The Balanced scorecard is a strategic planning and management system used extensively in business and industry, government and not for profit organizations worldwide to align business activities to the business and strategy of the organization, improve internal and external communication, and monitor organizational performance against strategic goals. The balanced scorecard as a concept refers to metrics linked to the overall strategy of the organization.
The whole concept of key performance indicators and balanced scorecard is to align worker’s performance with the long term strategic objectives of the organization. The key performance indicators like a compass point to the areas that determine if the company is going in the right direction. In order to track key performance indicators some companies use the balanced scorecard. The balanced scorecard is designed to provide a framework to manage resources.
There are four basic viewpoints or perspectives used in the business scorecard which will track the company’s key performance indicators:
1.Financial perspectives – tracking financial performances
2.Customer perspectives – tracking customer satisfaction, attitudes and market share goals
3.Internal process perspectives – this covers and tracks internal operational goals needed to meet customer objectives
4.The learning and growth or innovation perspectives – these are intangible drives for future success such as human capital, organizational capital, training, informational systems etc.
These four perspectives are interdependent and hierarchical. Growth is driven by constant and continuous learning and innovation, which therefore leads to the improvement of the internal processes. The improvement of the internal processes as a result of the key performance indicators balanced scorecard in turn helps drive increases in the operating efficiency which results in higher customer satisfaction and thus an increased financial performance. Therefore, the model of using balanced scorecard to track key performance indicators is refined into the balanced scorecard as described by Drs. R Kaplan and D Norton. The Doctors basic idea of the balanced scorecard is linking strategy to operational tactics and having a solid framework to map the company’s progress toward its set out objectives.
The balanced scorecard and key performance indicators or key performance indicators balanced scorecard can bring about the following changes to an organization:
- Efficient control systems for the implementation of key strategic changes
- Introduction of a clear and simple method of reporting effectiveness and efficiency of staff management performance, these are presented according to the company’s strategic indicators and measurements to evaluate relationships
- Establishing of key targets for departmental managers, branches, offices, business units and subsidiaries to work toward; therefore penetrating all levels of the organization or company.
- A fully trained proactive and motivated team that share the same vision as the company and high quality corporate culture based on clearly formulated values and priorities.