Balanced Scorecard (BSC): Definition, Functions, and Applied Perspectives

alwepo, Balanced Scorecard (BSC) is one of the crucial methods in measuring a company’s performance that has evolved since the early 1990s. Developed by Drs. Robert Kaplan and David Norton from Harvard Business School, BSC has helped companies comprehend and monitor their performance comprehensively.

Definition of Balanced Scorecard (BSC)

The term Balanced Scorecard (BSC) originates from two words, “Balanced,” which means equilibrium, and “Scorecard,” which means a scorecard or scorecard. Initially used to measure executive performance, BSC provides profound insights into the progress and achievements of a company. It helps the company understand its performance from various balanced perspectives.

BSC transforms a company’s vision and strategy into a set of coherent measurements. This includes four main perspectives: financial, customer, internal business processes, and growth and learning. This approach assists companies in better visualizing how their strategies impact their performance across the organization.

Functions of Balanced Scorecard (BSC)

Initially, BSC was used to improve financial measurement. However, over time, the use of BSC has expanded to measure four key aspects: financial, customer, internal business processes, and growth and learning. The primary functions of BSC include the following:

1. Tool for Measuring Success: BSC helps companies measure whether their vision and mission have been achieved.
2. Measuring Competitive Advantage: BSC provides a tool to measure the company’s competitive advantage.
3. Strategic Guidance: BSC is used as strategic guidance for running a business.
4. Analysis of Strategy Effectiveness: BSC assists in analyzing the effectiveness of the strategies employed.
5. Overall View of SWOT: BSC provides an overall view of the company concerning SWOT analysis.
6. Key Performance Indicators: BSC is used as a tool to identify and measure key performance indicators for the company.
7. Feedback to Shareholders: BSC provides useful feedback to company shareholders.

Perspectives in the Balanced Scorecard (BSC)

BSC consists of four main perspectives:

1. Financial Perspective: This perspective focuses on measuring the company’s financial performance, including revenue, profit, and economic value-added.
2. Customer Perspective: In this perspective, the company determines target markets and customer segmentation to measure customer satisfaction and market share growth.
3. Internal Business Processes Perspective: This perspective shows the key processes that enable the company to satisfy customers.
4. Growth and Learning Perspective: In this perspective, the company focuses on growth and learning to enhance its ability to achieve financial and customer-related objectives.

Who Can Use Balanced Scorecard (BSC)?

Balanced Scorecard (BSC) can be used by various types of companies, from executive-level to departmental-level. The full support and integration of BSC by management leadership are crucial. BSC must be well integrated into the company’s business processes, and effective communication among management team members is the key to success.

With a good understanding of the Balanced Scorecard, companies can measure their performance efficiently and continuously improve their strategies.

Conclusion

In a competitive business world, understanding management tools like Balanced Scorecard (BSC) is crucial. By properly implementing BSC, companies can understand their performance from various perspectives and take appropriate actions to achieve their goals. Full support from management, effective communication, and BSC integration within the business are key to the successful use of this management tool.