by Barry Marcus

Created on: November 01, 2009   Last Updated: November 08, 2009

One of the most popular methods of performance management is the balanced scorecard developed by Drs. Robert Kaplan and David Norton. Almost every organisation in the Western world uses some form of performance management to monitor and manage the performance of the business and its components. Many have opted for the balanced scorecard.

The balanced scorecard is a management tool that measures the performance of a corporation against preset objectives. The scorecard uses a number of perspectives to view the organisation. It is necessary to achieve a high score on each perspective to claim that goals have been achieved. The scorecard is a strategic tool, allowing a company to translate the strategic objectives into day-to-day activities. It is a management tool rather than simply a measurement tool.

The four perspectives include:

> Learning and Growth - reflects the need for an organisation to increase its organisational knowledge and grow its people

> The Business Process Perspective - to ensure that the products conform to standards and to customer requirements

> The Customer Perspective - measures the customer focus, identifies the type of customer and the degree of success in nurturing customer relationships

> The Financial Perspective - measures the key financial indicators to ensure that the organisation is profitable and that finances are being managed effectively.

The balanced scorecard may be seen as a type of key performance indicator (KPI) approach where key measures are identified at the corporate level, cascaded down to the departments and ultimately to the individuals within the organisation.

At the strategic management level, key performance indicators relating to the four perspectives (a fifth may be added as well) define how the organisation should look. The metrics or measures relate to a number of questions for each perspective.

What kinds of employees are required? What level of management education and approach is needed? Can the business process be improved to eliminate defects in the production system? What are the most important parts of the process? Is the customer focus working? Are customer complaints dealt with effectively? The financial aspect is of key importance - is the company operating at a profit and are costs being managed effectively?

A balanced scorecard usually requires software to facilitate the effective compilation of measures. The information being measured is generally extracted from the various IT production

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