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The Four Perspectives of Balanced Scorecard

19 May 2022   By   Share

Robert Kaplan and David Norton's Balanced Scorecard

The four perspectives of BSC

In its original version, the Balanced Scorecard sets out the principles of performance management by balancing four components or perspectives: Financial, Customer, Internal Process, Learning and Growth.
Subsequently, the two reference authors, R. Kaplan and D. Norton, have noticeably changed the concept of balanced scorecards or prospective dashboards so that it no longer confined itself to the strict measure of performance.
The balanced scorecard enable now to define better the design strategy pattern and, above all, its deployment, real Achilles' heel of the strategic approach.
The four perspectives mentioned above are still the fundamental pillar of the approach.

Financial Perspective

How are we perceived by the shareholders?
In other words, what are the expectations of the shareholders as far as financial performance is concerned?
The objective of any strategy is to ensure in the long term a satisfactory return of the employed capital. Financial indicators, focused on the measure of profitability such as Return On Investment, the Gross Operating Surplus, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) or the EVA (Economic Value Added), enable the evaluation of the performance of started actions in the past.

Customer Perspective

How are we perceived by our customers?
In other words, how do we create value within the meaning of the client benefits to achieve the financial goals?
Improving customer profitability is a must for all forms of growth. Whether by an increase in sales generated by each customer and segment or by an increased customer base, we must search all the avenues. Indicators for this area are generally oriented towards the evaluation of satisfaction and customer loyalty, the measure of customer growth and the increased profitability per customer.

Internal Process Perspective

What are the internal processes, the key to success?
In other words, what are the processes that deserve our "care" at all times, to satisfy customers and shareholders?
The quality of services delivered to customers directly depends on the processes performance. It is important to identify the key processes likely to improve the supply and consequently the profitability paid to shareholders. This category includes all processes that contribute strongly to the value creation without leaving out the longer cycle processes such as those related to innovation.

Organizational Learning Perspective

How to organize our ability to progress?
With their last two books Strategy Maps: Converting Intangible Assets into Tangible Outcomes and Alignment: Using the Balanced Scorecard to Create Corporate Synergies, both authors have somewhat modified this formulation: How to "align the intangibles" that are the people, systems and culture to improve critical processes? In order to achieve long term objectives, it is necessary to renovate the infrastructures. This area covers three chapters: the people, the systems and the procedures. The progress that has to be measured focuses essentially on training people to access new skills, improving the information system and reconciling procedures and practices.

Balance is not an empty word

The important word is "balance." The balance of the four perspectives is paramount. You should never penalize an area to promote another, but highlight the causal links of the four perspectives. So, according to the authors Kaplan and Norton, the ROI will be effective.

What is a performance dashboard?

A performance dashboard is not a checking instrument anymore.
It is performance measurement tool, a key to progress approach.

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