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Study notes

Balanced Scorecard (Kaplan & Norton)

  • Levels: AS, A Level, IB
  • Exam boards: AQA, OCR, IB, Eduqas

Kaplan & Norton's Balanced Scorecard model was developed in the early 1990's as an attempt to help firms measure business performance using both financial and non-financial data.

The aim of the Balanced Scorecard was "to align business activities to the vision and strategy of the business, improve internal and external communications, and monitor business performance against strategic goals."

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.
The Four Perspectives of the Balanced Scorecard

In what way is the scorecard a balance?

The scorecard produces a balance between:

  • Four key business perspectives: financial, customer, internal processes and innovation.
  • How the organisation sees itself and how others see it.
  • The short run and the long run
  • The situation at a moment in time and change over time

Main benefits of using the balanced scorecard

  • Helps companies focus on what has to be done in order to create a breakthrough performance
  • Acts as an integrating device for a variety of corporate programmes
  • Makes strategy operational by translating it into performance measures and targets
  • Helps break down corporate level measures so that local managers and employees can see what they need to do well if they want to improve organisational effectiveness
  • Provides a comprehensive view that overturns the traditional idea of the organisation as a collection of isolated, independent functions and departments

Some drawbacks of the balanced scorecard model

  • A danger that a business will have too many performance indicators
  • Need to have balance between the four perspectives – not easy
  • Senior management may still be too concerned with financial performance
  • Needs to be updated regularly to be useful
The Balanced Scorecard - Explained

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