Learning & Innovation – October 21, 2004
By Moje Ramos-Aquino, FPM
Balanced Scorecard (BSC): a virtuous cycle
The fathers of BSC Robert S. Kaplan & David P. Norton describes it as “a system of linked objectives, measures, targets and initiatives which collectively describe the strategy of an organization and how the strategy can be achieved. It can take something as complicated and frequently nebulous as strategy and translate it into something that is specific and can be understood.” A Balanced Scorecard is a framework for defining, refining and communicating strategy, for translating strategy to operational terms, and for measuring the effectiveness of strategy implementation.
In its simplest form, a BSC is a virtuous cycle, a cause-and-effect chain.
Authors Olve, Petri and Roy (Making Scorecards Actionable: balancing strategy and control; Wiley & Sons) there is more to the scorecard than immediately meets the eye:
• The scorecard is balanced; the four perspectives aim for a complete description of what you need to know about the business. There is a time dimension going from bottom to top. E.g. current profitability (or loss) may largely be a consequence of what was done last quarter or last year.
• It is balanced because it shows both internal and external aspects of the business. E.g. a “well-oiled machinery” of internal processes and the customers’ views and contacts that have been established in the marketplace are both shown in a BSC.
• Finally, the BSC is linked through cause–and-effect assumptions. Among its important uses is to reflect on how strong these linkages are, what time delays they involved, and how certain you can be about them in the face of external competition and change.
(Moje, president of Paradigms & Paradoxes Corp, assists companies in their Strategic Thinking, Planning and Balanced Scorecard initiatives. Her email address is firstname.lastname@example.org)