Balanced Scorecards

Definition

Balanced scorecards are a strategic performance management tool that organizations use to align business activities to the vision and strategy of the company, monitor performance against strategic objectives, and improve communication. They provide a balanced view of organizational performance across multiple perspectives.

5 Must Know Facts For Your Next Test

1. Balanced scorecards typically include four key perspectives: financial, customer, internal business processes, and learning and growth.
2. Balanced scorecards help organizations translate their vision and strategy into a coherent set of performance measures.
3. Balanced scorecards enable organizations to track financial results while also monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth.
4. Balanced scorecards can be used to align individual, organizational, and cross-departmental initiatives to drive change and achieve strategic objectives.
5. Effective implementation of balanced scorecards requires buy-in and commitment from top management, as well as clear communication of the organization's strategy and objectives.

Review Questions

• Explain how balanced scorecards can be used to improve performance appraisal systems in organizations.
  • Balanced scorecards provide a comprehensive framework for evaluating employee performance by aligning individual goals and objectives with the organization's overall strategy and objectives. By incorporating measures from the four balanced scorecard perspectives (financial, customer, internal processes, and learning and growth), performance appraisal systems can assess employees' contributions to the organization's strategic priorities, rather than just focusing on short-term financial results. This helps ensure that employees are rewarded and recognized for their efforts in driving the organization towards its long-term vision.
• Describe how balanced scorecards can be used to design effective reward systems in organizations.
  • Balanced scorecards can inform the development of reward systems by providing a clear link between employee performance and the organization's strategic objectives. By aligning rewards, such as compensation and recognition, with the key performance indicators (KPIs) measured in the balanced scorecard, organizations can incentivize and motivate employees to focus on the activities and behaviors that are critical to achieving the organization's goals. This helps ensure that reward systems are not solely based on financial metrics, but instead consider a balanced set of measures that capture the multifaceted nature of organizational performance.
• Evaluate how the use of balanced scorecards can help organizations achieve a better balance between short-term and long-term performance considerations.
  • Balanced scorecards are designed to provide a holistic view of organizational performance, encompassing both financial and non-financial measures. By including perspectives that capture customer satisfaction, internal processes, and learning and growth, balanced scorecards encourage organizations to consider the long-term drivers of success, rather than solely focusing on short-term financial results. This helps prevent myopic decision-making and ensures that organizations invest in the capabilities and resources needed to sustain competitive advantage over time. Additionally, the cascading of balanced scorecard measures throughout the organization aligns employees at all levels with the organization's long-term strategic objectives, fostering a culture of continuous improvement and innovation.

Related terms

Key Performance Indicators (KPIs): Quantifiable measures that are used to evaluate the success of an organization in meeting its strategic and operational goals.

Strategy Maps: Visual representations that describe how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationships across the four balanced scorecard perspectives.

Cascading: The process of breaking down high-level organizational goals and objectives into more specific and actionable targets at lower levels of the organization.