What is Balanced Scorecard?

The balanced scorecard is a method that measures the success, strategy and mission of a company in terms of four distinct perspectives. In contrast, the traditional method usually tends to measure the success of the organization from the financial perspective alone.

The four perspectives from which the measurements are carried out are: 

- The Financial perspective: The financial health of a company is vital to its existence. This perspective examines in depth the cash flow, the debts and the ROI 

- Customer perspective: The customer of today is increasingly conscious of quality and demands quick and quality services. This perspective looks at the company from the perspective of the customer. Are the customers happy? How quickly are complaints answered? It looks at the feedback from surveys 

- Business Process perspective: This perspective examines the effectiveness of the internal processes of the company. It studies the time spent in rework, total cost of a process and the general performance of the process. 

- Learning and growth perspective: This aspect is concerned with the learning process in the company. The learning curve is inspected and the time and expenses are examined.

This method was first devised by Robert S Kaplan and David Norton in the year 1992. The system consists of four distinct processes. 

- Translation of the company’s vision into operational goals 

- Communication of the vision and relating it to the performance and achievement of each employee. 

- Business planning 

- Feedback for learning from the outcome and making alterations in the strategy if required.

The fundamental premise of this method is that financial performance though important is not the best or the only possible indicator of success.

The Financial perspective suffers from two significant drawbacks. They are: 

- The historical nature of the financial perspective which is usually drawn from previous accounting records, does not tell us of what the organization is currently going through. It only tells us of the financial health in the past. 

- It is not unusual for the market value of a company to exceed the value of the assets. This is due to the non-tangible assets. This is not reflected in the traditional financial reporting.

The advantage of the balanced scorecard method is that it measures the present condition and the financial status of the organization and describes the ability of the company to face the challenges of the future taking in mind the organizational competencies and strengths.

Since, the balanced scorecard method measures the success from other perspectives other than the financial perspective, it is of particular interest to non-profit organizations.