The balanced scorecard is a strategic planning and management system that was developed by Dr. Robert S. Kaplan and Dr. David P. Norton in the early 1990's. Their goal was to provide organizations with a clear understanding of what to measure in order to improve performance and results (Balanced Scorecard Institute 2014). The balanced scorecard is a framework that allows an organization to measure performance and compare it to the organization’s strategic objectives and goals (Kinney and Raiborn 2013, 10).
Purpose of the Balanced Scorecard
The balanced scorecard uses short- and long-term, internal and external, and financial and nonfinancial measures to evaluate performance. Management can analyze these measures and compare them to the organizations goals (Kinney and Raiborn 2013, 11). The balance scorecard allows managers to analyze a business from four perspectives: customer perspective, internal perspective, innovation and learning perspective (learning and growth perspective), and a financial perspective (Kaplan and Norton January/February 1992, 72). Each perspective has goals and measures that assist in developing the balanced scorecard.
Every organization should ask itself, “How do customers see us?” Most organizations mention their dedication to serving their customers in their mission statement. The balanced scorecard, through the customer perspective, requires management to break down their general mission statement on customer service into four specific measures: time, quality, performance and service, and cost (Kaplan and Norton January/February 1992, 72-74). “Customers must believe that, when a product or service is purchased, the value received was worth the price paid” (Kinney and Raiborn 2013, 11-12).
Internal Business Perspective
The internal perspective includes decisions and actions occurring throughout the organization. Managers must focus on internal business operations in order to satisfy customer needs and expectations (Kaplan and Norton January/February 1992, 74-75). For example, in a manufacturing facility, inventory turnover, unit cost, and the production yield would be measured to analyze manufacturing proficiency. The internal perspective focuses on employees and their contentment with the organization, the quality of products and services, and cost management (Kinney and Raiborn 2013, 11).
Learning and Growth Perspective
The learning and growth perspective uses the organization’s resources to adapt to the changing wants and needs of customers. The organizations must ask itself whether it can continue to improve and create value for its customers (Kinney and Raiborn 2013, 11). An organization’s ability to innovate and improve their products or services directly affects its value. An organization can create economic growth by developing new products and services, improving existing products and services, and developing more efficient operations (Kaplan and Norton January/February...