Balanced scorecard

The balanced scorecard was initially proposed as a general purpose performance management system. Subsequently, it was promoted specifically as an approach to strategic performance management. The balanced scorecard has more recently become a key component of structured approaches to corporate strategic management. Two of the ideas that underpin modern balanced scorecard designs concern making it easier to select which data to observe, and ensuring that the choice of data is consistent with the ability of the observer to intervene. == History ==

Organizations have used systems consisting of a mix of financial and non-financial measures to track progress for quite some time. One such system, the Analog Devices Balanced Scorecard, was created by Art Schneiderman in 1987 at Analog Devices, a mid-sized semi-conductor company. and during this study described his work on performance measurement. it was a popular success, and was quickly followed by a second in 1993. In 1996, the two authors published The Balanced Scorecard. These articles and the first book spread knowledge of the concept of balanced scorecards, leading to Kaplan and Norton being seen as the creators of the concept. While the "corporate scorecard" terminology was coined by Schneiderman, the roots of performance management as an activity run deep in management literature and practice. Management historians such as Alfred Chandler suggest the origins of performance management can be seen in the emergence of the complex organization – most notably during the 19th century in the US. Other influences may include the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers (who created the tableau de bord – literally, a "dashboard" of performance measures) in the early part of the 20th century. proposed by Edith Penrose. None of these influences is explicitly linked to in the original descriptions of balanced scorecard by Schneiderman, Maisel, or Kaplan & Norton. Kaplan and Norton's first book echoed work by others (particularly a book published the year before by Olve et al. in Scandinavia) on the value of visually documenting the links between measures by proposing the "Strategic Linkage Model" or strategy map. As the title of Kaplan and Norton's second book "Intelligent Design of Inclusive Growth Strategies" in 2019); many others also continue to refine the device itself (e.g. Abernethy et al.). == Characteristics ==

The characteristic feature of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It is the method by which this 'most relevant' information is determined (i.e., the design processes used to select the content) that most differentiates the various versions of the tool in circulation. The balanced scorecard indirectly also provides a useful insight into an organization's strategy – by requiring general strategic statements (e.g. mission, vision) to be precipitated into more specific/tangible forms. The first versions of Kaplan and Norton's interpretation of the balanced scorecard asserted that relevance should derive from the corporate strategy, and proposed design methods that focused on choosing measures and targets associated with the main activities required to implement the strategy. As the initial audience for this were the readers of the Harvard Business Review, the proposal was translated into a form that made sense to a typical reader of that journal – managers of US commercial businesses. Accordingly, initial designs were encouraged to measure three categories of non-financial measure in addition to financial outputs – those of "customer," "internal business processes" and "learning and growth." These categories were not so relevant to public sector or non-profit organizations, or units within complex organizations (which might have high degrees of internal specialization), and much of the early literature on balanced scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups (e.g. Butler et al. (1997), Ahn (2001), Elefalke (2001), Brignall (2002), Irwin (2002), Radnor et al. (2003)). Modern balanced scorecards have evolved since the initial ideas proposed in the late 1980s and early 1990s and are significantly improved – being both more flexible (to suit a wider range of organizational types) and more effective (as design methods have evolved to make them easier to design, and use). == Variants ==

Since the balanced scorecard was popularized in the early 1990s, a large number of alternatives to the original 'four box' balanced scorecard promoted by Kaplan and Norton Bourne (2002), Niven (2002)). Many of the structural variations proposed are broadly similar, and a research paper published in 2004 public sector management, and health care management. The performance management elements of the UN's Results Based Management system have strong design and structural similarities to those used in the 3rd Generation Balanced Scorecard design approach. Although there are clear areas of cross-over and association, the two sets of tools are complementary rather than duplicative. The balanced scorecard is also used to support the payments of incentives, == Design ==

