BALANCED SCORECARD

Renato Calago March 7, 2008

SUMMARY

Balanced scorecard consists of an integrated set of performance measures that

are derived from the company’s strategy and that support the company’s strategy
throughout the organization. A strategy is essentially a theory about how to achieve the
organizations goal. It was developed and first used at Analog Devices in 1987. By
focusing not only on financial outcomes but also on the human issues, the balanced
scorecard helps to provide a more comprehensive view of a business which in turn helps
organizations to act in their best long-term interests. The strategic management system
helps managers focus on performance metrics while balancing financial objectives with
customer, process and employee perspectives. Measures are often indicators of future
performance.

Under the balanced scorecard approach, top management translates its strategy
into performance measures that employees can understand and can do something
about. The basic idea is that learning is necessary to improve internal business process;
improving customer satisfaction is necessary to improve customer satisfaction; and
improving customer satisfaction is necessary to improve financial results. in the
balanced scorecard approach, continual improvement is encourage. in many industries,
this is a matter of survival. An organization doesn’t continually improve, it will eventually
lose out to competitors that do.

Ultimately, most companies exist to provide financial rewards to owners. there

are exceptions, some companies may have loftier goals such as providing
environmentally friendly products to customers. However, even non-profit organizations
must generate enough financial resources to stay in operation. Ordinarily, top manager
are responsible for the financial performance measures- not lower level managers.

Managers should carefully select the performance measure should be consistent

with, and follow from, the company’s strategy. If the performance measures are not
consistent with the company’s balanced scorecard, keeping the following of the
following. First and foremost, the performance measure should be consistent with and
follow from, the company’s strategy. if the performance measure are not consistent with
the company’s strategy, people will find themselves working at cross-purposes. Second,
the scorecard should not have too many performance measures. This can lead to a lack
of focus and confusion. While the entire organization will have an overall balanced
scorecard, each responsible individual will have his or her personal scorecard as well.
This scorecard should consist of items the individual can personally influence that relate
directly to the performance measures on the overall balance scorecard. The
performance measures on this personal scorecard should not be overlay influenced by
the actions taken by others in the company or by the events that are outside of the
individual control. And using the performance measure should not lead employees to
take actions that are counter to the organizations objectives.
 DIAGRAM OF THE PERSPECTIVE

Performance measure

Financial
“Has our financial performance
What are our financial goals?
improved”?

Customer Have customers do we want to

“Do customers recognize that serve and have we going to win Vision And Strategy
were delivering more value?” and retain them?

Internal Business Processes What internal business

“Have we improved key processes are critical to
business processes so that we providing value to customers?
can deliver more value to
customers?”

Learning and Growth

“Have we maintaining our ability
to change and improve?”