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The balanced scorecard (BSC) is a strategy which may be constrained.[4] Initially, Balanced Score-
performance management tool a semi-standard card emerged as a performance management system, over
structured report, supported by design methods and a period of time it has come to be known as a strat-
automation tools, that can be used by managers to keep egy management system, with its ultimate aim being the
track of the execution of activities by the sta within achievement of long term nancial performance. Bal-
their control and to monitor the consequences arising anced scorecard is seen as a strategic management sys-
from these actions.[1] tem enabling business leaders to meet the challenge of
The phrase 'balanced scorecard' is commonly used in two strategy execution.
broad forms: Two of the ideas that underpin modern balanced score-
card designs concern facilitating the creation of such a
1. As individual scorecards that contain measures to control through making it easier to select which data to
manage performance, those scorecards may be op- observe, and ensuring that the choice of data is consistent
erational or have a more strategic intent; and with the ability of the observer to intervene.[5]
1
2 4 DESIGN
of General Electric on performance measurement report- proposal was translated into a form that made sense to a
ing in the 1950s and the work of French process engi- typical reader of that journal managers of US commer-
neers (who created the tableau de bord literally, a dash-
cial businesses. Accordingly, initial designs were encour-
board of performance measures) in the early part of the aged to measure three categories of non-nancial mea-
20th century.[6] The tool also draws strongly on the ideas sure in addition to nancial outputs those of customer,
of the 'resource based view of the rm'[14] proposed by internal business processes and learning and growth.
Edith Penrose. However it should be noted that none of These categories were not so relevant to non-prots or
these inuences is explicitly linked to original descrip- units within complex organizations (which might have
tions of balanced scorecard by Schneiderman, Maisel, or high degrees of internal specialization), and much of the
Kaplan & Norton. early literature on balanced scorecard focused on sugges-
[12] tions of alternative 'perspectives that might have more
Kaplan and Nortons rst book remains their most
popular. The book reects the earliest incarnations relevance to these groups.
of balanced scorecards eectively restating the con- Modern balanced scorecards have evolved since the initial
cept as described in the second Harvard Business Re- ideas proposed in the late 1980s and early 1990s, and the
view article.[11] Their second book, The Strategy Fo- modern performance management tools including Bal-
cused Organization,[15] echoed work by others (particu- anced Scorecard are signicantly improved being more
larly a book published the year before by Olve et al. in exible (to suit a wider range of organisational types) and
Scandinavia[16] ) on the value of visually documenting the more eective (as design methods have evolved to make
links between measures by proposing the Strategic Link- them easier to design, and use).[20]
age Model or strategy map.
As the title of Kaplan and Nortons second book[15] high-
lights, even by 2000 the focus of attention among thought- 4 Design
leaders was moving from the design of Balanced Score-
cards themselves, towards the use of Balanced Scorecard Design of a balanced scorecard is about the identication
as a focal point within a more comprehensive strategic of a small number of nancial and non-nancial measures
management system. Subsequent writing on Balanced and attaching targets to them, so that when they are re-
Scorecard by Kaplan & Norton has focused on uses of viewed it is possible to determine whether current perfor-
Balanced Scorecard rather than its design (e.g. The Exe- mance 'meets expectations. By alerting managers to ar-
cution Premium in 2008[17] ), however many others have eas where performance deviates from expectations, they
continued to rene the device itself (e.g. Abernethy et can be encouraged to focus their attention on these areas,
al.[18] ). and hopefully as a result trigger improved performance
within the part of the organization they lead.[3]
The original thinking behind a balanced scorecard was
3 Characteristics for it to be focused on information relating to the imple-
mentation of a strategy, and over time there has been a
blurring of the boundaries between conventional strate-
The characteristics of the balanced scorecard and its gic planning and control activities and those required to
derivatives is the presentation of a mixture of nancial design a balanced scorecard. This is illustrated well by
and non-nancial measures each compared to a 'target' the four steps required to design a balanced scorecard in-
value within a single concise report. The report is not cluded in Kaplan & Nortons writing on the subject in the
meant to be a replacement for traditional nancial or op- late 1990s:
erational reports but a succinct summary that captures
the information most relevant to those reading it. It is 1. Translating the vision into operational goals;
the method by which this 'most relevant' information is
determined (i.e., the design processes used to select the 2. Communicating the vision and link it to individual
content) that most dierentiates the various versions of performance;
the tool in circulation. The balanced scorecard indirectly
also provides a useful insight into an organisations strat- 3. Business planning; index setting
egy by requiring general strategic statements (e.g. mis- 4. Feedback and learning, and adjusting the strategy
sion, vision) to be precipitated into more specic/tangible accordingly.
forms.[19]
The rst versions of balanced scorecard asserted that rele- These steps go far beyond the simple task of identifying a
vance should derive from the corporate strategy, and pro- small number of nancial and non-nancial measures, but
posed design methods that focused on choosing measures illustrate the requirement for whatever design process is
and targets associated with the main activities required to used to t within broader thinking about how the resulting
implement the strategy. As the initial audience for this balanced scorecard will integrate with the wider business
were the readers of the Harvard Business Review, the management process.