Design of a balanced scorecard is about the identification of a small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance 'meets expectations'. By alerting managers to areas where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of the organization they lead. The original thinking behind a balanced scorecard was for it to be focused on information relating to the implementation of a strategy, and over time there has been a blurring of the boundaries between conventional strategic planning and control activities and those required to design a balanced scorecard. This is illustrated by the four steps required to design a balanced scorecard included in Kaplan & Norton's writing on the subject in the late 1990s: • Translating the vision into operational goals; • Communicating the vision and link it to individual performance; • Business planning; index setting • Feedback and learning, and adjusting the strategy accordingly. These steps go beyond the simple task of identifying a small number of financial and non-financial measures, but illustrate the requirement for whatever design process is used to fit within broader thinking about how the resulting balanced scorecard will integrate with the wider business management process. Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the balanced scorecard itself has no role in the formation of strategy. • Customer: encourages the identification of measures that answer the question "What is important to our customers and stakeholders?". Examples: percent of sales from new products, on time delivery, share of important customers’ purchases, ranking by important customers. • Internal business processes: encourages the identification of measures that answer the question "What must we excel at?". Examples: cycle time, unit cost, yield, new product introductions. • Learning and growth: encourages the identification of measures that answer the question "How can we continue to improve, create value and innovate?". Examples: time to develop new generation of products, life cycle to product maturity, time to market versus competition. The idea was that managers used these perspective headings to prompt the selection of a small number of measures that informed on that aspect of the organization's strategic performance. Although less common, these early-style balanced scorecards are still designed and used today. In this modified version of balanced scorecard design, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them to create a "strategic linkage model". A balanced scorecard of strategic performance measures is then derived directly by selecting one or two measures for each strategic objective. Third generation balanced scorecards improved the utility of second generation of balanced scorecards, giving more relevance and functionality to strategic objectives. The major difference is the incorporation of Destination Statements. Other key components are strategic objectives, strategic linkage model and perspectives, measures and initiatives. == Popularity ==

In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard. Balanced scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools. The balanced scorecard has been widely adopted, and consistently has been found to be the most popular performance management framework in a widely respected annual survey (e.g. see results from 2003 and 2013). Theorists have argued from the earliest days of discussion of balanced scorecard usage that much of the benefit of it comes from the design process itself. Indeed, it is argued that many failures in the early days of the balanced scorecard could be attributed to this problem, in that early balanced scorecards were often designed remotely by consultants – it is suggested that because they were not being involved in the design the managers who were intended to use the device did not trust its design (e.g. it measured the wrong things and used inappropriate targets) and so failed to engage with and use the devices. == Criticism ==

Academic criticism of the balanced scorecard can be broken into three distinct (but overlapping) areas of concern. • Lack of rigour: The first kind of criticism focuses on the empirical nature of the framework and the lack of any formal validation of the ideas it is based on in the early articles that introduced the concept. Kaplan and Norton notoriously failed to include any citations of earlier articles in their initial papers on the topic, Others identified technical flaws in the methods and design of the original balanced scorecard or concerning the lack of validation for the approach – for example Flamholtz observed that no validation was provided for the choice of the "four perspectives" of the 1st Generation design: • Lack of an overall score: The second kind of criticism is that the balanced scorecard does not provide an overall score or a unified view of performance with clear recommendations: it is simply a list of metrics that managers have to interpret before deciding upon appropriate interventions (e.g. Jensen 2001). These critics usually include in their criticism suggestions about how an 'unanswered' question they identify in their commentary could be answered, but typically the unanswered question relate to things outside the scope of balanced scorecard itself (such as developing strategies) (e.g. Brignall Even now over 20 years after they were first proposed, the four most common perspectives in Balanced Scorecard designs mirror the four proposed in the original Kaplan & Norton paper. For instance, the balanced scorecard does not address important aspects of nonprofit strategy such as social dimensions, human resource elements, political issues and the distinctive nature of competition and collaboration in nonprofit settings. Broadcast surveys of usage have difficulties in this respect, due to the wide variations in definition of 'what a balanced scorecard is' (making it hard to work out in a survey if you are comparing like with like). • In small and medium-sized enterprises (SMEs), the balanced scorecard has been found to be effective, but that focus is required on balancing design complexity and relevance with the availability of resource to do the design work. Others have argued that the balanced scorecard is unsuitable for SMEs for a variety of reasons, including the belief that SMEs lack a long-term strategic focus (Hvolby and Thorstenson (2000), McAdam (2000)) and that SMEs have limited knowledge about performance measurement in general (Rantanen and Holtari 2000) and therefore do not recognise the benefits that might accrue from use of the tool (McAdam 2000; Bourne 2001), but it is also important to note that none of these studies attempts to theorise the reasons behind their negative findings. == Software tools ==

The balanced scorecard by definition is not a complex thing – typically no more than about 20 measures spread across a mix of financial and non-financial topics, and easily reported manually (on paper, or using simple office software). The processes of collecting, reporting, and distributing balanced scorecard information can be labor-intensive and prone to procedural problems (for example, getting all relevant people to return the information required by the required date). The simplest mechanism to use is to delegate these activities to an individual, and many balanced scorecards are reported via ad hoc methods based around email, phone calls and office software. In more complex organizations, where there are multiple balanced scorecards to report and/or a need for co-ordination of results between balanced scorecards (for example, if one level of reports relies on information collected and reported at a lower level) the use of individual reporters is problematic. Where these conditions apply, organizations use balanced scorecard reporting software to automate the production and distribution of these reports. == See also ==