Balanced Scorecard NARRATOR: The balanced scorecard is a strategic performance management tool developed by Dr. Robert Kaplan and Dr. David Norton, who introduced the methodology in 1992 through an article published by the Harvard Business Review. They examined the most successful businesses across the world and found similarities in the way they were run. Each of the top performing businesses had a very clear vision and strategy that was managed across the key areas of finance, customer, internal processes, and knowledge and growth. Kaplan and Norton formalized this structure as the balanced scorecard, creating perspectives based on these key areas. Thus, providing the balance between financial and non-financial measures. The financial perspective looks at top level financial objectives and measures to answer the question, how do we look to our shareholders? The customer perspective focuses on customer satisfaction, answering the question, how do our customers see us? The internal processes perspective determines how well the business is running and whether we provide what our customers actually want. In other words, what should we be best at? The learning and growth perspective looks at people, their skills, training, leadership, and knowledge, answering the question, how can we improve and create value? The perspectives map out the company vision and strategy. This in turn can lead to the creation of a formal strategy map. That is the company's strategy stated in simple terms in an easy to understand form based on the four balanced scorecard perspectives. Within each perspective comes the identification of a small number of strategic objectives, setting targets for the objectives, and then measuring against the targets on a regular basis to determine success or failure. Measurement is undertaken through performance measures. A performance measure should be one of a small number of measures designed to be understood easily and acted upon quickly. Much in the same way as a doctor or nurse will monitor pulse rate and temperature to determine the overall health of a person, with performance measures, we are attempting to do the same for an organization. Performance measures must contain both leading and trailing measures. All too often we concentrate on trailing measures. Why? Because they are easy to measure and they are accurate. If I want to lose weight, I get on the scales. This gives me proof positive if I have succeeded or not. It does not give me any help to succeed. If I plan to go for a series of runs and decide how much I'm going to eat, then I have put in place two leading measures that will help me succeed. Leading measures are harder to identify, but they are the only measures that can be influenced, and therefore make a difference. It is better to focus on a small number of things that will influence change rather than so many that nothing gets achieved at all. It has been said if your strategy has three objectives, you will succeed in all three. If it has four to 10 objectives, you will succeed in one to two. If it contains more than 10 objectives, you will succeed in none. A simple case of the law of diminishing returns. The balanced scorecard has become an extremely powerful tool to ensure alignment through strategy maps, improve communication through a common language, and ultimately lead to a better performing organization that is in tune with its business strategy. [MUSIC PLAYING]