The objective of the balanced scorecard was to create a system, which could measure the performance of an organization and to improve any deficiencies that occur. One of the main reasons for many organizations to be unsuccessful is that they fail to understand and adhere to the objectives that have been set for the organization.
The balanced scorecard provides a solution for this by breaking down objectives and making it easier for management and employees to understand.
The balanced scorecard (BSC) is a strategic planning and management system that organizations use to:
Following is the simplest illustration of the concept of balanced scorecard. The four boxes represent the main areas of consideration under balanced scorecard. All four main areas of consideration are bound by the business organization's vision and strategy.
The balanced scorecard is divided into four main areas and a successful organization is one that finds the right balance between these areas.
Each area (perspective) represents a different aspect of the business organization in order to operate at optimal capacity.
The four perspectives are interrelated. Therefore, they do not function independently. In real-world situations, organizations need one or more perspectives combined together to achieve its business objectives.
For example, Customer Perspective is needed to determine the Financial Perspective, which in turn can be used to improve the Learning and Growth Perspective.
From the above diagram, you will see that there are four perspectives on a balanced scorecard. Each of these four perspectives should be considered with respect to the following factors.
When it comes to defining and assessing the four perspectives, following factors are used:
Conclusion
Balanced score cards have become a great tool used by organizations these days as explained above. This helps the organization remain focused on its objectives and track achievement of these objectives.
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