ROBERT S. KAPLAN AND DAVID P. NORTON ‘S
THE
BALANCE SCORECARD
TRANSLATING STRATEGY IN TO ACTION

Where it started…..
Introduced in 1992, by Robert Kaplan and David Norton, the
balance Scorecard is the most commonly used framework for
ensuring that agencies execute their strategies. Today about
70% of the fortune 1000 Companies utilize the balance
scorecard to help manage performance
Robert Kaplan and David Norton first publicized the
balanced scorecard in a series of journal articles and
published this concept in their book, The Balanced
Scorecard.

Developed in the early 1990’s by Dr. Robert
Kaplan and David Norton
"The balanced scorecard retains traditional financial
measures. But financial measures tell the story of past
events, an adequate story for industrial age companies for
which investments in long-term capabilities and customer
relationships were not critical for success. These financial
measures are inadequate, however, for guiding and
evaluating the journey that information age companies
must make to create future value through investment in
customers, suppliers, employees, processes, technology,
and innovation."

WHAT IS THE BALANCE SCORECARD
BSC
translates an organizational mission and
strategy into comprehensive set of performance
measures that provides the frame work for strategic
measurement and Management system

The Balanced Scorecard:
• Balances financial and non-financial measures
• Balances short and long-term measures
• Balances performance drivers (leading indicators) with
outcome measures (lagging indicators)
• Should contain just enough data to give a complete
picture of organizational performance… and no more!
• Leads to strategic focus and organizational alignment.

•The Balanced scorecard is a management system that
enables organizations to clarify their vision and strategy
and translate them into action.
•Provides an organization with feedback of both the internal
business processes and external outcomes, which allows for
continuous improvement of strategic performance and
results.
•Nerve center of an enterprise

Why is it important to build a scorecard that
communicates a business unit’s strategy?
scorecard describes the organization’s vision of the
future to the entire organization. It creates shared
understanding.
• The scorecard creates a holistic model of the strategy that
allows all employees to see how they contribute to
organizational success. Without such linkage, individuals and
departments can optimize their local performance but not
contribute to achieving strategic objectives.
• The scorecard focuses change efforts. If the right objectives
and measures are identified, successful implementation will
likely occur, if not investments and initiatives will be wasted.
• The

 The balanced scorecard is centered on four
performance metrics or perspectives:
Customers
Internal processes
Financial
Learning and growth
 When implemented properly, each one of these
perspectives contains four subparts consisting of
Objectives
Measures
Targets
Initiatives

FINANCIAL
Vision
and
Strategy
LEARNING and
GROWTH
Can we
continue to
improve and
create value?
What must
we excel at?
Objective
Measures
Targets
Initiatives
How do our
customers
see us?
INTERNAL BUSINESS
PROCESS
Objective
Measures
Targets
Initiatives
CUSTOMER
Objective
Measures
Targets
Initiatives
How do we
look to
shareholders?
Objective
Measures
Targets
Initiatives
BALANCE SCORECARD PRESPECTIVES

Objectives, Measures, Targets and Initiatives
• Objectives
: what the strategy is to achieve in that perspective
• Measures : how progress for that particular objective will
be measured
• Targets : refer to the target value that the company seeks to
obtain for each measure
• Initiatives : what will be done to facilitate the reaching of the
target

FINANCIAL PERSPECTIVE
The financial performance perspective of the balanced
scorecard addresses the question of how shareholders
view the firm and which financial goals are desired
from the shareholder’s perspective.
•
In private companies, the financial perspective is the
main objective (ultimate goal) – without having to
sacrifice the interests of other relevant stakeholders
(community, environment, government, etc.)
•
In the financial perspective, the strategic goal is the longterm shareholder value. This goal is driven by two
factors, namely : revenue growth and cost efficiency.

Financial objectives tend to be influenced by the
organization's position on the life-cycle curve.
GROWTH
HARVEST
SUSTAIN

There are three main stages to this cycle which include:
Growth stage -goal of the company is growth
An example of a growth goal would be revenue
growth, sales in new market, sales to new customers.
Sustain stage - the goal of the firm is profitability
Measures in this stage may include ROE, ROCE, and
EVA, cost reduction rates, discounted cash flows.
Harvest stage - the goal of the firm is cash flow and
reduction in capital requirements. Current cash flows,
payback period, spending ratios, product line
profitability.

