The Balanced Scorecard

Published:

imageby John Fisk and Anita Sherman, CPA | Members of the Manufacturing & Distribution Services Group

The balanced scorecard (BSC) has been used by companies since the early 1990s and continues to be an effective strategy performance management tool for organizations across the world. Based on a study by Bain & Company entitled ‘Management Tools & Trends 2011’, the BSC is the 6th most utilized management tool globally and the 12th domestically.[i] Given its widespread usage and support, this is a device you should consider employing to increase the overall value and profitability of your business.

According to the Balanced Scorecard Institute, the BSC is a ‘performance measurement framework that adds strategic non-financial performance measures to traditional financial metrics to give managers and executives a more balanced view of organizational performance’.[ii] Essentially, while financial data is certainly beneficial to examine as part of the overall decision-making process, it is just one piece of the puzzle as it only provides the user with historical results. Non-financial performance indicators can help successfully predict future outcomes, and in some instances, provide more useful information. The BSC model suggests viewing a business from three additional perspectives in addition to financial (how does the business look to shareholders): learning and growth (how does the company continue to improve and create value), internal business processes (how does the business manage its operational processes), and customer (how do customers see the business). With these perspectives in mind, the goal is to create metrics and collect/analyze data to make more informed management decisions.[iii]

Examples of key metrics for each perspective:

Financial

Learning & Growth

Internal Processes

Customer

Revenue Growth

New Products

% Defective Output

Satisfaction Surveys

Market Share

R&D as a % of Sales

Increased Productivity

Repeat Purchases

Return on Equity

Amount of New Training

Reduced Waste

Response Time

Cost Reduction

Employee Suggestions

Reduction in Unit Costs

Customer Loyalty

As you can see, while many of the non-financial examples will not show up on your financial statements for reporting purposes, the value the additional data brings could very well influence your strategic decision-making. Living in the information age, it is vital management utilize all available resources, and the BSC model encourages this practice.

Contact:

John Fisk, Senior| 317.260.4439 | jfisk@greenwaltcpas.com

Anita Sherman, CPA | Managing Partner | 317.240.4486 | asherman@greenwaltcpas.com


[i] Rigby, Darrell, and Barbara Bilodeau. “Management Tools and Trends 2011”. Bain & Company (2011)

[ii] "Balanced Scorecard Basics." What Is the Balanced Scorecard? Balanced Scorecard Institute, n.d. Web. 02 Jan. 2013.

[iii] Kaplan, Robert S., and David P. Norton. "Using the Balanced Scorecard as a Strategic Management System." Harvard Business Review. N.p., July 2007. Web. 02 Jan. 2013.