Balance scorecard simplified

Kaplan and Norton presented the Balance Scorecard (BSC) concept in articles published in the Harvard Business Review. The original BSC was created to overcome the traditional financial accounting measures such as ROI and payback period, which offer a very narrow and incomplete picture of business performance. It was clear that dependency on such data inhibits future actions to create value. The competitive strategy of a firm should not be solely driven by the core competencies and internal process but also by its environment, Prahalad and Hamel (Competing for the Future).

Hence there is a need create a strategy which is environment inclusive and a performance measurement to measure the same. As a result, Kaplan and Norton suggest that financial measures should be supplemented with further measures that reflect customer satisfaction (delivering value to the customer), internal business processes (building the right strategic capabilities and efficiencies) and the ability to learn and grow (skills and systems that will be needed) . Furthermore, the name “balance” stems from the concept to keep score between

· short- and long-term objectives

· financial and non-financial

· between lagging and leading indicators

· internal and external performance perspectives

In short the balance scorecard identifies the knowledge, skills and systems that
employees will need (learning and growth) to develop and build the right strategic capabilities (internal processes) to deliver value to the market (customer) which leads to higher shareholder value (financial).