Balanced scorecard which has four perspectives

Here you would set out any internal operational goals and objectives — or, in other words, what does the business need to have in place and what does the business need to do well in order to drive performance? While the third perspective is about the concrete process side of things, this final perspective considers the more intangible drivers of performance.

Because it covers such a broad spectrum, this perspective is often broken down into the following components:. While many businesses conform to these four exact perspectives, in the order set out above, others prefer to tweak the names and order of the perspectives. For instance, many of the clients I work with like to put the Customer perspective up top, directly next to and not beneath the Finance perspective. For example, a public sector body might want an additional perspective for Community, detailing objectives for community outreach.

After all, a strong financial performance, often the top perspective for most companies, is the result of strong performance in the other scorecard perspectives. You need to achieve your customer objectives to deliver good financial performance.

Yet you need engaged staff to deliver great customer service … if you catch my drift. They should not be seen in isolation, but as an integrated set of objectives that are interlinked and that support each other. The best way to emphasise this connection is to plot out the objectives on a strategy map.

The Balanced Scorecard perspectives can easily be mapped out into a one-page visual map. Or you can use a different non-Balanced Scorecard method if you prefer. The important thing is to stick to one easy-to-understand page. But, as a starting point, this one-page strategy map approach lays the ideal groundwork for turning strategy and objectives into meaningful action. If you would like to know more about strategy, KPIs and performance management, check out my articles on:. Sometimes different stakeholders have different wants.

For example, employees depend on an organisation for their employment. Shareholders depend on an organisation to maintain their investment. The organisation must balance those competing wants.

Hence, the concept of a balanced scorecard is to measure how well the organisation is doing in view of competing stakeholder wants. The internal business and production process perspective indicates the ability of the internal business processes to add value to customers and to improve shareholder wealth. Finally, the learning and growth perspective indicates the strength of the infrastructure for innovation and long-term growth.

The balanced scorecard framework derives its power by providing a holistic view of business value through its four perspective. The balanced scorecard uses financial performance measures, such as net income and return on investment, because all for-profit organisations use them. Financial performance measures provide a common language for analysing and comparing companies. People who provide funds to companies, such as financial institutions and shareholders, rely heavily on financial performance measures in deciding whether to lend or invest funds.

Financial measures by themselves do not provide incentives for success. Financial measures tell a story about the past, but not the future; they have importance, but will not guide performance in creating value.

From a financial standpoint, the purpose of a business is to create wealth for its owners. Output measures or historical financial measures help an organization keep score of how well it is doing at creating wealth.

These data are always past-focused because they are based on events that have already occurred: our net profit for the year versus last year, our sales revenue this year versus last year, and our average stock price this month versus last month. These are all measures of corporate performance that are based on history.

These types of financial metrics should answer the question: How are we doing today? These forecasts are used to plan for future workload and resource requirements. Another common future-oriented financial statistic is the amounts invested in research and development as a ratio to sales revenue or profit.

Organizations often cut back on these costs during tough times, which may cause them to mortgage their future for the sake of short-term financial gains.

Growth in sales from a particular geographic region or a particular industry may also be a future-oriented financial statistic if the company is looking to grow into new or emerging markets. This perspective typically includes several core or generic measures of the successful outcomes from a well-formulated and implemented strategy.

But the customer perspective should also include specific measures of the value propositions that the company will deliver to customers in targeted market segments. The segment-specific drivers of core customer outcomes represent those factors that are critical for customers to switch to or remain loyal to their suppliers.

For example, customers could value short lead times and on-time delivery. Or a constant stream of innovative products and services.

Or a supplier able to anticipate their emerging needs and capable of developing new products and approaches to satisfy those needs. The customer perspective enables business unit managers to articulate the customer and market-based strategy that will deliver superior future financial returns. These core measures can be grouped in a chain of relationships causal as displayed in Exhibit In the internal-business-process perspective, managers identify the critical internal processes in which the organization must excel.

Deliver the value propositions that will attract and retain customers in targeted market segments, and. Scorecards provide management with valuable insight into their firm's service and quality in addition to its financial track record.

By measuring all of these metrics, executives are able to train employees and other stakeholders and provide them with guidance and support. This allows them to communicate their goals and priorities in order to meet their future goals. Another key benefit of BSCs is how it helps companies reduce their reliance on inefficiencies in their processes. This is referred to as suboptimization.

This often results in reduced productivity or output, which can lead to higher costs, lower revenue , and a breakdown in company brand names and their reputations. Corporations can use their own, internal versions of BSCs, For example, banks often contact customers and conduct surveys to gauge how well they do in their customer service.

These surveys include rating recent banking visits, with questions ranging from wait times, interactions with bank staff, and overall satisfaction. They may also ask customers to make suggestions for improvement. Bank managers can use this information to help retrain staff if there are problems with service or to identify any issues customers have with products, procedures, and services.

In other cases, companies may use external firms to develop reports for them. For instance, the J. Power survey is one of the most common examples of a balanced scorecard. This firm provides data, insights, and advisory services to help companies identify problems in their operations and make improvements for the future. Power does this through surveys in various industries , including the financial services and automotive industries. Results are compiled and reported back to the hiring firm.

A balanced scorecard is a strategic management performance metric that helps companies identify and improve their internal operations to help their external outcomes. It measures past performance data and provides organizations with feedback on how to make better decisions in the future. The four perspectives of a balanced scorecard are learning and growth, business processes, customer perspectives, and financial data.

These four areas, which are also called legs, make up a company's vision and strategy. Balanced scorecards allow companies to measure their intellectual capital along with their financial data to break down successes and failures in their internal processes. By compiling data from past performance in a single report, management can identify inefficiencies, devise plans for improvement, and communicate goals and priorities to their employees and other stakeholders.

There are many benefits to using a scorecard. The most important advantages include the ability to bring information into a single report, which can save time, money, and resources. It also allows companies to track their performance in service and quality in addition to tracking their financial data. Scorecards also allow companies to recognize and reduce inefficiencies.

Corporations may use internal methods to develop scorecards. For instance, they may conduct customer service surveys to identify the successes and failures of their products and services or they may hire external firms to do the work for them. Power is an example of one such firm that is hired by companies to conduct research on their behalf. Companies have a number of options available to help identify and resolve issues with their internal processes so they can improve their financial success.

Balanced scorecards allow companies to collect and study data from four key areas, including learning and growth, business processes, customers, and finance. By pooling together information in just one report. Harvard Business Review. A framework for organizational success. Career Advice. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.