Balanced scorecard

The balanced scorecard was developed in the early 1990s by Robert S. Kaplan and David P. Norton as a performance measurement framework. It was designed to provide a more comprehensive view of organisational success, going beyond traditional financial metrics.

In their original article (The balanced scorecard: Measures that drive performance, Harvard Business Review, January/February 1992) Kaplan and Norton stressed the importance of a balanced approach, allowing managers to view a business from four key perspectives. A decade later they reassessed the impact of their system, stating that it had ‘evolved from a performance measurement system to an organizing framework for successful strategy implementation’ (Transforming the balanced scorecard from performance measurement to strategic management, Accounting Horizons, June 2001).

Since its introduction the balanced scorecard has been adopted by many businesses, non-profit and public sector organisations, becoming a cornerstone of modern strategic management.

The balanced scorecard framework enables organisations to translate their vision and strategy into actionable objectives using four key perspectives:

1. Financial perspective: covers financial objectives, such as financial performance and shareholder value.
2. Customer perspective: objectives related to an organisation’s customers, for example customer satisfaction, retention and market share.
3. Internal processes: core operational goals, such as process improvements and quality optimisation.
4. Learning and growth/Organisational capacity - objectives related to intangible drivers of future success, for example human capital, organisational capital and information capital.

With the evolution of the balanced scorecard into a more comprehensive strategic management tool, it is now centred around two key components: the strategy map and the balanced scorecard itself.

Strategy maps visually represent an organisation’s strategic objectives, placing the four perspectives in relation to each and clarifying the cause-and-effect relationship between them. Scorecards define a list of measures (KPIs) and targets linked to the objectives on the strategy map. For each objective, specific initiatives are identified to provide clear direction on the actions required to achieve the strategic objectives.

While the four standard perspectives are wide-ranging, they may not fully reflect every organisation’s strategic priorities. To address these gaps, organisations may tailor the framework by adding or modifying perspectives. Suppliers for example may be important stakeholders in some industries, with regulators key in others. For government and non-profits, ‘financial stewardship’ may be more appropriate than the traditional ‘financial’ perspective.

A strategic area increasingly being reflected in the balanced scorecard framework by organisations is ESG. In their article Reimagining the balanced scorecard for the ESG Era (Harvard Business Review, February 3, 2021), Robert S. Kaplan and David McMillan propose updating the scorecard perspectives to help companies better align with different stakeholders and meet society’s expectations for sustainable and inclusive economic growth.

The rise of advanced technologies such as AI, machine learning and big data analytics are expected to transform the balanced scorecard, enhancing performance tracking and analytics and facilitating automated decision-making processes. Other technological developments are likely to include the increasing integration of digital platforms and cloud-based solutions within the balanced scorecard, enabling real-time updates and collaboration when working remotely.

The collection of the ICAEW Library & Information Service includes a range of articles, books and reports on the balanced scorecard and business performance management. Use the following links to see what we have available to request in our Library catalogue:

• Articles and books on the balanced scorecard
• Articles and books on the balanced scorecard written by/including Robert Kaplan

To find out how you can borrow books from the Library please see our guide to borrowing books.

You can obtain copies of articles or extracts of books and reports through our document supply service.

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