Balanced scorecard methodology is a tool for assessing the performance of a company in terms of the achievement of the company's objectives in connection with its vision and strategy. Read on to know the nuances of this methodology.
Employees dozing off in the company's business meeting is nothing new. These meetings could be boring sometimes, but then for the board of directors and stake holders, they are very crucial.
Such meetings are essential for the company to tap the targets, profits and check if things are going according to the set objectives. For keeping tabs if the company is progressing according to the objectives, the method of balanced scorecard is used.
Balanced Scorecard Methodology
Robert Kaplan and David Morton first introduced this concept in 1992. Since then, this has become a significant field of research and consultation.
Balanced Scorecard methodology is an instrument for performance management, that helps in measuring if the operational activities of a firm are corresponding with its objectives. It is based on the vision and strategy of the company.
It is a kind of holistic approach for checking the performance of the company. It does not concentrate only on the financial output, but also on developmental, marketing and operational inputs.
It helps the organizations function to the best of its capability with regards to long term interests. Moreover, using finance as the criteria for strategic control of the firm is not supposed to be a good business strategy.
There was an original methodology which consisted of tables categorizing financial, customer, internal business process, learning and growth perspectives. This technique is still used, in spite of being somewhat redundant.
The new methodology came up in the mid 1990s. Measures are chosen on the basis of a set of strategic objectives planned on a strategy map. Kaplan and Norton proposed 4 perspectives, which aid in selecting and gathering the correct performance measures for the company.
It integrates the tangible outputs of the strategy in typical financial terms. It is used to analyze whether the execution of the company's strategy is benefiting the bottom line improvement of the company. Revenue growth, profit margins, net operating income are a few examples of financial measures which are included in the financial perspective.
It specifies what value proposition the company applies to live up to the expectations of the customers. Consequently, the company can create more sales for the most profitable consumer groups. The value proposition can revolve either around operational excellence, customer intimacy, or product leadership.
Internal Process Perspective
It is related to the procedures that generate and provide the customer value proposition. The focus here is on key activities essential for the company to excel effectively and productively in giving what is expected by the customers.
Innovation and Learning
This perspective is the basis of any strategy, and as such it emphasizes on the non-material (intangible) assets of a company or an organization. It involves internal capabilities and skills needed for backing up the process for internal value creation. It is good to start with the human resource department when it comes to this perspective.
This methodology is mainly used for working towards converting the vision into operational goals, planning of the business, linking the individual performance to the vision and getting a feedback and adjusting the business strategy on the lines of the feedback.
Within each of these perspectives, 5 or 6 goals have to identified by the manager. Then it is followed by interconnecting these goals and marking causal links on the chart. This new methodology is believed to be more successful than the original one, and many companies use this tool for performance enhancement and management.