Strategic themes for the financial perspective
• Revenue
Growth and Mix refer to expanding product and
service offerings, reaching new customers and markets, changing
the product and service mix toward higher value added offerings
and repricing products and services.
•Cost reduction and productivity improvement refers to efforts
to lower the direct costs of products and services, reduce indirect
costs and share common resources with other business units.
•Asset utilization theme, managers attempt to reduce the working
capital levels required to support a given volume and mix of
business. Objectives, such as return on employed, return on
investment and economic value added, provide overall outcome
measures of the success of financial strategies to increase revenues,
reduce costs and increase asset utilization.

Strategic themes for the Financial Perspective
Strategic themes
Asset
Utilization
Growth
Business unit strategy
Revenue
Cost Reduction
Growth and Mix / Productivity
Improvement
Sales growth rate , increase Revenue
% revenue from
productivity
new products,
services and
customers
Investment (% in
sales)
R&D
Sustain
Share of targets
customers and
accounts,
Cost reduction
rates, indirect
expenses
Working capital
ratios, ROCE
Harvest
customer and
product line
profitability, %
unprofitable
customers
Unit costs
Payback period

CUSTOMER PERSPECTIVE
Customer perspective identifies targeted customer and
market segments and measures the organization’s success in
these segments.
It measure the level of customer satisfaction, customer
retention and market share held by the organization.

The Customer Perspective – Core measures
Market
Share
Customer
Acquisition
Customer
Profitability
Customer
Satisfaction
Customer
Retention

Market share – reflects the proportion of business in a given
market ( in terms of number of customers, dollars spent or unit
volume sold) that a business unit sells.
Customer Acquisition – measures tracks, in absolute or relative
terms, the rate at which a business unit attracts or wins new
customers or business.
Customer Retention – the rate at which a business unit retains
or maintains ongoing relationships with its customers.
Customer Satisfaction – assesses the satisfaction level of
customers along specific performance criteria within the value
proposition.
Customer Profitability – measures the net profit of a customer,
or a segments, after allowing for the unique expenses required to
support that customer.

Customer value proposition
Customer
Satisfaction
Customer
Acquisition
Value =
Product /
service
attributes
+
Image
Customer
Retention
+
Relationship
Brand equity
Functionality Quality Price Time
Convenient
Trusted
Responsive

There are four broad categories that Kaplan and Norton
base the customer perspective around.
Best buy
Companies that supply services and products at low prices and fast
service.
Product leadership and innovation
Companies that focus on customer that buy the newest and most
advanced cutting edge technology.
Customer complete solutions
Companies that try to sell things like computers where customers
customize them to their liking.
Lock in
Companies that will make a product then to buy accessories for
that product you have to buy the same brand name because other
brands out work with that product.

INTERNAL BUSINESS PROCESS PERSPECTIVE
Internal business process objectives address the question of
which processes are the most critical for satisfying
customers and shareholders
A firm must concentrate its efforts to excel in these areas
Metrics based on this prospective allow the managers to know
how well their business is running and whether its products
and services conform to customer requirements

INTERNAL BUSINESS
PROCESS
3 sub
processes
Innovation
Process
Creating Products/
Services &
Processes to meet
the demand of
Customers
Operations
Process
Post sale service
Process
Producing &
delivering the
Existing products
that will meet
the needs Of
Customers
Providing service
and Support to
the customer
after the sale of a
product or service

LEARNING AND GROWTH PERSPECTIVE
Learning and Growth Perspective includes measures
such as Employee satisfaction, employee retention and
skill sets etc. Objectives in learning and growth
perspective are drives that encourage implementation
of goals set in the financial, customer and internal
processes objectives. It identifies the infrastructure
that the organization must build to create long term
growth and improvement.

