BSC is a tool of performance
measurement since it tracks the execution of activities by the staff within their control. It
links "leading inputs" (human and
physical), processes, and "lagging" outcomes. It identifies a small
number of financial and non-financial measures and attaches targets to
them so that they collectively reflect whether the performance 'meets
expectations' so that deviations can be exposed and managers can be
alerted. 4 steps are needed
Next, stage was when measures were selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or "strategy map". To develop a strategy map, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them. A balanced scorecard of strategic performance measures is then derived directly from the strategic objectives. This is illustrated in the diagram above.
Adapting one organisation's balanced scorecard to another is generally not advised because much of the benefit comes during the design process itself. Indeed, it could be argued that many failures in the early days can be attributed to the fact that they were designed remotely by consultants. Managers did not trust, and so failed to engage with and use, these measures.
A common use of balanced scorecard is to support the payments of incentives to individuals, even though it was not designed for this purpose and is not particularly suited to it.
- Translate vision into operational goals;
- Communicating the vision and link it to individual performance;
- Business planning and index setting
- Feedback and learning, and adjusting the strategy accordingly.
The four perspectives
The 1st generation design method proposed by Kaplan and Norton was based on the use of three non-financial topic areas as prompts to aid the identification of non-financial measures in addition to one looking at financial. Four "perspectives" were proposed:[31]- Financial: encourages the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question "How do we look to shareholders?"
- Customer: encourages the identification of measures that answer the question "How do customers see us?"
- Internal business processes: encourages the identification of measures that answer the question "What must we excel at?"
- Learning and growth: encourages the identification of measures that answer the question "How can we continue to improve, create value and innovate?".
Next, stage was when measures were selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or "strategy map". To develop a strategy map, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them. A balanced scorecard of strategic performance measures is then derived directly from the strategic objectives. This is illustrated in the diagram above.
Adapting one organisation's balanced scorecard to another is generally not advised because much of the benefit comes during the design process itself. Indeed, it could be argued that many failures in the early days can be attributed to the fact that they were designed remotely by consultants. Managers did not trust, and so failed to engage with and use, these measures.
A common use of balanced scorecard is to support the payments of incentives to individuals, even though it was not designed for this purpose and is not particularly suited to it.
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