9.9 Balanced Scorecard

The balanced scorecard is a set of performance targets and results that show an organization's performance in meeting its objectives to its stakeholders. It is a management tool that recognizes organizational responsibility to different stakeholder groups, such as employees, suppliers, customers, business partners, the community, and shareholders. Often different stakeholders have different needs or desires that the managers of the organization must balance. The concept of a balanced scorecard is to measure how well the organization is doing in view of those competing stakeholder concerns.

An example of a balanced scorecard is shown in below. As you can see, the focus is to balance the efforts of the organization between the financial, customer, process, and innovative responsibilities.

Lumen scorecard Traditionally, business organizations have focused on financial results, which mainly have reflected the shareholders' interests. In recent years, organizations have shifted attention to customer issues, such as quality and service, to employees, and to the community. For example, Ben & Jerry's Ice Cream measures its social performance along with financial performance and presents a social audit in its annual report next to its financial audit (click SEAR to see the 2014 report). Johnson & Johnson's code of conduct (click CODE to see it) makes it clear that the company has a responsibility to several competing stakeholders.

The balanced scorecard has been developed and used in many companies. It primarily has been used at the top management level to support the organization's development of strategies. For example, Kaplan and Norton describe the development of the balanced scorecard at an insurance company as follows:

  • Step 1: Ten of the company's top executives formed a team to clarify the company's strategy and objectives to meet responsibilities.
  • Step 2: The top three layers of the company's management (100 people) were brought together to discuss the new strategy and to develop performance measures for each part of the company. These performance measures became the scorecards for each part of the business and reflected the company's desired balance in satisfying different stakeholders.
  • Step 3: Managers began eliminating programs that were not contributing to the company's objectives.
  • Step 4: Top management reviewed the scorecards for each part of the organization.

**Based on R. S. Kaplan and D. P. Norton, "Using the Balanced Scorecard as a Strategic Management System," Harvard Business Review, January-February 1996.

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