Balanced Scorecard

The Balanced Scorecard is a management tool developed by Robert Kaplan and David Norton and published in their book titled The Balanced Scorecard. The book focuses on four areas:

• Financial performance
• Customer knowledge
• Internal business processes
• Learning and growth

The term “balanced”, as explained in their preface, is many faceted. It compares short and long term, financial and non-financial measures, lagging and leading indicators, and external and internal performance. The authors stress that the balanced scorecard is a management system, not a measurement system.

So, what does the balanced scorecard do? The balanced scorecard is a way of ensuring that people throughout the company are aligned. Setting up a strategy that balances the needs of all the different internal organizations in the company is one of the greatest challenges a CEO, or other senior leader, faces.

They, for example, have to decide how much funding should be allocated to R&D. If too much is allocated, earnings can suffer in the short term, sending stock price down. This leads to a harder time getting financing, meaning capital gets more expensive. If too little is allocated, the future is sacrificed for short term gain.

The balanced scorecard helps senior leaders develop a strategy that takes these kinds of issues into account and create a framework that turns vision into reality.

The balanced scorecard also seeks to address the human side of running a business, and ties that into the corporate strategy. It has a learning and growth measure that links the culture and infrastructure of an organization to its strategy.

Balanced Scorecard vs. Policy Deployment

For the typical, frontline employee in a Lean organization, a high level balanced scorecard will cascade down through policy deployment to create a set of KPIs (key performance indicators) which drive a daily management system.

These do, in many ways, the same thing that the balanced scorecard does. Because of the focus on process and cascading the goals down to frontline leaders, I prefer PD/KPIs/Daily Management over the traditional use of the pure balanced scorecard.

You may, however, come up with a hybrid that works well for you. Just make sure that whatever you settle on, it doesn’t break the link between top-level strategy and frontline action.