Balanced Scorecard (english)

1 Definition

The Balanced Scorecard (in the following BSC) identifies itself as an appropriate tool to link operational and strategic controlling. It should enable the difficult transformation from a developed strategic direction into operational objectives and measures. [1] The BSC was developed by the American scientists Robert Kaplan and David Norton. In an interaction of industry, management consultancy and research, they produced this performance measurement system. [2]

Businesses concern oneself often just with the financial side of performance measurement, intangible assets such as the knowledge of the workers, customer loyalty and the relationship with suppliers, but also innovation are for the most part not involved, although they are nowadays the key factors for creating value. The importance of corporate strategy has fundamentally changed; therefore the BSC has established itself as an accepted and effective instrument. It registers and describes all the values and thus constructs a possibility to evaluate intangible assets as well as tangible assets and therefore the BSC is a highly rated instrument to stakeholders.

On this account, the BSC entitled an implementation of different strategic approaches in organizations.

This method translates the strategy of a company or an organization in specific “Performance”-targets and figures, target agreements and processes over four perspectives adequacy. These four perspectives are financial, customer, internal processes and employee motivation and development.

In contrast to other controlling instruments, the BSC is characterized by the fact that it established a conjunction between causes and their interactions. Because of this the instrument can organize something from all 4 perspectives or rather dimensions, which are measurable and comprehensible (refer to figure 1). [3]

2 Four Perspectives of the Balanced Scorecard

Illustration 1: Balanced Scorecard – the four perspectives

The BSC dimensions an organization’s performance from four perspectives.

1. The financial perspective: The most significant intention of the financial perspective is an evaluation of the profitability of the strategy. As cost-cutting relative to competitors ‘costs and sales increase are companies central strategic initiatives, the financial perspective concentrates on how much of operating income results from decreasing costs and selling more units of a special product.

2. The Customer perspective: The fundamental idea of this perspective is on the one hand to highlight targeted customer and market sections and on the other hand to measure the company´s success in these segments. Preventive steps an enterprise could establish to supervise its growth objectives are for example

  • market share in the communication-networks
  • number of new customers
  • customer-satisfaction ratings [4]

3. The Internal-business-process perspective: The fundamental task of the internal-business-process perspective is to make those processes represented, that will be the most important in order to achieve the objectives of the financial perspective and the customer perspective. In the present connection, a representation of the value creation chain is helpful.

4. The Innovation and learning perspective: The key figures of the learning and growth perspective finally describe the infrastructure that is necessary to achieve the goals of the first three perspectives. Kaplan / Norten emphasize the coming relevance for investment as very well. This perspective identifies a differentiation between three main categories.

  • qualification and training of employees
  • efficiency and performance of the information system
  • motivation and aim of employees

Traditional result ratios are replenished with other leading indicators, such as times from receipt of order till dispatch or error rates, on the basis on the addition of financial indicators by more perspectives. These are also known as power driver. They distinguish themselves by the fact that they are highly business-specific and reflect the competitive advantages of the company. The BSC thus presented itself as a structured, well-balanced collection of primary diagnostic-to-understand ratios. [5]

3 Implementation strategy

The success of a BSC depends on the quality of the implementation, which is in general of its transfer ability. The following requirements should be established within the company (at the beginning of the implementation).

  • open corporate culture: With regard to the project the company needs a positive attitude and a management focused on motivation.
  • precondition with regard to content: The reference area has to be clearly defined, the management has to have a common understanding with regard to strategic success factors and objectives, a customer segmentation and a selection of key indicators regarding the strategy need to be present.
  • common understanding about the sense of the BSC-concept in the management: Management have to recognize that a BSC-concept leads to a new management structure and a new corporate culture.
  • professional project management: The leadership of the project has to be taken over by an surgical manager with a professional project team for reaching the target. [6]

4 Implementation process

Illustration 2: Implementation-phases of the BSC

Phase 1: In this phase the target is to clarify whether a common understanding of the strategic basis of management dominates. The strategic basics include the priorities of the review of requirements, the defining of strategic direction and the integration of the Balanced Scorecard in the strategy development.

