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Balanced Scorecard

Often abbreviated to BSC, the Balanced Scorecard is also known as the Balanced Business Scorecard (BBS), this is a simple framework defined by Norton and Kaplan for creating business metrics that goes beyond the basic financial measures that many companies have relied solely upon for many years.

Financial measures are important because they tell you useful things like whether you are making a profit, but they only do this after the fact. If you want to get some warning about some impending financial problems before they happen, you can get this by measuring customer factors, such as satisfaction. You can also go further upstream to get warning about customer problems by looking at internal factors, such as process operation and delivery. And you can go even further upstream by looking at people factors, such as education and employee satisfaction. The four areas offered for measures that together make up a balanced business scorecard are:

  • Financial
  • Customer
  • Internal
  • People

The idea is thus that by understanding causal relationships, you can measure upstream to get early warning of problems so you can address them before they affect the money in your pocket.

It is perhaps an indictment of many companies that they found such a simple idea so revolutionary. It is also a good lesson for those of us seeking to change the company that simple ideas that play interests can be very powerful. 

Kaplan and Norton's have extended the scorecard idea into creating strategy with it, which seems rather strange: it would seem that starting from the strategy is a more normal approach. Perhaps it appeals more to people who are so measurement focused that this is their natural starting point. 

See also:

Business Fundamentals, DCQE

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