Background

 Introduced in the beginning of 1990 by Robert S. Kaplan and

David . Norton

The main reason for that lies in five main

implementation problems:
 Current performance measurement systems are based on the traditional
financial accounting model, which does not enable to objectively analyze
information-age companies;
 If some non-financial performance measurement even is made, it is
solely based on employees’ tactical performance, not on strategic
performance,
 Majority of management and employee salary-based motivation
schemes are only short-run profit oriented, that does not enable to
align towards long-run profit oriented, that does not enable to align
towards long-run goals;
Background (Cont…)
 Overall company strategy is not closely linked to organizational
and personal improvement programs; and
 Strategy is not generally linked to resource allocation, which
results in under financing some of the crucial parts of
organization’s development.
 As for today, superior financial performance and efficiency in
production are just not enough to gain sufficient competitive
advantage but more and more attention needs to be paid to
intangible sides of business.
Balanced Scorecard: The Concept
The balanced Scorecard uses a balanced measurement system that
comprises of the old financial side and three new perspectives of:
 Business processes (operational efficiency);
 Growth and learning (knowledge management);
 Customers (satisfaction and image of company to outside partner)

This innovative tool is unique in two ways compared to the

traditional performance measurement tools. They are
It considers the financial indices as well the non financial ones in
determining the Corporate performance level and
It is not just a performance measurement tool but is also a
performance management system.
Balanced Scorecard: The Concept (Cont…)

The framework tries to bring a balance and linkage between the-

Financial and the Non-financial indicators,

Tangible and the Intangible measures,

Internal and the External aspects and

Leading and the lagging indicators

Balanced Scorecard – The Diagrammatic
Representation
 What is our future?
Vision

Strategy  What and how

should we do for vision?

Financial Customer Internal Growth &

Business Learning

Critical Success Factor  To achieve our

strategy,
What factors are
important?

Key Performance Index

 Which index can be
The Model – An Explanation
Hence, from the aforesaid model, it is clear that the following are to
be done so as to utilize the BSC as a strategic management tool:

The major objectives are to be set for each of the perspectives.

Measures of performance are required to be identified.

The next important step is the setting of specific targets around each
of the identified key areas which would act as a benchmark for
performance appraisal.

The appropriate strategies and the action plans that are to be taken in
the various activities should be decided so that it is clear as to how the
organization has decided to pursue the pre-decided goals.
Major Perspectives of a BSC: Cause and
Effect Relationship
The aim of the BSC is to direct, help manage and change in support
of the longer term strategy in order to manage performance. The
scorecard reflects what the company and the strategies are all
about.
It acts as a catalyst for bringing in the change element within the
organization. This tool is a comprehensive framework which
considers the following perspectives and tries to get answers to the
following questions
Financial Perspective – How do we look at shareholders?
Customer Perspective- How should we appear to our customers?
Internal Business processes Perspective – What must we excel at?
Learning and Growth Perspective – Can we continue to improve
and create value?
Features of Good Balanced Scorecard:
It tells the story of a company’s strategy, articulating a sequence
of cause and effect relationships.
It helps to communicate the strategy to all members of the
organization by translating the strategy into coherent and linked
set of understandable and measurable operation targets.
A BSC emphasizes non financial measures as a part of program to
achieve future financial performance
The BSC card limits the number of measures identifying only the
most critical areas. The purpose in to focus manager’s attention
on measures that most affect the implementation of strategy.
The BSC highlights less than optimal trade offs that managers
may make when they fail to consider operational and financial
measures together.
Building and Implementing the System
Using BSC
Using Balance Scorecard as a Strategic
Management Tool
Translating the vision

Communicating and Linking

Business Planning

Feedback and Learning

Critical Analysis of Balanced Scorecard
Advantages of BSC
The Balanced Scorecard tool is being used by several
organizations throughout the world because of certain advantages
it has been able to deliver as below:
It translates vision and strategy into action
It defines the strategic linkages to integrate performance across
organizations
It communicates the objectives and measures to a business unit
It aligns the strategic initiatives in order to attain the long term
goals
It aligns everyone within an organization so that all employees
understand how they support the strategy
Critical Analysis (Cont…)
Advantages of BSC
It provides a basis for compensation for performance
The scorecard provides a feedback to the senior management if
the strategy is working
Focusing the whole organization on the few key things needed to
create breakthrough performance.
Helps to integrate various corporate programs such as: quality,
reengineering, and customer service initiatives.
Breaking down strategic measures towards lower levels, so that
unit managers, operators, and employees can see what’s required
at their level to achieve excellent overall performance.
Critical Analysis (Cont…)
Disadvantages of Balanced Scorecard
It is not easy to implement this tool because it involves a lot of
subjectivity.
The tool is much more complex compared to the other tools.
The measures that need to be taken are contingent upon the kind
of environment, industry and the business the organization is in.
A lot of refinement is still required to be done so that it becomes
understandable to every stakeholder associated with the
organization.
Use of Balance Scorecard in Corporate
Sector:
Use of Balance Scorecard in Corporate
Sector: (Cont…)
PRC’s First Use of the Balanced Scorecard

Balanced Scorecard at Philips Electronics

Use of Balance Scorecard in Corporate
Sector: (Cont…)
Tata Steel’s Strategy for Business Excellence and the Balanced
Scorecard

Using Balance Scorecard at Sears Company

Using Balanced Scorecard at Metro Bank

Review of Literature
Using Balanced Scorecard for Subcontractor Performance
Appraisal.
By, S. Thomas NG, Hong Kong, China, FIG Working Week,
13-17 May, 2007.

Overview of Construction and Implementation of Balanced

Scorecard.
By Marko Rillo, Estonian Business School, Tallinn, 2000.

Balanced Scorecard in Indian Companies.

By Manoj Anand, B.S.Sahay, Vikalpa, Volume 30, No 2,
April-June 2005.
Review of Literature (Cont…)
Balanced Scorecard Implementation in SMEs: reflection on
literature and practice.
By Henrik Andersen, 2GC Active Management, Allborg
University, February, 2009.

Study on BSC of Commercial Bank in Performance Management

System.
By Yansheng Zhang, South China University of technology,
Academy Publisher 2009.
Conclusion
The BSC is therefore a very important strategic management
tool which helps an organization to not only measure the
performance but also decide the strategies which are needed to
be adopted so that the long term goals are achieved. Thus, in
other words, the application of this tool ensures the
consistency of vision and action which is the first step towards
the development of a successful organization. Also, its proper
implementation can ensure the development of competencies
within an organization which will help it to develop a
competitive advantage without which it cannot expect to
outperform its rivals.