| Definition |
A Balanced Scorecard defines what management means by "performance" and clarifies whether or not the desired results are being achieved. It translates mission and vision statements into a comprehensive set of performance measures that can be quantified and objectively appraised. Typically, these measures include at least four categories of performance:
- Financial performance (revenues, earnings, return on capital, cash flow)
- Customer value performance (market share, customer satisfaction measures, customer loyalty)
- Internal business process performance (productivity rates, quality measures, timeliness)
- Innovation performance (percent of revenue from new products, employee suggestions, rate of improvement index)
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| Implementation |
To construct and implement a Balanced Scorecard, managers should:
- Articulate the business vision and strategy
- Identify the performance categories that can best link the business vision and strategy to its results (e.g., financial, customers, operations, and innovation results)
- Develop effective measures and meaningful standards
- Communicate the measures
- Create appropriate budgeting, tracking, and reward systems
- Collect and analyse performance data and compare actual results to desired performance
- Take actions to close unfavourable gaps
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| Purpose |
A Balanced Scorecard may be used to:
- Clarify or update a business strategy
- Link strategic objectives to long term targets and annual budgets
- Track the key elements of the business strategy
- Improve resource allocation processes
- Facilitate organisational change
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