Chapter 2 - The Balanced Scorecard (BSC)

That's my second chapter's summary on the book The Balanced Scorecard (Robert Kaplan and David Norton)



▼ ❑ CHAPTER 2
• ❑ The Chapter 2 answers the question: why does business need a BSC? The main reason is: "you can't manage what you can't measure", so measure and management systems are to be used. The difference between BSC and other systems is the way it brings more than financial aspects.

• ❑ The authors tell us more about the four perspectives and linking these to a single strategy.

• ❑ Financial measurement has been the standard for thousand of years. Egyptians used to bookkeeping financial records. It also happened during the age of exploration, Industrial Revolution, until the post World-War II (approximately), when some critics appears.

• ❑ The overemphasis on financial results may cause problems on long-term

▼ ❑ A little bit more about the four perspective:
• ❑ 1 Financial Perspective: Indicates wether a company's strategy, implementation, and execution are contributing to bottom-line improvement
• ❑ 2 Customer Perspective: Managers identify the target market segments and articulate the customer and market-based strategy that will deliver superior future financial returns
• ❑ 3 Internal-Business-Process Perspective: Executives identify the critical internal processes to meet customer and financial objectives. It still focus on improvement of existing processes, however will usually identify new processes
• ❑ 4 Learning an Growth Perspective: Identifies the infrastructure that the organization must build to create long-term growth and improvement. Organizational learn and growth come from: people, systems, and organizational procedures

• ❑ In order to link measures to strategy the BSC makes relationships among objectives in the Perspectives as a Cause-and-Effect Chain

• ❑ Outcome Measures x Performance Drivers = Lagging Indicators x Leading Indicators

• ❑ Four Perspectives should be considered a template, not a strait jacket. It can be used another perspectives or less than four. It depends on the industry, circumstances, etc

• ❑ Depending on the organizational design, companies should develop the BSC on strategic business unit (SBU). The question for wether a department or functional unit should have a BSC is: "does it have its own mission, strategy, customers, internal process?"

• ❑ The book approach (strategy as choosing the market and the customer, identifying the critical business processes, and selecting the individual and organizational capabilities) is consistent with the Industry and Competitive Analysis by Michel Porter.

• ❑ Important: The BSC is primarily a mechanism for strategy implementation, not for strategy formulation