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The Balanced Scorecard

The balanced scorecard is a concept used to measure the activities of a company with respect to its vision as well as strategy. It gives the managers a cohesive and comprehensive picture of their company’s performance. It was formulated by Robert S. Kaplan and David Norton in 1992. In Kaplan and Norton’s words:

"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

The four perspectives of a balanced scorecard are:

• The Learning and Growth Perspective
• The Business Process Perspective
• The Customer Perspective
• The Financial Perspective

The Learning and Growth Perspective includes training of employees as well as developing a positive corporate culture. The focus here is on people who work in the firm. People are the repository of knowledge and they should be given ample opportunities to identify their capabilities and hone them. They should also be able to discover new talents and skills so that their learning curve is broad and diversified. The Business Process Perspective gives insight into how the business performs at the internal level. These internal business processes are checked for meeting the customer expectations and standards. Customers are the key to any business and keeping them satisfied is the goal of a company. Knowing what their expectations are would help the firm design metrics to measure performance. The Financial Perspective, quite surprisingly, is the last to be studied in a balanced scorecard. This does not mean that the financial outcomes are disregarded. Financial data is important in its own way and managers do need it but such data has to be used along with the other perspectives so that the firm as a whole can be analyzed.

Balanced Scorecard has been used to develop a customer-centric culture along with methodologies such as Customer Relationship Management. Some customer-centric questions that must be asked in a balanced scorecard are:

• What does the customer really care about?
• Do these concerns appear in our value proposition?
• Do we have a strategy that incorporates this value proposition?

Answering these questions will help the firm define the needs of a customer and develop a strategy to meet those needs. A strategy map must be drawn such that cause and effect relationships are given a pictorial depiction. This will make the strategy firm and purposeful. It must be kept in mind that metrics are not sufficient in themselves. They must be used as a means to meet the organizational objectives. Strategic initiatives provide a structure to these measures. This is precisely why a balanced card is more than just a report card of metrics.

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