Definition of Balanced Scorecard

The Balanced Scorecard is a tool that translates an organization's mission and

strategy into a comprehensive set of performance measures that provides the framework

for a strategic measurement and management system. TheBalancedScorecardisan

approachfordrivingorganizationalimprovementtowardpreselectedgoalswhichkeeps

trackofprogressthroughcarefullyselectedmeasures.TheBalancedScorecardisalsoan

integratedmanagementsystemconsistingofthreecomponents:1)strategicmanagement

system,2)communicationtool,and3)measurementsystem.Itresultsinacarefully

selectedsetofmeasuresderivedfromandlinkedtoanorganizationscorestrategies.

Themeasuresselectedforthescorecardrepresentatoolforleaderstousein

communicatingtoemployeesandexternalstakeholderstheoutcomesandperformance

driversbywhichtheorganizationwillachieveitsmissionandstrategicobjectives.

Companies are using the scorecard to:

clarify and update strategy;

communicate strategy throughout the company;

align unit and individual goals with strategy;

link strategic objectives to long term targets and annual budgets;

identify and align strategic initiatives; and to

conduct periodic performance reviews to learn about and improve

strategy.
 Traditional Perspectives

ThereareanumberofbalancesintheBSC,amongwhicharethebalanceor

equilibriumbetweenfourhistoricaldomainsorperspectivesconsideredtobemutually

linkedintermsofstrategyandperformance:

1.LearningandGrowthPerspective

2.InternalProcessPerspective

3.CustomerPerspective

4.FinancialPerspectives

Paul Nivens analogy of the Balanced Scorecard is that of a tree (see Figure 1).

The Learning and Growth perspective are the roots, the trunk is the Internal Process

perspective, Customers are the branches, and the leaves are the Financial perspective.

Each perspective is interdependent on those below as well as those above. It is a

continuous cycle of renewal and growth. Leaves (finances) fall to fertilize the ground

and root system, which stimulates growth throughout the organization. In this analogy,

learning and growth is the foundation on which all other perspectives are built. For

example, if a hospital assesses patient satisfaction and discovers patients arent satisfied

(Customer Perspective), one of the strategies might be the implementation of employee

training in the area of customer service (Learning & Growth Perspective). Improved

customer service through a reduction of wait time in the emergency room (Internal

Process Perspective) can ultimately improve utilization (Financial Perspective). Refer to

Figure 2. There are definite cause and effects between and among each of the four

perspectives. The key is to identify the right strategies.

Figure 1

Figure 2
 Balances

One of the reasons the Balanced Scorecard has been so successful is that it is a

balanced approach. This balance includes:

1.Balancebetweenfinancialandnonfinancialindicatorsofsuccess

2.Balancebetweeninternalandexternalconstituentsoftheorganization

3.Balancebetweenlagandleadindicatorsofperformance

Internalconstituentsmightincludeemployeeswhereasexternalconstituentsmight

includephysiciangroupsorinsurers.Lagindicatorsgenerallyrepresentpast

performanceandmightincludecustomersatisfactionorrevenue.Althoughthese

measuresareobjectiveandaccessible,theylackanypredictivepower.Leadindicators

aretheperformancedriversthatleadtotheachievementoflagindicatorsandoften

includethemeasurementofprocessesandactivities.Forexample,ERwaittimemight

representaleadingindicatorofpatientsatisfaction.ABalancedScorecardshould

containavarietyofdifferentmeasures.