4.2 Second generation 3
Although it helps focus managers attention on strate- These suggestions were notably triggered by a recognition
gic issues and the management of the implementation of that dierent but equivalent headings would yield alter-
strategy, it is important to remember that the balanced native sets of measures, and this represents the major de-
scorecard itself has no role in the formation of strategy.[5]
sign challenge faced with this type of balanced scorecard
In fact, balanced scorecards can co-exist with strategic design: justifying the choice of measures made. Of all
planning systems and other tools.[6] the measures you could have chosen, why did you choose
these?" These issues contribute to dis-satisfaction with
early Balanced Scorecard designs, since if users are not
4.1 First generation condent that the measures within the Balanced Score-
card are well chosen, they will have less condence in the
The rst generation of balanced scorecard designs used information it provides.[28]
a 4 perspective approach to identify what measures to Although less common, these early-style balanced score-
use to track the implementation of strategy. `The original cards are still designed and used today.[1]
four perspectives proposed[9] were:
In short, rst generation balanced scorecards are hard to
design in a way that builds condence that they are well
Financial: encourages the identication of a few designed. Because of this, many are abandoned soon after
relevant high-level nancial measures. In particu- completion.[6]
lar, designers were encouraged to choose measures
that helped inform the answer to the question How
do we look to shareholders?" Examples: cash ow, 4.2 Second generation
sales growth, operating income, return on equity.[21]
In the mid-1990s, an improved design method
Customer: encourages the identication of mea- emerged.[16] In the new method, measures are se-
sures that answer the question What is important to lected based on a set of strategic objectives plotted
our customers and stakeholders?" Examples: per- on a strategic linkage model or "strategy map". With
cent of sales from new products, on time delivery, this modied approach, the strategic objectives are
share of important customers purchases, ranking by distributed across the four measurement perspectives, so
important customers. as to connect the dots to form a visual presentation of
strategy and measures.[29]
Internal business processes: encourages the iden-
tication of measures that answer the question In this modied version of balanced scorecard design,
What must we excel at?"Examples: cycle time, unit managers select a few strategic objectives within each of
cost, yield, new product introductions. the perspectives, and then dene the cause-eect chain
among these objectives by drawing links between them
Learning and growth: encourages the identica- to create a strategic linkage model. A balanced score-
tion of measures that answer the question How can card of strategic performance measures is then derived
we continue to improve, create value and innovate?". directly by selecting one or two measures for each strate-
Examples: time to develop new generation of prod- gic objective.[5] This type of approach provides greater
ucts, life cycle to product maturity, time to market contextual justication for the measures chosen, and is
versus competition. generally easier for managers to work through. This style
of balanced scorecard has been commonly used since
The idea was that managers used these perspective head- 1996 or so: it is signicantly dierent in approach to the
ings to prompt the selection of a small number of mea- methods originally proposed, and so can be thought of
sures that informed on that aspect of the organisations as representing the 2nd generation of design approach
strategic performance.[9] The perspective headings show adopted for balanced scorecard since its introduction.
