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