SC QUALITY GUILDBalanced scorecard
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Set objectives and measures in the four perspectives, score actuals against targets, and see the scorecard and a cause-and-effect strategy map.
ON THE EXAM · CMQ/OE II.C.3, III.D.3 · FREE · NOTHING YOU TYPE LEAVES YOUR BROWSER
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The four perspectives
Robert Kaplan and David Norton introduced the balanced scorecard in 1992 to stop organizations managing on financial results alone. Financial measures report the past; the scorecard adds the measures that drive future financial results. The four perspectives, each answering a question:
- Financial: to succeed financially, how should we appear to our shareholders or funders?
- Customer: to achieve our vision, how should we appear to our customers?
- Internal business process: to satisfy customers and shareholders, which processes must we excel at?
- Learning and growth: to achieve our vision, how will we sustain our ability to change and improve? (people, skills, information systems, culture)
Public sector and nonprofit organizations often put the customer or mission perspective at the top.
Leading and lagging measures
A lagging measure (an outcome measure) reports a result already achieved: revenue, margin, churn, customer satisfaction. A leading measure (a performance driver) moves first and predicts the outcome: training completed, defects caught before release, time to resolve a complaint. A good scorecard pairs them. Lagging measures alone report problems too late to act on.
Strategy maps: cause and effect
Kaplan and Norton later added the strategy map, which draws the objectives from the bottom up as a chain of hypotheses: better skills (learning and growth) improve processes, better processes win and keep customers, and customers deliver the financial results. Each arrow is a claim that can be tested with data. If the leading measure improves and the lagging one does not, revisit the strategy, not just the target.
Linking measures to strategy
A scorecard is not a list of every available metric. Each measure should trace to an objective, and each objective to the strategy. Kaplan and Norton suggested roughly 20 to 25 measures across the four perspectives for a business unit. Give every measure a baseline, a target and an owner.
Scorecards and dashboards
A scorecard tracks progress on strategic objectives against targets, usually monthly or quarterly. A dashboard monitors operational performance, often in near real time, to support day-to-day control. On the CMQ/OE exam, expect to place a measure in the right perspective, tell leading from lagging, and explain why the balanced scorecard is balanced.