Robert S. Kalpan and David P. Norton introduced the Balanced Scorecard concept in 1992. This concept involves identifying an organisation’s vision and mission, identifying strategies for achieving this mission and analysing the organisation’s performance from certain perspectives to gain an idea of how the organisation is successful or not.
Significance of Balanced Scorecard:
- Balance scorecard adopts a perfectly balanced and holistic approach to assess and control the performance of an organisation by setting goals and performance measures in four key areas customers business, internal learning, growth processes and financial perspectives.
- It also facilitates understanding and continuous communication of the organisation’s goals to all the managerial levels.
- It brings the vision and strategy of the organisation to the main focus. This is done to ensure that the managers never diverge from these central goals.
- It integrates the non-financial goals with financial goals. The performance is measured on the basis of this single integrated system, which is an improvement to the conventional control system.
Perspectives of Balanced Scorecard:
Balanced scorecard is an approach that pursues to deliver a balanced and comprehensive framework for assessing the overall performance of an institution from a perspective. This can be learning and growth perspective, internal process perspective, customer perspective or financial perspective. It assists the management in controlling the organisation in a modern and unique way.
The performance measures from different perspectives are depicted below:
The financial goals comprise of achieving profitability and prosperity. Hence, the measures of performance are cash flows and returns on investment. The employees must be an effective steward of economic and financial resources. Their performance can be measured by measuring the number of months their division functioned within the limited budget or calculating the percentage of projects which have been completed within the given budget. It also deals with calculating the difference between the company’s previous salary paid and the salary in industry standards.
The ultimate aim of the business is to have high customer satisfaction ratio. The performance can be measured by measuring the successful relationship with superiors, subordinates and co-workers. How many complaints have been received or how many positive responses have been achieved on an employee satisfaction survey. It also measures the relationship with external customers like clients, consumers, business acquaintances. This is measured through customer’s feedback forms about the employee.
Internal Process Perspective:
The goal of the organisation is to innovate and make the manufacturing process efficient. The internal process comprises of manufacturing and other production-related processes. The evaluation is done on the basis of R and D activities conducted by the employee, calculating the percentage of tasks or projects that have been completed by the given deadline or calculating performance of job within time and without any injury, mistake or failure. This also measures how efficiently resources were used, during the process.
Learning and Growth Perspective:
The goal of the form is to enhance the capabilities of the employees and enhance their satisfaction. It also aims at retaining competent employees. Here, the performance is calculated by measuring the rate of labour turnover that is how many people have left their job in a year. Also, noting how the management makes continuous efforts to improve the knowledge and skills of its employees. This is measured by counting the number of training opportunities offered and participated in. An employee who has participated in several training programmes will be definitely valued more. Other measures also indicate whether the employee looks for ways to promote growth for the company. This is measured by seeing how many suggestions given by the subordinate to his supervisor.
Once, the manager obtains data for these four perspectives, he can then analyse the weakness or strengths of the employee. With the strength and weakness of the employee will be evidently highlighted.