that Kaplan and Norton were thinking about the needs
of non-divisional commercial organisations in their initial
design. These headings are not very helpful to other kinds
4.3 Third generation
of organisations (e.g. multi-divisional or multi-national
commercial organisations, governmental organisations, Main article: Third-generation balanced scorecard
non-prots, non-governmental organisations, government
agencies etc.), and much of what has been written on bal- In the late 1990s, the design approach had evolved yet
anced scorecard since has, in one way or another, focused again. One problem with the second generation design
on the identication of alternative headings more suited to approach described above was that the plotting of causal
a broader range of organisations, and also suggested using links amongst twenty or so medium-term strategic goals
either additional or fewer perspectives (e.g. Butler et al. was still a relatively abstract activity. In practice it ignored
(1997),[22] Ahn (2001),[23] Elefalke (2001),[24] Brignall the fact that opportunities to intervene, to inuence strate-
(2002),[25] Irwin (2002),[26] Radnor et al. (2003)[27] ). gic goals are, and need to be, anchored in current and
4 7 CRITICISM
demic community, who dislike the empirical nature of observed over time to a single intervention (such as intro-
the framework: Kaplan and Norton notoriously failed ducing a balanced scorecard). However, such studies as
to include any citation of earlier articles in their ini- have been done have typically found balanced scorecard
tial papers on the topic. Some of this criticism fo- to be useful.[6][20]
cuses on technical aws in the methods and design of A few studies go further, trying to explain PMS size
the original balanced scorecard proposed by Kaplan and dierences in terms of cause and eect. For example,
Norton,.[20][33][44] Other academics have simply focused Hvolby and Thorstenson (2000) and McAdam (2000)
on the lack of citation support.[45] suggest that the Balanced Scorecard is completely un-
A second kind of criticism is that the balanced scorecard suitable for SMEs because of their lack of a longer-term
does not provide a bottom line score or a unied view strategic focus. They also argue that the characteris-
with clear recommendations: it is simply a list of met- tics of SMEs make most, if not all, PM models inap-
rics (e.g. Jensen 2001[46] ). These critics usually include propriate although they do not develop the argument in
in their criticism suggestions about how the 'unanswered' terms of causality. Similarly, Romphos (2011) study of
question postulated could be answered, but typically the a failed implementation of the Balanced Scorecard in an
unanswered question relate to things outside the scope of SME attributed the cause to too many changes to the or-
balanced scorecard itself (such as developing strategies) ganisations strategy. Others have suggested that SMEs
(e.g. Brignall[25] ) have limited knowledge about performance measurement
A third kind of criticism is that the model fails to fully in general (Rantanen and Holtari 2000) and do not un-
reect the needs of stakeholders putting bias on nan- derstand the benets of PMS implementation (McAdam
cial stakeholders over others. Early forms of Balanced 2000; Bourne 2001), but none of these studies attempts
Scorecard proposed by Kaplan & Norton focused on the to theorise the reasons behind their ndings.[50]
needs of commercial organisations in the USA where
this focus on investment return was appropriate.[11] This
focus was maintained through subsequent revisions.[47]
Even now over 20 years after they were rst proposed,
the four most common perspectives in Balanced Score-
card designs mirror the four proposed in the original Ka-
plan & Norton paper.[1] However, as noted earlier in this
8 Software tools
article, there have been many studies that suggest other
perspectives might better reect the priorities of organ-
It is important to recognize that the balanced scorecard
isations particularly but not exclusively relating to the
by denition is not a complex thing typically no more
needs of organisations in the public and Non Governmen-
than about 20 measures spread across a mix of nancial
tal sectors.[48] For instance, the balanced scorecard does
and non-nancial topics, and easily reported manually (on
not address important aspects of nonprot strategy such
paper, or using simple oce software).[47]
as social dimensions, human resource elements, politi-
cal issues and the distinctive nature of competition and The processes of collecting, reporting, and distributing
collaboration in nonprot settings.[49] Thus, the model balanced scorecard information can be labor-intensive
seems to be less eective in nonprot organisations as and prone to procedural problems (for example, getting
the models strategy, cause-and-eect relationships and all relevant people to return the information required by
its four linked perspectives are incompatible to the unique the required date). The simplest mechanism to use is to
nonprot environment. More modern design approaches delegate these activities to an individual, and many Bal-
such as 3rd Generation Balanced Scorecard and the UNs anced Scorecards are reported via ad-hoc methods based
Results Based Management methods explicitly consider around email, phone calls and oce software.
the interests of wider stakeholder groups, and perhaps ad- In more complex organizations, where there are multi-
dress this issue in its entirety.[30] ple balanced scorecards to report and/or a need for co-
There are few empirical studies linking the use of bal- ordination of results between balanced scorecards (for ex-
anced scorecards to better decision making or improved ample, if one level of reports relies on information col-
nancial performance of companies, but some work has lected and reported at a lower level) the use of individual
been done in these areas. However, broadcast surveys reporters is problematic. Where these conditions apply,
of usage have diculties in this respect, due to the wide organizations use balanced scorecard reporting software
variations in denition of 'what a balanced scorecard is to automate the production and distribution of these re-
noted above (making it hard to work out in a survey if you ports.
are comparing like with like). Single organization case Recent surveys[1][51] have consistently found that roughly
studies suer from the 'lack of a control' issue common one third of organizations used oce software to report
to any study of organizational change what the organi- their balanced scorecard, one third used software devel-
zation would have achieved if the change had not been oped specically for their own use, and one third used
made isn't known, so it is dicult to attribute changes one of the many commercial packages available.
6 10 REFERENCES
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Swedish Police Service: 7000 ocers in total quality
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7
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8 11 TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES
11.2 Images
File:Commons-logo.svg Source: https://upload.wikimedia.org/wikipedia/en/4/4a/Commons-logo.svg License: PD Contributors: ? Origi-
nal artist: ?