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6.6 Crafting Your Balanced Scorecard
LEARNING OBJECTIVES
1. Understand the Balanced Scorecard concept.

2. See how the Balanced Scorecard integrates nonfinancial and financial
controls.
3. Be able to outline a personal Balanced Scorecard.
An Introduction to the Balanced Scorecard
You have probably learned a bit about Balanced Scorecards already from this
book or other sources. The Balanced Scorecard was originally introduced to integrate
financial and nonfinancial controls in a way that provided a balanced understanding
of the determinants of firm performance. It has since evolved into a strategic
performance management tool of sorts because it helps managers identify and
understand the way that operating controls are tied to strategic controls, and
ultimately, firm performance. In this broader sense, a Balanced Scorecard is a control
system that translates an organization’s vision, mission, and strategy into specific,
quantifiable goals and to monitor the organization’s performance in terms of
achieving these goals.
According to Robert S. Kaplan and David P. Norton, the Balanced Scorecard
approach “examines performance in four areas. Financial analysis, the most
traditionally used performance indicator, includes assessments of measures such as
operating costs and return-on-investment. Customer analysis looks at customer
satisfaction and retention. Internal analysis looks at production and innovation,
measuring performance in terms of maximizing profit from current products and
following indicators for future productivity. Finally, learning and growth analysis
explores the effectiveness of management in terms of measures of employee
[1]
satisfaction and retention and information system performance.”
Whereas the scorecard identifies financial and nonfinancial areas of
performance, the second step in the scorecard process is the development of a
strategy map. The idea is to identify key performance areas in learning and growth
and show how these cascade forward into the internal, customer, and financial
performance areas. Typically, this is an iterative process where managers test
relationships among the different areas of performance. If the organization is a for-
profit business like IBM, then managers would want to be able to show how and why
the choice made in each area ultimately led to high profitability and stock prices.

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