Balanced Scorecards - Introduction

The origins of balanced scorecard go back to the first experiments with performance measurement in GE back in the 1950s. Over time, the balanced scorecard evolved from a performance measurement tool into an aid for implementation of strategy in companies with flat organizational structures. The information from balanced scorecard metrics is increasingly seen as a means to learn from experience and to achieve the desired performance.

Companies began to take recourse to balanced scorecard to find an alternative to their financial statements which were not providing them adequate information to manage their companies. Financial statements are useful for reporting purposes but have little use for strategic management.

The balanced scorecard does not abandon the traditional financial measures of performance, such as rate of return on capital employed, but it sees them in the context of other measures, such as customer satisfaction, in order to view the information in a perspective. Three types of non-financial measures supplement the data on financial performance to gauge the overall competitive strengths of the company. One of them concerns the customers and whether they are satisfied with the service received from the company. Internal processes include measures like cycle times and yield to assess excellence in manufacturing or services. Similarly, a company will measure engineering efficiency to assess strengths in design or product launch time if its strategy is oriented towards innovation. Finally, the balanced scorecards include learning and growth or the competence of the human resources to achieve the company's goals.

In practice, companies do not rely on a single template for balanced scorecard measurements. They are advised to improvise based on the nature of their strategy. The learning and growth measures, for example, will vary between companies that favor innovation compared to another which is predisposed to produce quality products. An innovative company would value creativity while manufacturing quality is better achieved by diligence.

Similarly, the balanced scorecard does not necessarily weight each of the four sets of factors equally. Companies in the services industries, for example, will tend to value consumer satisfaction and learning and growth of its employees more than internal processes such as engineering efficiency.

Balanced scorecards are already part of the mainstream of the management of corporations in America. A recent Bain and Company survey found that 62% of a survey of 708 companies had adopted the balanced scorecard. Companies have also reported high levels of satisfaction with the balanced scorecard. The 2005 survey of the management tools, conducted by Bain and Company, reported a high level of satisfaction of 3.86 against a maximum of 4.