Balanced Scorecard

HR Articles - What is ?

Balanced Scorecard methodology is pioneered by Robert Kaplan of Harvard University and corporate consultant David Norton to enable companies to align their operations totally to their business strategy Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals. Balanced Score Card is primarily a technique for implementing strategy and not developing organizational strategy. In other words, it is a technique for operationalizing the vision / mission /strategy of the organization.

Why it is difficult to implement strategy?

Kaplan and Norton worked with several fortunes 500 companies and found that top managements in many of these huge organizations were not happy with implementation of strategy. The strategy was identified and known at the top level. However the implementation was inadequate.
Kaplan and Norton's research indicated that there were 4 barriers in effectively implementing organizational strategy.

(i) Vision Barrier: Strategy is not understood by those who must implement it.

(ii) Management Barrier: Management systems / reviews are designed for operational control and little time is spent on reviewing implementation of strategy.

(iii) Operational Barrier: The budgeting process is separated from strategic planning process in many organizations. The two are not linked.

(iv) People Barriers: Personal goals, incentives and competencies of staff are not linked to strategies.
Kaplan and Norton found these four key barriers in implementing strategies and they have addressed these barriers in designing Balanced Score Card system.

Balanced Score Card - A New Approach to Strategy Implementation

The basic premise of Balanced Score Card is: Measurement Motivates. In other words what gets measured gets done. Hence Balance Score Card focuses on setting strategic & other objectives and measurements at all levels in the organization and then measuring their achievement in a systematic manner.

Setting strategic & other objectives and measuring them has following distinct advantages:

a) Gives clarity & concreteness to fuzzy / vague concepts that are stated in strategy.

b) Objectives and measurements, when they are cascaded down, become a tool to communicate strategy and not a simple tool to control.

c) Building the Balance Score Card for the whole organization develops consensus and teamwork through out the organization.

A second important premise of Balanced Score Card is the four perspective framework it specifies. Kaplan and Norton found that in organizations decision-making is dominated by financial parameters. There are two difficulties with this.

Firstly financial parameters reflect past decisions or factors or trends, which had created value in the past. These factors may or may not add value in future. In other words, organizations do not focus on factors which will add value to organization in future. Using Financial measurements alone is like driving a car by seeing the review mirror. Secondly financial measures motivate short-term behavior at the expense of long term health of the organization. In order to address the above difficulties Balance Score Card proposes four prospective framework which includes:

(i) Financial perspective
(ii) Customer perspective
(iii) Business process perspective
(iv) Organization learning perspective

Strategic & other objectives are set & measured in all the above four areas which brings the "Balance" in BSC .
In view of the foregoing, Balanced Score Card is defined as: A framework that focuses on shareholders, customers, internal and learning requirement of a business in order to create a system of linked objectives, measures, targets and initiatives which collectively describe the strategy of an organization and how that strategy can be achieved

 Source: HR Concepts

Compiled and Edited by

Mr. S. Murugesan - Lecturer

Dr. P. N. Narayana Raja - Principal

Madurai Institute of Social Sciences

(Run by: DVR Foundation for HRD)

Madurai, Tamil Nadu, India