The Balanced Scorecard
The Balanced Scorecard is a strategic performance management
framework that has been designed to help an organisation monitor
its performance and manage the execution of its strategy. In a
recent world-wide study on management tool usage, the Balanced
Scorecard was found to be the sixth most widely used management
tool across the globe which also had one of the highest overall
satisfaction ratings. In its simplest form the Balanced Scorecard
breaks performance monitoring into four interconnected
perspectives: Financial, Customer, Internal Processes and Learning
Balanced Scorecard Perspectives
Here are the definition for the four Balanced Scorecard
- The Financial Perspective covers the
financial objectives of an organisation and allows managers to
track financial success and shareholder value.
- The Customer Perspective covers the
customer objectives such as customer satisfaction, market share
goals as well as product and service attributes.
- The Internal Process
Perspective covers internal operational goals and
outlines the key processes necessary to deliver the customer
- The Learning and Growth
Perspective covers the intangible drivers of future
success such as human capital, organisational capital and
information capital including skills, training, organisational
culture, leadership, systems and databases.
From Measurement Dashboards to Strategy
When it was first introduced the Balanced Scorecard perspectives
were presented in a four-box model (see Figure above). Early
adopters created Balanced Scorecards that were primarily used as
improved performance measurement systems and many organisations
produced management dashboards to provide a more comprehensive at a
glance view of key performance indicators in these four
However, this four box model has now been superseded by a
Strategy Map (see Figure below for the generic template), which is
at the heart of modern Balanced Scorecards. A Strategy Map places
the four perspectives in relation to each other to show that the
objectives support each other. For more information see also our
white papers 'What is a modern Balanced Scorecard' and 'How to
create a strategy map'
A Strategy Map highlights that delivering the right performance
in the one perspective (e.g. financial success) can only be
achieved by delivering the objectives in the other perspectives
(e.g. delivering what customers want). You basically create a map
of interlinked objectives. For example:
- The objectives in the Learning and Growth Perspective (e.g.
developing the right competencies) underpin the objectives in the
Internal Process Perspective (e.g. delivering high quality business
- The objectives in the Internal Process Perspective (e.g.
delivering high quality business processes) underpin the objectives
in the Customer Perspectives (e.g. gaining market share and repeat
- Delivering the customer objectives should then lead to the
achievement of the financial objectives in the Financial
Strategy maps therefore outline what an organisations wants to
accomplish (financial and customer objectives) and how it plans to
accomplish it (internal process and learning and growth
objectives). This cause-and-effect logic is one of the most
important elements of best-practice Balanced Scorecards. It allows
companies to create a truly integrated set of strategic objectives
on a single page. For a large number of real-world best practice
examples please visit our case study section
The danger with the initial four-box model was that companies can
easily create a number of objectives and measures for each
perspective without ever linking them. This can lead to silo
activities as well as a strategy that is not cohesive or
How many companies use the Balanced
More than half of major companies in the US, Europe and Asia are
using Balanced Scorecard approaches. The official figures vary
slightly but the Gartner Group suggests that over 50% of large US
firms have adopted the BSC. A recent global study by Bain & Co
finds that the Balanced Scorecard is one of the top-ten most widely
used management tools around the world. The widest use of the BSC
approach has traditionally been in the US, the UK and Northern
Europe, but there is very strong growth in Balanced Scorecard
adoption in South America, the Middle East and Asia.
What are the Key Benefits of using Balanced Scorecards?
Research has shown that organisations that use a Balanced
Scorecard approach tend to outperform organisations without a
formal approach to strategic performance management. The key
benefits of using a BSC include (see Figure below):
- Better Strategic Planning - The Balanced
Scorecard provides a powerful framework for building and
communicating strategy. The business model is visualised in a
Strategy Map which forces managers to think about cause-and-effect
relationships. The process of creating a Strategy Map ensures that
consensus is reached over a set of interrelated strategic
objectives. It means that performance outcomes as well as key
enablers or drivers of future performance (such as the intangibles)
are identified to create a complete picture of the strategy.
- Improved Strategy Communication &
Execution - The fact that the strategy with all its
interrelated objectives is mapped on one piece of paper allows
companies to easily communicate strategy internally and externally.
We have known for a long time that a picture is worth a thousand
words. This 'plan on a page' facilities the understanding of the
strategy and helps to engage staff and external stakeholders in the
delivery and review of strategy. In the end it is impossible to
execute a strategy that is not understood by everybody.
- Better Management Information - The
Balanced Scorecard approach forces organisations to design key
performance indicators for their various strategic objectives. This
ensures that companies are measuring what actually matters.
