In a recent world-wide study on management tool usage, the balanced scorecard was found to be the sixth most widely used management tool across the globe which also had one of the highest overall satisfaction ratings.

In its simplest form the balanced scorecard breaks performance monitoring into four interconnected perspectives:

1. Financial
2. Customer
3. Internal processes
4. Learning and growth

Representing the vision and strategy of an organisation, a well designed balanced scorecard outlines the strategic objectives in relation to each of its four perspectives.

Here are definitions for the four balanced scorecard perspectives:

1. The financial perspective covers the financial objectives of an organisation and allows managers to track financial success and shareholder value.
2. The customer perspective covers the customer objectives such as customer satisfaction, market share goals as well as product and service attributes.
3. The internal process perspective covers internal operational goals and outlines the key processes necessary to deliver the customer objectives.
4. The learning and growth perspective covers the intangible drivers of future success such as human capital, organisational capital and information capital including skills, training, organisational culture, leadership, systems and databases.

Once the objectives are defined, measures (key performance indicators - KPIs) and targets can be defined for each of the objectives. KPIs allow organisations to monitor progress and targets provide the yardsticks of success.

Finally, initiatives have to be defined for each strategic objective to ensure everyone is clear about what needs to be done to achieve the strategic objectives. 

This traditional BSC was first introduced by Robert Kaplan and David Norton in a Harvard Business Review article in 1992.

Since then the idea has evolved and today a strategy map is a key component of a modern BSC.

Kaplan and Norton state on p.52 of their book, 'Strategy Maps':

The fact that the initial BSC framework included objectives, measures, targets and initiatives can cause some confusion.

To be very clear therefore, here are some useful definitions:

• Balanced scorecard system – includes strategy maps, measures, targets and initiatives
• Strategy map – is a one-page visualisation of the strategic objectives of a company in a cause and effect diagram (showing outcome objectives and enablers)
• Balanced scorecard – a list of measures (KPIs) and targets linked to the objectives on a strategy map.

• Download the balanced scorecard framework (JPG)

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Further reading on the balanced scorecard is available through the resources below.