Objectives
Capability
Employee Skills
Long term
success
Information Systems
Organizational
Processes
Measures
Satisfaction
Retention
Training
Capabilities
Accuracy
Real time availability
Pervasiveness
Alignment of incentives
with key success factors
Improvement in key
customer & internal
processes

Balanced Scorecard Measurements

Strategy Map Framework
This framework describes the types of strategic target
that should be presented in each perspective, namely the
financial perspective, customers, internal business
process, and learning & growth perspective

Strategy Map Framework

Commercial Industry: Regional Airline

BALANCED SCORECARD AS A MANAGEMENT SYSTEM
BSC reviewed regularly to enhance operational decision-making
• Success of initiatives assessed based on DATA… not opinions
• Leading indicators evaluated to confirm accuracy of assumptions
The BSC is a “Living Document” that requires regular revision of
objectives, measures and initiatives:
How are we doing?
Are we measuring the right things?
What initiatives do we need to get us where we want to go?
Have our organizational goals changed?
• Clarify and translate vision and strategy
• Communicate and link strategic objectives and measures
• Plan, set targets and align strategic initiatives
• Enhance strategic feedback and learning

Clarifying and
Translating the
Vision & Strategy
Clarifying the Vision
Gaining Consensus
Communicating
& Linking
Comm and
Educating
Setting Goals
Linking Rewards
to Performance
measures
Balance
Scorecard
Planning & Target Setting
Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones
Strategic Feedback
&
Learning
Articulating the
shared Vision
Supplying Strategic
Feedback
Facilitating Strategy
review and Learning

Clarifying and Translating the Vision and Strategy
Translating the vision: helping all employees understand
how their day-to-day work contributes to long-term goals.
The strategy is the reference point the entire management
process.
The shared vision is the foundation for strategic learning.
• clarifying the vision
• formulating by Sr. Executives
• reaching consensus
• sorting out differences
• joint accountability

Communicating and Linking
Communicating and linking: disseminating long-term
goals both up and down an organizational hierarchy,
ensuring that both departmental and individuals
objectives are in alignment.
• goal alignment exists from top to bottom
• education and open communication about strategy
are basis for employee empowerment
• compensation is linked to strategy.

There are three distinct mechanisms are used
Communication and education programs. Under it the
communication to the board of directors, senior executives
and employees for understand the strategies. A consistent
and continuing program to educate the organization on the
component of strategy as well as reinforcing this education
with feedback on actual performance, is the foundation of
organizational alignment.
Brochures, newsletters and electronic bulletin boards are the
tools of a communication/ education program.

Goal Setting Programs : once a base level of understanding
exists, individuals and teams throughout the business unit must
translate the higher level strategic objectives in to the personal
and team objectives. E.g. an on time delivery objective for the
business unit’s customer perspective can be translated in to an
objective to reduce setup times at the bottleneck machine or for
rapid transfer of orders from one process to the next. In this way
local improvement efforts become aligned with overall
organizational success factors.
Reward System Linkage : alignment of the organization
toward the strategy must ultimately be motivated through the
incentive and reward system. Alignment and accountability will
clearly be enhanced when individual contributions to achieving
scorecard objectives are linked to recognition, promotion and
compensation programs.

Planning and Target Setting
Business planning: taking long-term strategy and
using it as the basis for how resources and capital are
allocated
Four steps are needed to use the scorecard in an
integrated long range strategic planning and operational
budgeting process.
•
•
•
•
Stretch targets are established and accepted
Strategic initiatives are clearly identified
Investments are determined by the strategy
Annual budgets are linked to long range plans

Set stretch targets : managers should set ambitious targets
for measures that all employees can accept and buy in to. The
cause and effect relationships in the scorecard help identify
the critical drivers that will allow breakthrough performance
on important outcome measures, particularly financial and
customer ones.
Identify and rationalize strategies initiatives : the gaps
between the ambitious targets set for scorecard measures and
the current performance on those measures enable managers
to set priorities for capital investments and action programs
intended to close the gaps. Manager eliminate or deemphasize initiatives that will not have a major impact on one
or more scorecard objectives.

Identify critical cross business initiatives : managers
identify the initiatives that will deliver benefits to the
strategic objectives of other business units or the
corporate parent.
Link to annual resource allocation and budgets:
managers link 3 to 5 years strategic plan to
discretionary expenses and budgeted performance for
the upcoming year. These milestones enable them to
track the business unit’s trajectory along its strategic
journey

Strategic Feedback and Learning
Feedback and learning: the scorecard enables strategic
and real-time learning because it measures daily
performance and spending in the context of overarching
goals, allowing organizations to make necessary
changes.
Feedback system used to test the hypotheses on
which strategy is based
Team problem solving
Strategy development is a continuous process

Periodic Review and Change
Targets-achieved or not
Past and future Review
Information from all
Double loop learning
Cause and effect Relationship
Validity and Viability
Strategy replacement according to outcomes/
performance drivers

