The Customer Perspective – To achieve our vision, how should we appear to our customers? – customer satisfaction and value proposition (satisfaction, repeat business, product loyalty)
• The Internal Process Perspective – To satisfy our shareholders, what business we must excel at? – Measure of internal processes and performance that deliver customer expectations. (Supplier relation, production, quality, distribution, risk management)
• The Learning and Growth Perspective – To achieve our vision, how will we sustain our ability to change and improve? – Measurement of learning as this in turn can drive internal efficiencies and processes to deliver an improved value proposition. (strategic jobs, team and skill competencies, transaction processing, analytical processes, culture, leadership, reward alignment, teamwork)
• The Financial Perspective – To succeed financially, how should we improve efficiencies? – Factors that affect bottom line of an organization and shareholder value drivers (profit, growth, shareholder return)
Kaplan and Norton argue that the BSC helps organizations to translate objectives into action. This happens because the BSC communicates the goals to the managers and help to improve their understanding and commitment. In order for this to happen:
• There must be an organizational strategy that can be expressed in an unambiguous way;
• It must be possible for measure of the vision and strategy to be clearly articulated and their necessary data be obtainable, measure should include both outcome measures (lagging indicators), and measures of action that create outcomes (leading indicator); and
• It must be possible to set targets for both leading and lagging indicators and assign responsibility for achieving those targets.
organized around four distinct perspectives which balance short-term and long-term performance, external and internal performance, financial and non-financial performance, and different stakeholder perspectives.
In order to use BSC for assessment of current performance, it is important to carefully identify the objectives that are important to each perspective. Kaplan and Norton identify the following four steps in designing and using the BSC:
- Identify the organization’s mission and vision and break it down into objectives and goals;
- Link the vision and objectives to individual performance;
- Create the plan or strategy based on the findings and set goals;
- Obtain feedback and develop the strategy accordingly.
Once the BSC analysis is complete, the organisation can then focus on setting goals and developing its strategy to improve inefficiencies and lead the organisation’s direction. A BSC of goals can be created to help keep the areas distinct and ensure focus is placed on the areas most requiring it
When creating goals it is important to keep the SMART checklist in mind:
• Specific – Goals should be both definable and easily recognized when success is realized;
• Measurable – An organization must be able to accurately and quantifiably measure the degree of accomplishment at any time throughout goal progression;
• Achievable – Goals should be achievable in terms of time, resources and skill-set;
• Relevant – The goals should be relevant to the organization and linked to what it is trying to achieve; and
• Timely – The length of time for goal completion should complement the organization’s strategy. The completion timeframe should be specific, and determined immediately in order for management to accurately monitor progress, and to make any change if goal progression is not as originally forecast.