Question

What are the four perspectives used in the balanced scorecard? Discuss the nature of each, and how the perspectives are linked.

Answer 1

BALANCED SCORECARD

The Balanced Scorecard is a set of performance measures and results which shows an organisations performance in meeting its objective relating to its stakeholders. The concept of a balanced scorecard is to measure how well the organisation is doing in view of competing stakeholder wants. The four perspectives of the balance scorecard are as follows:

1. Financial Perspective:

2. Customer Perspective:

3. Internal-Business-Process Perspective

4. The Learning and Growth Perspective

Following chart shows a small description of the balanced scorecard

Perspectives		Measurement
Financial	Is the company achieving it financial goals	Operating income
		Return of assets
		Sales Growth
		Cash flow from operations
		Reduction of administration cost
Customer	Is the company meeting its customer expectations	Customer retention
		New customer acquisition
		Market share
		On time delivery
		Time to fill orders
Internal Process	Is the company improving its critical internal process	Defect rate
		Lead time
		Number of suppliers
		Material turnover
		Percentage of practical capacity
Innovation	Is the company improving its ability to innovate	Amount spent on training of employees
		No of new products
		No of patents
		Sale of new products as a % to total sales

  

1 Financial Perspective:

A Properly designed financial measures can provide an ag­gregate view of an organisation’s success. The balanced scorecard uses financial performance measures, such as net income and return on investment, because all for-profit organisations use them. The financial performance measures provide a common language for analysing and comparing companies.

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. Another measure of today’s financial results is the amount of cash the business has on hand or the total value of its assets as compared with its liabilities.   Another common future Organizations often cut its cost to increase the profitability. These measures are used to know the current performance and what would be the future performance.

2. Customer Perspective:

In the customer perspective managers identify the customer and market segments in which the business unit will compete and the measures of the business unit’s performance in these targeted segments. The core out­come measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market share in targeted segments.

3. Internal-Business-Process Perspective:

In this perspective managers identify the critical internal processes in which the organization must excel. The process enable the business organisation to retain customers in targeted market segments, satisfy the expectations of excellent financial returns. The key to success lies in an organisation control of its processes to produce reliable and consistent products. Measurement of these control points will identify the organisations performance and its focus. A few future-oriented process measures are tracked that will help ensure long-term survival and success.

4. The Learning and Growth Perspective:

For the learning and growth perspective focuses on the capabilities of people. Managers would be responsible for developing employee capabilities. Key measures for evaluating managers’ performance would be employee satisfaction, employee retention, and em­ployee productivity.   The employee satisfaction objective is generally considered the driver of the other two measures, employee retention and employee productivity.