Definition

balanced scorecard methodology

Balanced scorecard methodology is an analysis technique designed to translate an organization's mission statement and overall business strategy into specific, quantifiable goals and to monitor the organization's performance in terms of achieving these goals.

Developed by Robert Kaplan and David Norton in 1992, the balanced scorecard methodology is a comprehensive approach that analyzes an organization's overall performance in four ways, based on the idea that assessing performance through financial returns only provides information about how well the organization did prior to the assessment, so that future performance can be predicted and proper actions taken to create the desired future.

The methodology examines performance in four areas: financial analysis, the most traditionally used performance indicator, includes assessments of measures such as operating costs and return-on-investment; customer analysis looks at customer satisfaction and retention; internal analysis looks at production and innovation, measuring performance in terms of maximizing profit from current products and following indicators for future productivity; and finally, learning and growth analysis explores the effectiveness of management in terms of measures of employee satisfaction and retention and information system performance.

As a structure, balanced scorecard methodology breaks broad goals down successively into vision, strategies, tactical activities, and metrics. As an example of how the methodology might work, an organization might include in its mission statement a goal of maintaining employee satisfaction. This would be the organization's vision. Strategies for achieving that vision might include approaches such as increasing employee-management communication. Tactical activities undertaken to implement the strategy could include, for example, regularly scheduled meetings with employees. Finally, metrics could include quantifications of employee suggestions or employee surveys.

The balanced scorecard approach to management has gained popularity worldwide since the 1996 release of Norton and Kaplan's text, The Balanced Scorecard: Translating Strategy into Action. Kaplan has subsequently published another book on the subject, called The Balanced Scorecard: You Can't Drive a Car Solely Relying on a Rearview Mirror. The Gartner Group estimates that at least forty percent of all Fortune 1000 companies are now using the methodology.

This was last updated in April 2010
Posted by: Margaret Rouse

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