Balanced Scorecard Framework: What It Is and How to Use It

The balanced scorecard is a strategic management system that helps organizations translate their vision and strategy into tangible objectives and measures across four key dimensions of performance. In contrast to older management approaches based almost exclusively on financial metrics, the balanced scorecard framework measures and reports the multiple interdependent perspectives essential to creating and sustaining long-term value.

Developed by Robert Kaplan and David Norton in their 1992 Harvard Business Review article, “The Balanced Scorecard,” the framework was the result of a large body of research concluding that financial measures alone do not provide a complete or accurate picture of business performance. Today, Gallup reports that about 60 percent of Fortune 500 companies use some form of the balanced scorecard, while The Balanced Scorecard Institute, the official training and certification partner for Kaplan and Norton, says over 50 percent of large companies in the U.S., Europe, and Asia have implemented some form of balanced scorecard.

The 4 Perspectives 

The balanced scorecard framework features four distinct perspectives around which an organization’s strategic objectives are organized. 

These four scorecard perspectives include leading and lagging performance indicators spanning: 

• Financial Metrics 
• Customer retention 
• Internal Process
• Growth measures

A balanced scorecard typically starts with a clear articulation of strategic objectives for each of the four scorecard perspectives, representing broad strategic goals supportive of the organization’s overarching mission and vision. Strategic objectives are decomposed into specific measures, which are quantified as Key Performance Indicators (KPIs).

Strategy maps are often used to visualize the relationships between objectives for each of the four balanced scorecard perspectives through cause-and-effect linkages. The strategic objectives of each scorecard perspective are then populated with specific measures or Key Performance Indicators (KPIs). These KPIs provide a data point for each strategic objective against which an organization can track progress toward achieving its goals.

For each KPI, an organization sets specific targets. Targets are quantitative goals that represent what is needed to accomplish a given measure and are usually set for a specific future period. Finally, specific initiatives or action items must be developed to close the gap between an organization’s current performance and its desired target state.

According to research conducted by Kaplan in a retrospective study of the original research, the four balanced scorecard perspectives are cause-and-effect linked. Activities in the learning and growth perspective create or improve human, information, and organization capital, which enable or contribute to improved internal process performance, which results in improved customer and, ultimately, financial performance.

How Does the Balanced Scorecard Framework Work?

The balanced scorecard framework features four distinct perspectives around which an organization’s strategic objectives are organized. These four scorecard perspectives include leading and lagging performance indicators spanning:

• Financial Perspective: This perspective addresses traditional measures like revenue growth, profitability, return on investment, and shareholder value. It examines how the organization appears to its shareholders and what financial objectives must be achieved to succeed.
• Customer Perspective: This dimension focuses on customer satisfaction, retention rates, market share, and value delivery. Organizations measure how well they serve their target customer segments and differentiate themselves from competitors.
• Internal Process Perspective: This perspective examines the operational processes that create and deliver customer value. It includes metrics related to quality, efficiency, innovation cycles, and the effectiveness of core business processes.
• Learning and Growth Perspective: This foundational perspective measures organizational capacity for improvement through employee skills, information systems, technology infrastructure, and organizational culture. It addresses whether the organization can continue to improve and create future value.

A balanced scorecard typically starts with a clear articulation of strategic objectives for each of the four scorecard perspectives, representing broad strategic goals supportive of the organization’s overarching mission and vision. Strategic objectives are decomposed into specific measures, which are quantified as Key Performance Indicators (KPIs).

Strategy maps are often used to visualize the relationships between objectives for each of the four balanced scorecard perspectives through cause-and-effect linkages. The strategic objectives of each scorecard perspective are then populated with specific measures or Key Performance Indicators (KPIs). These KPIs provide a data point for each strategic objective against which an organization can track progress toward achieving its goals. For each KPI, an organization sets specific targets. Targets are quantitative goals that represent what is needed to accomplish a given measure and are usually set for a specific future period. Finally, specific initiatives or action items must be developed to close the gap between an organization’s current performance and its desired target state.

According to research conducted by Kaplan in a retrospective study of the original research, the four balanced scorecard perspectives are cause-and-effect linked. Activities in the learning and growth perspective create or improve human, information, and organization capital, which enable or contribute to improved internal process performance, which results in improved customer and, ultimately, financial performance.

Benefits of the Balanced Scorecard Framework

The balanced scorecard approach offers numerous advantages for businesses. It helps in overcoming typical strategic management pitfalls, such as lack of alignment between strategy and operations, over-dependence on financial indicators, and inadequate communication of strategic goals, thereby enabling measurable enhancements in organizational performance: 

• Better perspective: It helps an organization take a more balanced view of its performance by focusing on the four scorecard perspectives rather than just financial performance. This can help an organization avoid short-term thinking that sacrifices long-term value.
• Better alignment: The balanced scorecard creates a clear line of sight between daily activities and organizational strategy. This can help an organization’s employees better understand their role in achieving the organization’s strategic objectives.
• Improved communication: Strategy maps and balanced scorecards provide a common language to help an organization communicate its strategy across all levels and departments, which also helps makes abstract strategic concepts concrete and actionable.
• Cause-and-effect analysis: Kaplan’s research further shows that a balanced scorecard has four sets of objectives (customer, internal processes, learning and growth, and financial) organized into cause-and-effect chains leading to financial performance, with customer satisfaction leading to increased shareholder value.
• Industry agnostic: Since the 1990s, The Balanced Scorecard Institute has documented over 8,000 successful deployments of the framework in various sectors, from the Ethiopian Ministry of Health’s successful implementation to transform the delivery of healthcare services to hundreds of private and public organizations.

Implementation Considerations

Even with the advantages of the balanced scorecard, several critical success factors need to be considered for successful adoption. A recent systematic review published in Review of Managerial Science in 2023 of more than 1,200 peer-reviewed research articles on the subject found several important common themes.

Commitment from Top Management

The systematic review, as well as decades of implementation experience and research on the framework, finds that visible support and engagement from an organization’s top leadership is a primary success factor. Organizations should avoid being seduced into thinking they can “measure everything” with the balanced scorecard and must instead focus on the “critical few” measures that drive their desired strategic outcomes.

Research by the authors of “A Vision of the Future,” a chapter in The Executive Guide to the Balanced Scorecard book, published in two academic journals found that successful Fortune 500 companies implementing balanced scorecards develop strategy maps, comprehensively use all four balanced scorecard perspectives, and have strong support from senior leaders.

Cascade Scorecards

The systematic review also shows that best-in-class organizations cascade scorecards from the enterprise level all the way down to business units, departments, and individual contributors. This process of “cascading” scorecards is important because it helps maintain alignment of an organization’s efforts across levels and helps employees understand their direct connection to strategic objectives.

Regular Review Cycle

Finally, regular scorecard review cycles – typically on a monthly or quarterly basis – are necessary to maintain scorecard relevance and drive continuous improvement rather than having a scorecard that remains a static object.

Getting Ahead

After over 30 years, the balanced scorecard is still one of the most popular and influential strategic management frameworks. As Kaplan and Norton later wrote, the original balanced scorecard performance measurement system had organically evolved over the preceding decades into a much broader and more flexible strategic management system.

The system helps organizations create value by clarifying their strategy, visualizing and communicating it throughout the organization, and then aligning their operations and initiatives with their most important strategic objectives. By measuring what matters most, organizations create a sustainable competitive advantage leading to long-term success.