Balanced scorecard

The balanced scorecard (BSC) is a strategy performance management tool – a semi-standard structured report, supported by design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.

The phrase 'balanced scorecard' is commonly used in two broad forms:

The critical characteristics that define a balanced scorecard are:

Balanced scorecard is an example of a closed-loop controller or cybernetic control applied to the management of the implementation of a strategy. Closed-loop or cybernetic control is where actual performance is measured, the measured value is compared to a reference value and based on the difference between the two corrective interventions are made as required. Such control requires three things to be effective:

Within the strategy management context, all three of these characteristic closed-loop control elements need to be derived from the organisation's strategy and also need to reflect the ability of the observer to both monitor performance and subsequently intervene – both of which may be constrained. Initially, Balanced Scorecard emerged as a performance management system, over a period of time it has come to be known as a strategy management system, with its ultimate aim being the achievement of long term financial performance. Balanced scorecard is seen as a strategic management system enabling business leaders to meet the challenge of strategy execution.

Two of the ideas that underpin modern balanced scorecard designs concern facilitating the creation of such a control – through making it easier to select which data to observe, and ensuring that the choice of data is consistent with the ability of the observer to intervene.

Organizations have used systems consisting of a mix of financial and non-financial measures to track progress for quite some time. One such system was created by Art Schneiderman in 1987 at Analog Devices, a mid-sized semi-conductor company; the Analog Devices Balanced Scorecard. Schneiderman's design was similar to what is now recognised as a "First Generation" Balanced Scorecard design.

In 1990 Art Schneiderman participated in an unrelated research study led by Robert S. Kaplan in conjunction with US management consultancy Nolan-Norton, and during this study described his work on performance measurement. Subsequently, Kaplan and David P. Norton included anonymous details of this balanced scorecard design in a 1992 article. Kaplan and Norton's article wasn't the only paper on the topic published in early 1992 but the 1992 Kaplan and Norton paper was a popular success, and was quickly followed by a second in 1993. In 1996, the two authors published a book The Balanced Scorecard. These articles and the first book spread knowledge of the concept of balanced scorecard widely, and has led to Kaplan and Norton being seen as the creators of the concept.

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