Reviewed by Aug 27, 2020| Updated on
A balanced scorecard is a performance measurement tool used for a comprehensive review of the business functions. It involves identification of the various business functions and their outcomes and provides operational measures. It reviews functions, such as internal business processes, customer feedback, organisation’s improvement, and innovation activities, which can drive future performance.
Understanding Balanced Scorecard
A balanced scorecard adds to the general financial measures of performance, such as return on investment and earnings per share. The general financial measures are unable to identify areas of improvement or areas lacking in performance. The traditional performance measures are good for a traditional industry but do not work well for companies that are continuously looking for upgrading skills and competencies.
The four main areas on which a balanced scorecard focuses are business processes, finance, learning and development, and customers. An organisation can use a balanced scorecard to review the four basic areas and identify objectives, initiatives, and goals for improvement. It enables identification of factors hindering performance and devising strategies for achieving the improvement goals.
A balanced scorecard can be used for mapping strategies and tracking progress through future scorecards. It helps in mapping the areas where improvements happen, or value addition occurs within an organisation. A balanced scorecard provides an overview of the company’s performance in comparison to its objectives.
A balanced scorecard identifies areas for improvement in terms of learning and development activities required. It identifies gaps, inefficiencies, and bottlenecks in business processes. It understands customer feedback on the parameters of price, quality, and after-sales service. Finally, it also analyses the financial performance indicators, such as budget variances.
A balanced scorecard reviews the business in light of the vision and strategy of the organisation. A numerical indicator does not help understand the progress of an organisation. A balanced scorecard is, thus, an efficient management tool to analyse functions, deployed resources, and efficiencies to make optimum use of resources. It also helps in checking whether the end product or service meets the goals of the organisation.