The Balanced Scorecard method of Kaplan and Norton is a strategic approach and performance management system that enables organisations to translate a company’s vision and strategy into implementation, working from 4 perspectives:
1. financial perspective,
2. customer perspective,
3. business process perspective,
4. learning and growth perspective.
1. The Financial perspective:
Often, there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralised and automated. But the point is that the current emphasis on financial data leads to the “unbalanced” situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.
2. Customer perspective:
Recent management philosophy has shown an increasing realisation of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. In developing metrics for satisfaction, customers should be analysed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.
3. Business Process perspective:
This refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes well. In addition to the strategic management process, two kinds of business processes may be identified: a) mission-oriented processes, and b) support processes. Mission-oriented processes are the special functions of directors and senior managers, and many unique problems are encountered in these processes. The support processes are more repetitive in nature, and hence easier to measure and benchmark using generic metrics.
4. Learning and Growth perspective:
This includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organisation, people are the main resource.
In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Many companies find themselves unable to hire new employees and at the same time is showing a decline in training of existing employees. Kaplan and Norton emphasise that ‘learning’ is more than ‘training’; it also includes things like mentors and coaches within the company, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes tools such as the Intranet.
The integration of these four perspectives into a graphical appealing picture have made the Balanced Scorecard method a very successful methodology within the Value-Based Management philosophy.