Research shows that companies with a BSC approach tend to report
higher quality management information and gain increasing benefits
from the way this information is used to guide management and
- Improved Performance Reporting -
companies using a Balanced Scorecard approach tend to produce
better performance reports than organisations without such a
structured approach to performance management. Increasing needs and
requirements for transparency can be met if companies create
meaningful management reports and dashboards to communicate
performance both internally and externally.
- Better Strategic Alignment -
organisations with a Balanced Scorecard are able to better align
their organisation with the strategic objectives. In order to
execute a plan well, organisations need to ensure that all business
and support units are working towards the same goals. Cascading the
Balanced Scorecard into those units will help to achieve that and
link strategy to operations.
- Better Organisational Alignment - well
implemented Balanced Scorecards also help to align organisational
processes such as budgeting, risk management and analytics with the
strategic priorities. This will help to create a truly strategy
These are compelling benefits; however, they won't be realised
if the Balanced Scorecard is implemented half-heartedly or if too
many short cuts are taken during the implementation. For a more
in-depth discussion of the main pitfalls please read the API white
paper 'What is a Balanced Scorecard'.
Government and Not-for-Profit Balanced
While the Balanced Scorecard was initially designed for
commercial companies, the framework has found wide-spread use in
the public and not-for-profit sector. However, it is important to
make a few changes to the strategy map template in order to make it
suitable to government, public sector and not-for-profit
- Move the Financial Perspective from top spot on the strategy
map template. The overall objective of most public sector,
government and not-for-profit organisations is not to make money,
maximise profits or deliver shareholder return. While finance is
important, it is usually not the overall reason why the
- Instead, the main objective of public sector, government and
not-for-profit organisations is to deliver services to their key
stakeholders, which can be the public, central government bodies or
certain communities. This perspective usually sits at the top of
the template to highlight the key stakeholder deliverables and
- A decision that needs to be made is where to put the financial
perspective? Here organisations have basically a number of
- Put the financial perspective at the bottom of the template.
Here, money and infrastructure are seen as important resources that
have to be managed as effectively and efficiently as possible to
enable the delivery of the strategic output and outcome
- Put the financial perspective in second place underneath the
stakeholder perspective. Here, making money is still seen as an
important accomplishment of the organisation but delivering
services to the beneficiary stakeholders is still the primary
reason for its existence. The problem with this option is that it
breaks the cause-and-effect logic and can therefore cause
unnecessary confusion about the strategy.
- Put financial perspective next to the stakeholder perspective.
Here, the strategy map indicates that these two perspectives are
equally as important. For example, an organisation has to cover its
costs to continue to operate and deliver benefits to its
- Run the financial perspective alongside the other perspectives.
This is probably the most popular and sensible option as it
indicates the organisational logic on the left but highlights the
importance of finance across all objectives. (see the Figure below
for the options a, b and d)
- Strategy maps have to represent the strategy of the
organisation. Since the strategies of public and not-for-profit
organisations differ widely, there are no right or wrong answers as
to where the financial perspectives should go. For example, the
American Diabetes Association has embedded the financial
perspective within its stakeholder perspective while others have
embedded it into their internal process perspective (e.g.
delivering value for money processes).
- The two remaining perspectives will largely stay as they are.
Any public sector, government and not-for-profit
organisations needs to build the necessary human, information and
organisational capital to deliver its key processes to support its
overall objectives of serving its stakeholders.
For a more in-depth information of how government, public sector
and not-for profit organisations have put scorecards into practice
please read our white paper 'How to create a public sector
scorecard, our report 'Balanced Scorecard for the Public Sector' or
browse the many case studies featured in our knowledge hub. For a
complete overview read our books "More with Less: Maximizing Value
in the Public Sector" or "Managing and Delivering Performance: How
Government, Public Sector and Not-for-Profit Organizations can
measure and manage what really matters".
The idea of the Balanced Scorecard is simple but extremely
powerful if implemented well. As long as you use the key ideas of
the BSC to (a) create a unique strategy and visualise it in a
cause-and-effect map, (b) align the organisation and its processes
to the objectives identified in the strategic map, (c) design
meaningful key performance indicators and (d) use them to
facilitate learning and improved decision making you will end up
with a powerful tool that should lead to better performance.
Practical Balanced Scorecard Examples
The API Knowledge Hub includes many examples, white papers,
research reports and best practice case studies on how
organisations have put the Balanced Scorecard concept into
practice. Explore the white papers, case studies and articles for
more in-depth information on this fascinating subject.