In the competitive global environment, many companies are forced to adopt new approaches to their performance measurement systems to be able to compete. Luckily, there are many active management tools available for firms to choose from. Nevertheless, not all of the tools are well accepted and continuously implemented in the organization. The one which is probaly best known, and used, is the Balanced Scorecard.
In 1990, David Norton, CEO of the Nolan Norton Institute, which is the research arm of KPMG, together with Robert Kaplan, was assigned to conduct a study on, “Measuring Performance in the Organization of the Future”, in order to develop a new performance measurement tool. The study participants believed that traditional financial measures provide an indication of how a firm has performed in the past but not about how it might perform in the future, and that financial indicators on their own are not enough to formulate and control organizational strategy.
The Balance Scorecard (BSC) is a strategic management tool designed to replace purely financial measurement. There are three additional dimensions to be the BSC, added as non-financial performance measurements, giving executives a more ‘balanced’ view of organizational performance. In 2009, the Management Tools and Trends, a survey conducted by Darrell Rigby and Barbara Bilodeau (Bain and company) announced BSC among the top10 business tools as rated by 1430 executives from around the Globe. The main benefit of BSC is to increase focus on strategy and results, and to align organization strategy on daily basis. However, some have argued that BSC has limitations, including: it does not address feedback loops for control; by trying to balance 4 stakeholder dimensions it leads to conflicts of interest.
BSC monitors an organization from four perspectives;
Learning and Growth
This perspective measures the ability of employees, information systems and organizational procedures, and from a knowledge management (KM) perspective it could be used to gauge progress in the following areas: training and education; competence growth; community growth; mentoring and development; idea generation; retention and succession planning; and, employee satisfaction.
Internal Business Processes
This perspective provides a view of the internal process needed to deliver the firm’s value proposition. It focuses on how company’s can excel at their internal processes, and from a KM perspective it could be used to gauge progress in the following areas: time to review; time to develop; time to verify; time to market; time to respond; problem resolution; and, quality and maintenance.
The customer perspective gives the organization an idea of how best to create and leverage customer relationship management, and from a KM perspective it could be used to gauge progress in the following areas: customer acquisition; customer retention; customer satisfaction; responsiveness; service quality; timeliness; and, profitability.
Financial perspective focuses on stakeholder’s interests, and from a KM perspective it could be used to gauge progress in the following areas: revenue growth; payroll; asset utilization; budget management; and, cost reduction.