An effective strategic learning process has three essential
ingredients:
• a shared strategic framework that communicates the strategy
and allows each participant to see how his or her activities
contribute to achievement of all overall strategy
• a feedback process that collects performance data about the
strategy and allows the hypotheses about interrelationships
among strategic objectives and initiatives to be tested
• a team problem solving process that analysis and learns from
the performance data and then adapts the strategy to emerging
conditions and issues

Different Management System for Strategic Implementation
•The strategy is the reference point for the entire management process
•The shared vision is the foundation for strategic planning
Clarifying & translating the vision
and strategy
•Goal alignments from
top to bottom
•Education and open
communication about strategy
Communicating
& linking
•Compensation is linked
To Strategy
Balanced
scorecard
•Feedback system used to t
The hypothesis on which s
Is based
Strategic
feedback &
learning
•Team problem solving
Planning & target
setting
•Stretch targets are established and accepted
•Strategic initiatives are clearly identified
•Investments are determined by strategy
•Annual Budgets are linked to long term planning
•Strategy development is a
Continuous Process

Metropolitan Bank’s Strategy
Metro bank is the retail banking division of a major bank with
8000 employees, a 30% market share of the region’s core
Deposit and accounts and about $1 billion in total revenue.
Metro bank implemented the balance scorecard, starting in
1993, to communicate and reinforce a new strategy. To increase
income and revenue by broadening the service sold to a targeted
group of customers.

Metropolitan Bank: Cause and Effect
Increase Return to
Stockholders
Broaden
Revenue Mix
Financial Perspective
Customer
Perspective
Increase Customer Satisfaction
With Our Products
Develop new
products
Develop
Selling
Skills
Understand
Customer
Needs
Cross sell
products
Increase employee
productivity
Access to
Strategic
Information
Align
Personal
Goals
Internal Process
Perspective
Learning
perspective

Metropolitan Bank’s Balanced Scorecard
Strategic Objectives
Strategic Measures
Learning
Internal Customer
Financial
Lag Indicators
Lead Indicators
 Improve Returns to Stockholders
 Broaden Revenue Mix
 Return on Investment
 Revenue Mix
 Revenue Growth
 Increase Customer Satisfaction
 Knowledgeable People
 Convenient Access
 Superior Service
 Customer Retention
 Depth of Relation (Sale of
Multiple Products to a
Customer)
 Customer Satisfaction
Survey
 Understand Our Customers
 Create Innovative Products
 Cross-Sell Products
 Share of Segment
 Revenue from New
Products
 Cross-Sell Ratio
 Product Development
Cycle
 Hours with Customers
 Instill a Selling Culture
o Build Strategic Information
o Develop Strategic Skills
o Align Incentives
 Revenue per Employee
 Employee Satisfaction
Survey
 Strategic Information
Availability
 Strategic Job Coverage
 Personal Goals Alignment

Barriers to effective Implementation of BSC
•Vision and Strategy Not Actionable
•Strategy Not Linked to Departmental Team and Individual
Goals
•Strategy Not Linked to resource allocation
•Feedback that is Tactical Not strategic

1.Vision and strategy not actionable
Strategy and vision
2. Strategy not linked to
Departmental team and
Individual goals
Personal MBO and
incentives
4. Feedback that is
Tactical not strategic
Budget
Financial plan and capital
allocation
3. Strategy not linked to resource allocation
Monthly review

Barrier No 1: Vision and strategy not Actionable
Cant be translated into action
Cant be acted Upon
Cant be understood
Fragmentation & Sub optimization of efforts
Lacking consensus & Clarity
Different Agendas
No integration
Not linked coherently to overall strategy

Barrier No 2 : Strategy not Linked to Departmental,
Team and Individual Goals
• Not translated into Department/ individual
Goals
• Different Priorities
• Failure of Human Resource Management
• Disalignment in Goals

Barrier No 3: Strategy not Linked to Resource Allocation
Separate Processes for Long term & Short
term Strategic planning
Funding to unrelated priorities
Poor Monthly Reviews
Unfocused New Mgt Techniques
Poor Integration

Barrier No 4: Feed back not tactically strategic
Bulk of feedback is only financial measures
Little time on strategy implementation &
success
No priority to periodic review and meetings
Inadequate information
Poor tactical review process