Initially introduced by David Norton and Robert Kaplan on HBR in 1992 (Kaplan, 2010), the aim of the Balanced Scorecard (BSC) was to measure a company’s intangible assets. Many organisations adopted BSC soon, and later, it was developed into a tool for communicating, implementing and measuring company strategy. It can also be used to support a company’s budgeting process.
Before the 1990s, short-term financial goals were often the sole focus of companies and the only performance measures. Scholars have long recognised that non-financial aspects are equally crucial as monetary measures to a firm’s success. To balance the short-term financial goals and the long-term strategic performance, BSC was updated to include customer, internal process and employee growth (through L&D perspectives to a company’s performance management scoring system. Furthermore, in nonprofit and public sector enterprises (NPSEs), objectives are often connected to their mission and social impact, not to make a profit for shareholders. Therefore, non-financial performance goals are the primary focus in these sectors.
Despite being a performance measurement system, selecting metrics should not be the first step in setting up a BSC system. Different firms have different strategic goals and positions in the market; therefore, their performance metrics should be different. When a firm correctly identifies their customers’ and employees’ needs and wants - ideally using their languages, e.g., ‘we are trained in the knowledge we need to succeed’, identifying the right metrics becomes easy.
The next step is to establish causal linkages among objectives and measures of each BSC perspective through a Strategy Map, which ultimately leads to the firm’s end goal - often placed on top of the strategy map. The ultimate goal could be either shareholder values or social impacts, depending on the values and missions of the firms.
References
- Kaplan, R.S. (2010). Conceptual Foundations of the Balanced Scorecard. SSRN Electronic Journal, 10-074(3). doi:10.2139/ssrn.1562586.