The Balanced Scorecard as a Performance Management System
The Balanced Scorecard is a Performance Management system developed in the early 1990s by Robert Kaplan and David Norton.
The Balanced Scorecard expands upon the Management by Objective model by providing a framework for translating the company’s mission, strategy, and values into quantifiable, measurable goals and objectives.
The goals and objectives are communicated from higher-level management down to sub-units of the organization. These subunits then create their own objectives and measures that support higher-level goals and objectives.
Dimensions of the Balanced Scorecard
The Business Scorecard analyzes the organization based upon four criteria:
- Customers – Maintaining standards of customer satisfaction and retention.
- Learning and Growth – Measures of management effectiveness, employee satisfaction, and performance of information systems.
- Internal Business – Meeting standards for productivity, innovation, and projections for future productivity.
- Financial – Meeting standards for profitability, operating costs, and return-on-investment.
Implementing the Balanced Scorecard
The first step in implementing the balanced scorecard is that any higher-level goal is categorized within these dimensions.
Then, the manager would create a strategy map that links the goal to other dimensions of the scorecard.
Next, the relevant managers will develop objectives that further the goals and metrics for assessing progress in achieving the objective. This will include identifying specific tactics that can be employed in carrying out these objectives. Collectively this makes up the strategic plan.
Finally, the manager assigns tasks to employees to implement the strategic plan.
Effects of the Balanced Scorecard
This framework allows managers to continuously monitor employee performance and to make immediate corrections when necessary. Lower-level objectives and performance measures are tied closely to individual employee performance. This is also employees by providing the information necessary for making autonomous decisions.
Managers carry on their core functions. Financial goals are translated into unit-level budgets and production goals. It also seeks to assess performance beyond purely financial goals and objectives to focus on goals and objectives that further the company’s strategy.