To know what is a balanced scorecard, knowing about its four perspectives is essential. A balanced scorecard is basically a report on company’s performance measuring the application of strategies formulated in various perspectives. Besides having financial perspectives, this scorecard also covers strategic perspectives, helping in overall knowledge.
What is a Balanced Scorecard?
Deciding what is a balanced scorecard varies from organization to organization. An advanced balanced scorecard (BSC) may have many perspectives but the below mentioned four are essential :
• Financial Perspective
• Internal Business Processes
• Customer perspective
• Learning and growth perspective
These four perspectives are defined under Kaplan and Norton’s BSC method.
The financial perspective is the traditional perspective in management of an organization. It is helpful in summarizing the economic consequences faced because of the strategies formed and whether the strategies are implemented and executed in the best possible way to get the best results. It typically measures the profitability aspects by measuring operating income, ROCE (return on capital employed), and even economic value added.
Internal Business Processes
The internal business processes helps in identifying the internal processes that are critical for the organization and in which the organization has to excel for being successful. By being successful in internal processes, a business can deliver the best product and service to retain old customers and also attract new customers. Besides satisfying the customers, the shareholders are also assured of regular financial returns. Traditionally, organizations focused only on monitoring and improving the existing business processes but with BSC, an organization can find new processes to live up to the expectations of the customers, and also deliver new and better services to the customers.
Customer is considered as the most essential factor of any business. Identifying the target customers and market segments in which the business needs to focus on is the essential thing that a Balanced Scorecard helps the managers do in customer perspective. The main aim are to attain customer satisfaction, retaining old customers and attracting new ones, attain market share in the targeted segments. Every market has its own aspect. In some markets customer demand the same product in short time and in some markets customer look out for innovations. The business unit managers need to look into the customer perspective and then develop a strategy to be used to achieve maximum financial returns.
Learning and Growth Perspective
Internal processes and customer perspectives can help the organization work on the present requirements and short term gains. But to be competing even in long run, a business needs to focus on its long term requirements like infrastructural developments and getting skilled labour. Technology up gradation is also essential to stay in the competition. The learning and growth perspectives can help in improving an organization’s overall aspects and develop it to the maximum extent. By using this perspective in the right manner, an organization can be assured of short as well as long term results.
Now you know what is a balanced scorecard. For some organizations these four perspectives are sufficient but some think that for a detailed view, some more perspectives need to be looked into. Depending on the requirements managers design the balanced scorecard.