- In the early 1990s, Robert Kaplan and David Norton developed the balanced scorecard concept to address what they saw as shortcomings of usual business measurement systems. The methodology became popular after they published their first book on the subject, "The Balanced Scorecard: Translating Strategy into Action," in 1996. By 1999, according to a press release from their organization, The Balanced Scorecard Collaborative, half of Fortune 1000 companies had instituted a balanced scorecard.
- Before the balanced scorecard, many companies focused on financial metrics, which reflected only past performance and could not help them predict and improve future performance. Kaplan and Norton wanted to incorporate additional metrics to cover additional aspects of performance as well as drivers of financial results. With a balanced scorecard, business leaders get a more well-rounded view of business performance and a better sense of where the company is headed.
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The original balanced scorecard addresses four key areas of performance:
"Financial metrics" provide information about financial performance and typically address both revenue and expenses.
"Customer metrics" assess the customer experience, and the extent to which the company is meeting customer needs and expectations.
"Business process measures" provide insight into the efficiency of internal processes and allow leaders to identify and correct problems that would otherwise hurt financial metrics and customer satisfaction.
"Measures of learning and growth" give managers information about employee satisfaction and development. - When businesses use a balanced scorecard, managers are required to focus on customer and employee perspectives in addition to the bottom line. This improves customer and employee retention and creates more sustainable success. The scorecard also creates a focus on process performance, which is a key element of quality-management methodologies such as TQM and Six Sigma. In addition, leaders learn to understand the drivers of financial outcomes so they can proactively improve performance rather than just wait to assess results of actions that have already been taken.
- The ideal balanced scorecard incorporates metrics that are selected based on alignment with the company's strategy and core values. It takes into account all stakeholders: customers, employees, and shareholders or owners. Leaders should be able to drill down on the balanced scorecard metrics directly to the operational level so that individual employee performance measurement is tied to the balanced scorecard metrics.
