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What is Balanced Scorecard?

The balanced scorecard was originally developed and introduced by David Norton and Robert Kaplan as a tool to improve the management practice in organizations. They introduced the balanced model as the organization can focus on the manageable growth of the business and that no major risk occurs.

The balanced scorecard helps to translate the vision into measurable key performance indicators, which can be divided among the managerial population in the organization. This is not the major advantage of the balanced scorecard as it introduces sharing of the key performance indicators among different managers as they focus on the growth of the organization, not just reaching their own targets. This is extremely important as the managers are pushed automatically to co-operate, communicate and share the best practice as the organization is successful and not just a single manager in the organization.

The balanced scorecard is a great managerial tool for the communication with the employees and other managers as it can easily show the progress of the strategic initiatives in the organization and the areas, which need a special focus as the goals are not reached yet.

The balanced scorecard divides the key performance indicators into 4 main areas, which have to be mutually balanced at the end:

  • Financial KPIs – the key performance indicators about the financial results of the organization and the productivity measures, which can be financially measured
  • Customer KPIs – the key performance indicators about the number of customers, the customer satisfaction, improving the products and other customer related key performance indicators
  • Process KPIs – the key performance indicators about the existing business processes, the efficiency of the business processes and potential cost savings resulting from the process re-engineering
  • People related KPIs – sometimes they are called Learning and Growth, but they are generally focused on the people development in the organization as the employees are able to utilize the other improved areas.

The concept of the balanced scorecard is simple, but it is extremely powerful as it helps during the strategic sessions to identify and agree on the strategic approach of the organization. As People KPIs are present, the balanced scorecard model expects Human Resources to be fully involved in the process of creating the balanced scorecard for the whole organization and influencing the other KPIs as well, not to be involved just in KPIs in the People area.