Performance management programs are used to align an organization with its strategic goals and

tactical objectives. At the center of any performance management program is a framework on which
the various alignment programs (measurement, goal setting, compensation, and investments) are
focused. Historically, financial frameworks such as ROI or the annual budget have dominated. More
recently, new performance management frameworks have evolved around quality, shareholder value,
customer satisfaction, business processes, and core competencies. While each of these perspectives
is important to the success of a business, each represents only a small part of a broader picture. To
manage only one of these perspectives is to invite sub-optimization. The only logical focus for a
performance management program is strategy. Leveraging the concept of the Balanced Scorecard
the SAP Strategic Enterprise Management process puts strategy at the center to create strategic
focus and strategic alignment and to enable organizations to translate strategy into action.
The Balanced Scorecard approach begins with the premise that financial measures are not sufficient
to manage an organization. Financial measures tell the story of past events. They are not helpful to
guide the creation of future value through investments in customers, suppliers, employees,
technology, or innovation. The Balanced Scorecard complements measures of past performance
(lagging indicators) with measures of the drivers of future performance (leading indicators). The
objectives and measures of the scorecard are derived from an organizations vision and strategy.
These objectives and measures provide a view of an organizations performance from four
perspectives.

Source: Robert Kaplan and David Norton, "The Balanced Scorecard"

Figure 2: The Balanced Scorecard: Four Perspectives

1.
Financial

 the strategy for growth, profitability, and risk viewed from the perspective of the shareholder.
2.
Customer
the strategy for creating value and differentiation from the perspective of the customer.
3.
Internal Business Processes
the strategic priorities for various business processes, which create customer and shareholder
satisfaction.
4.
Learning and Growth
the priorities to create a climate that supports organization change, innovation, and growth.
Using the Balanced Scorecard, corporate executives can now measure how their business units
create value for current and future customers. They can also learn what investments in people,
systems, and procedures are necessary to improve future performance. While retaining an interest in
financial performance, the Balanced Scorecard clearly reveals the drivers of superior, long-term value
and competitive performance. The Balanced Scorecard tells the story of the strategy.