Balanced scorecard

The balanced scorecard is a strategy performance management tool a semi-standard structured report, 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.

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.

As the title of Kaplan and Norton's second book highlights, even by 2000 the focus of attention among thought-leaders was moving from the design of Balanced Scorecards themselves, towards the use of Balanced Scorecard as a focal point within a more comprehensive strategic management system. Subsequent writing on Balanced Scorecard by Kaplan & Norton has focused on uses of Balanced Scorecard rather than its design (e.g. "The Execution Premium" in 2008), however many others have continued to refine the device itself (e.g. Abernethy et al.).

Variants that feature adaptations of the structure of balanced scorecard to suit better a particular viewpoint or agenda are numerous. Examples of the focus of such adaptations include the triple bottom line, decision support, public sector management, and health care management. The performance management elements of the UN's Results Based Management system have strong design and structural similarities to those used in the 3rd Generation Balanced Scorecard design approach.

The idea was that managers used these perspective headings to prompt the selection of a small number of measures that informed on that aspect of the organisation's strategic performance. The perspective headings show that Kaplan and Norton were thinking about the needs of non-divisional commercial organisations in their initial design. These categories were not so relevant to public sector or non-profit organisations, or units within complex organizations (which might have high degrees of internal specialization), and much of the early literature on balanced scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups(e.g. Butler et al. (1997), Ahn (2001), Elefalke (2001), Brignall (2002), Irwin (2002), Flamholtz (2003), Radnor et al. (2003)).

In this modified version of balanced scorecard design, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them to create a "strategic linkage model". A balanced scorecard of strategic performance measures is then derived directly by selecting one or two measures for each strategic objective. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. This style of balanced scorecard has been commonly used since 1996 or so: it is significantly different in approach to the methods originally proposed, and so can be thought of as representing the "2nd generation" of design approach adopted for the balanced scorecard since its introduction.

Design methods for balanced scorecards continue to evolve and adapt to reflect the deficiencies in the currently used methods, and the particular needs of communities of interest (e.g. NGO's and government departments have found the third generation methods embedded in results-based management more useful than first or second generation design methods).

The processes of collecting, reporting, and distributing balanced scorecard information can be labor-intensive and prone to procedural problems (for example, getting all relevant people to return the information required by the required date). The simplest mechanism to use is to delegate these activities to an individual, and many Balanced Scorecards are reported via ad-hoc methods based around email, phone calls and office software.

Recent surveys have consistently found that roughly one third of organizations use generic office software to report their balanced scorecard, one third used software developed specifically for their own use, and one third used one of the many commercial packages available.