BALANCED SCORECARD (BSC)

In the early 1990's Dr. Robert Kaplan (Harvard Business School) and Dr. David Norton developed a new approach to strategic management. They named this system the 'balanced scorecard'. This approach recognizes the weaknesses and vagueness of the previous management approaches, and provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective.

According to the 'Balanced Scorecard Institute', "The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise."

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"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 balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning and Growth Perspective: This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. Learning and growth constitute the essential foundation for success of any knowledge-worker organization.

The Business Process Perspective: This perspective 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 most intimately.

The Customer Perspective: Recent management philosophy increasingly relies on 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 analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

The Financial Perspective: This perspective refers to the timely and accurate funding of data. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category. This perspective tries to assess the financial performance, for example through number of debtors, cash flow or return on investment. The financial performance of an organization is fundamental to its success.



PURPOSE OF THE BALANCED SCORECARD

Kaplan and Norton found that companies are using the scorecard to:

	Clarify and update their strategy
	Communicate their strategy throughout the company
	Align the goals of units and individuals within the Organization with strategy
	Link strategic objectives to long term targets and annual budgets
	Identify and align different strategic initiatives
	Conduct periodic performance reviews to monitor and continuously improve strategy

BENEFITS OF HAVING A BALANCED SCORECARD (BSC):

	BSC brings in perfect balance between a. Results from the past efforts & measures that drive future performance. b. Financial & Non-Financial indicators . c. Internal & External constituents of the organization. d. Lead & Lag indicators.
	Clarifies or updates a business's strategy.
	Links strategic objectives to long-term targets and annual budgets.
	Tracks the key elements of the business strategy.
	Incorporates strategic objectives into resource allocation processes.
	Facilitates organizational change.
	Compares performance of geographically diverse business units.
	Increases company-wide understanding of the corporate vision and strategy.

Six Sigma Alchemy (P) Ltd (SSA) specializes in setting up a Balanced Scorecard in Organizations keen on setting up a robust learning system for testing, gaining feedback, & building a sound system for the organization's strategy.

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