus their efforts on a limited number of specific, critical performance measures which reflect stakeholders key success factors” (Strategic Management, J. Thompson with F. Martin)

What is the balanced scorecard?

  • A system of corporate appraisal which looks at financial and non-financial elements from a variety of perspectives.
  • An approach to the provision of information to management to assist strategic policy formation and achievement.
  • It provides the user with a set of information which addresses all relevant areas of performance in an objective and unbiased fashion.
  • A set of measures that gives top managers a fast but comprehensive view of the business.

The balanced scorecard…

  • Allows managers to look at the business from four important perspectives.
  • Provides a balanced picture of overall performance highlighting activities that need to be improved.
  • Combines both qualitative and quantitative measures.
  • Relates assessment of performance to the choice of strategy.
  • Includes measures of efficiency and effectiveness.
  • Assists business in clarifying their vision and strategies and provides a means to translate these into action.
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