Balanced Scorecard

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Performance Measurement

In recent years, the trend in performance measurement has been towards a broader view of performance, covering both financial and non-financial indicators.

The most well-known of these approaches is the balanced scorecard proposed by Kaplan and Norton.

The balanced scorecard approach emphasises the need to provide management with a set of information which covers all relevant areas of performance in an objective and unbiased fashion.

The scorecard contains four key groupings of performance measures.

These four groupings, called ‘perspectives’, were considered sufficient to track the key drivers of both current and future financial performance of the firm.

The perspectives focused on the achievements of the firm in four areas:

  1. The financial perspective 

    concentrates on how the firm appears to its shareholders and considers what the firm’s financial objectives are. 

    The measures used to assess whether these objectives are being achieved typically include, profit, sales, ROI, cash flow or economic value added (EVA).

  2. The customer perspective 

    focuses on the question, what must the firm do to satisfy its customers so as to achieve its financial objectives? 

    Outcome measures for the customer perspective generally include measures of customer satisfaction, market share, customer retention and customer profitability. 

    These outcome measures can be sub-divided into driver measures, such as measures relating to lead times, on-time delivery, product quality and product cost.

  3. The internal business perspective  

    considers the question, what must the firm do well internally in order to support the product/market strategy and to achieve its financial objectives? 

    Typical outcome measures include those relating to innovation (product and process) and operations (cycle times, defect rates).

  4. In the learning and growth perspective

    the measures focus on the question what infrastructure must the firm build to create long-term growth and improvement? 

    In other words, what capabilities must be improved or acquired to achieve the long-term targets for the customer and internal business process perspectives? 

    Outcome measures may include metrics on employee satisfaction, training and retention.

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