Review of the Balanced Scorecard

The balance scorecard, pioneered by Robert S. Kaplan of Harvard Business School, is a form of report-based performance measurement that focuses on four perspectives namely financial, customers, internal process and knowledge and growth. It was brought upon by the rising critic of the use strictly financial measures to evaluate and run processes in the majority of traditional organizations.

The proposition of the balance scorecard entails that an organization would reach its goals as long as the four essential perspectives are optimized. The financial perspective focuses on the financial goals of the organization ,the customer perspective focuses on the market for the organizations commodities, the internal processes focus on the operational aspects of the organization and the knowledge and growth perspective focuses on improvements within the organization.

For each perspective, the organization would have to would have to define its corresponding objective , measure, targets and initiatives. For example,within the financial perspective an exemplary objective could be to increase shareholder's wealth, a measure could be earnings-per-share(EPS), and target could be to increase EPS by 20% and the initiatives could be to increase net income or buy-back shares.

It is important to clearly define objectives with measures that are as directly linked to the objective as possible and targets that are realistic and achievable. It is also important that the measures chosen does not simply correlate with the desired objective but can be casually connected. Scenarios in which these are not carefully considered can seriously undermine the benefits of the balance scorecard to the point of absolute irrelevance. Therefore, more time and effort should be spent in realizing the link between each card than just merely establishing goals.

The balance scorecard like most performance measures is not a 'one size fits all' tool. Therefore, organizations should always customize their balance scorecard with careful consideration of its limitation. For example, the balance scorecard template assumes equal importance of the four perspective, however, organizations would find that certain perspectives supersede all other perspective at varying degrees depending on the time period and holistic goals of the organizations. Some organizations may find that an additional perspective ,such as the 'Social and Environmental' perspective in the case of Tesco,plc, is a necessary introduction to their balance scorecard and that some perspectives are not important to the advancement of the organization, such as the 'Financial perspective' to a typical non-governmental organization(NGO).

I , personally, feel that the balance scorecard is a bit too generic for the dynamic, fast-paced environment that most organizations today operate in. However, it should not be ignored as it has been proven functional in a number of organizations.