Phase 2: In the second phase the first task is to determine the levels of the Balanced Scorecard that means to clarify the question for which sub-affiliates BSC should be created. You have to inform all the affected employees about Balanced Scorecard and try to convince them that the BSC concept has an added value to the company. The last important action in the creation of the organizational framework for implementation is the choice of the perspectives. For the most part in the German speaking world occur the perspectives similar to Kaplan / Norton perspectives, such as financial, customer, internal processes, and employee potential application. [7]

Phase 3: In the third phase the task is to substantiate the strategic objectives by conducting and selecting the intentions of the strategy and assign them to the perspectives. A link to the strategic objectives through cause and effect chains is also a task of this phase. On the basis of effective relations of a collection of strategic objectives creates a concept that describes the targeted focus. Furthermore, a selection of measures is committed. The most significant criterion for measuring the size selection is whether the measure is directed by the behavior of stakeholders in the required strategic direction. From the shareholders point of view it is necessary that the goals are particularly challenging thus corresponds that the setting of targets is an additional object. In the last step of this phase the measures and projects will be determined, which should result, that the targets are achieved.

Phase 4: In the roll-out phase the company-wide implementation takes place. The planned acting of the third phase is introduced in various organizational units or even in the whole company. The roll-out requires a well-structured project organization. It is helpful to install a central team that plans and tracks the roll-out, determines methodological standards and develops them further. In addition, the team organizes the training of future coaches and provides the integration of the BSC in the planning systems [8]

Phase 5: The last phase is concerned with the ensuring of the continuous use of the BSC and the concrete involvement of the BSC in the management and control system. [9]

5 Conclusion

A BSC helps to illustrate interactions between the individual corporate objectives. In addition the simple structure enables a reduction of the controlling complexity. By the use of the Balanced Scorecard are employees invigorated and receive their own perspective. The BSC relates to monetary targets, but also to non-monetary objectives which allow the BSC to name itself an integrated management process.

  • [1] cf. Krause, H.-U./Steins, U. : Controlling – Ein zielorientiertes Steuerungssystem im Managementprozess, 1st Edition, Stuttgart, 2001, p. 256.
  • [2] cf. Kaplan, R. S. / Norton, D. P. : Balanced Scorecard – Strategien erfolgreich umsetzen, Stuttgart, 1997, p. 48.
  • [3] cf. Niven Paul R, Balanced Scorecard, Arbeitsbuch, 2nd Edition, Weinheim, 2009, p. 16-17.
  • [4] cf. Horngren C. , Datar S. , Foster G. , Cost Accounting, 12th Edition, New Jersey, 2006, p. 459.
  • [5] cf. Weber J, Schäffer U, Balanced Scorecard & Controllig, 3rd Edition, Wiesbaden, 2000, p. 4-5.
  • [6] cf. Schauder M, Implementierung einer Balanced Scorecard als modernes Controlling-Instrument, 1st Edition, Norderstedt, 2004, p. 82-83.
  • [7]
  • [8] cf. Bernhard M., Hoffschröer S., Report Balanced Scorecard, 3rd Edition, Düsseldorf, 2003, p. 78-83.
  • [9] cf.

6 Bibliography

  • Bernhard, Martin G. / Hoffschröer Stefan: Report Balanced Scorecard, 3rd Edition, Düsseldorf, 2003
  • Horngren, Charles T./ Datar Srikant M./ Foster George, Cost Accounting – A managerial Emphasis, 12th Edition, New Jersey, 2006
  • Kaplan, Robert S./ Norton, David: Balanced Scorecard – Strategien erfolgreich umsetzen, Stuttgart, 1997
  • Krause, Hans-Ulrich/ Steins, Ulrich: Controlling – Ein zielorientiertes Steuerungssystem im Managementprozess, Stuttgart, 2001
  • Niven, Paul R.: Balanced Scorecard, Arbeitsbuch, 2nd Edition, Weinheim, 2009
  • Schauder, Martin: Implementierung einer Balanced Scorecard als modernes Controlling-Instrument, Norderstedt, 2004
  • Weber, Jürgen/ Schäffer, Utz: Balanced Scorecard & Controlling, 3rd Edition, Wiesbaden, 2000
  •, exist on: 09.06.2011
  •, exist on: 09.06.2011

Verfasser: Sergej Rech