Traditional management tools focus on extensive financial measurements, but lack in tracking non-financial measurements. Balanced scorecard metrics approach goes beyond the Financial reports which only evaluate success in the past with no future indicators. A balanced scorecard metrics enables visualization more financial tools which provide only lagging indicators and undermine the focus on delving and improving value for its customer. However, the need to measure and manage total value creation process was identified in 1990 with the development of Balance Scorecard metrics theory by Dr. Robert Kaplan and Dr. David Norton. The model recognizes the importance of a system that measure and manages non-financial business drivers.
Dr. Robert Kaplan and Dr. David Norton explain the balance scorecards approach as:
“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are
inadequate. However, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”
Citation: Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecards as a Strategic Management System,” Harvard Business Review (January-February 1996): 76.
A Balanced scorecard approach – balanced score card is a strategic tool for management to track and measure progress of its activities to create future value. The balance scorecard has evolved greatly since its early introduction from a simple performance measurement tool to a full strategy management system. The balance score card facilitates executive management to develop a strategic view of the organization to focus on below factors;
- Organization’s future vision
- Comprehensive strategic action plan
- Financial results expectations
- Organizational structure and operating mechanism
- Employee skill developments
- Customer loyalty and retention levels
The Balance Scorecard Framework