What Is the Balanced Scorecard?

The Balanced Scorecard was developed in the early 1990s by Robert Kaplan and David Norton. The key problem that Kaplan and Norton identified in the business of the day was that many companies tended to manage their businesses based solely on financial measures. While that may have worked well in the past, the pace of business in today’s world requires more comprehensive measures. Though financial measures are necessary, they can only report what has happened in the past.

To provide a management system that was better at dealing with today’s business pace and to provide business managers with the information they need to make better decisions, Kaplan and Norton developed the Balanced Scorecard.

The Balanced Scorecard is made up of the following components;

  • Customer Leg: Measures customer satisfaction and their performance requirements.
  • Financial Leg: Tracks your financial requirements and performance.
  • Internal Business Process Leg: Measures your critical-to-customer process requirements and measures.
  • Knowledge, Education, and Growth Leg: Focuses on how you educate your employees, how you gain and capture your knowledge, and how you use it to maintain a competitive edge within your markets.

These four components are measured, assessed and improved together — continuously — in order for your business to thrive. You are then able to set strategies, goals, objectives, and tactics to make them happen. The trick here is to work them together to create a single analytical tool.

Good Luck!

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