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Balanced Scorecard Explained

According to Othman (2006), the balanced scorecard is a strategic tool used by the management to improve their performance. There are four main perspectives that have to be taken into account when developing the balanced scorecard.

Learning and Growth Perspective:  This perspective entails employee training and enhancement of the cultural attitude. To any organization, the human resources form important part of organizational development (Martello, Watson, & Fischer, 2016). Highly knowledgeable and effective human resources will support the organization in achieving its objectives. On the other hand, the demoralized employees are less likely to support their organizations since they are not happy with their work. The current HR trend demands that employees should be subjected to a continuous learning process to enable them to cope with dynamic nature of the world (Inamdar, Kaplan, & Reynolds, 2002). The growth of the human resources can be attained by allocating a training fund managed by the relevant department. Learning and growth surpass the training and thus there is need for mentors and consultancy to support such initiatives.

Financial Perspective: Finances forms the core of most organizations (Hladchenko, 2015). In most organizations, the financial data is used to calculate the financial ratios, growth rate, and profitability, among other financial measures. According to Chavan (2009), the financial perspective focuses on drivers of revenues, costs, cash flow, and net income. From financial perspective, it is necessary to evaluate the growth rates and trends in revenues. An organization needs to know how much profits or losses they are making based on the financial data. For sustainable growth, an organization needs to increase their operating profits under low-risk operations.

Customers: Customers are important stakeholders for any business. The customer perspective is the central theme to the development of balanced scorecard. Customer oriented standards are useful, but they must be in line with the internal operations of a company to satisfy customers (Figge et al, 2002). The second level of the scorecard enables the managers to achieve and run the internal affairs of the firm in a way that ensures priorities on areas of competency. A business needs to work hard to increase its market share and this is only possible when the new customers are attracted to the business and the old ones retained. The customers’ needs to be satisfied at all times or else they will feel disappointed and move to other businesses. Apart from attracting the new customers, retaining the existing customers is equally important.

Internal process: The internal processes mainly entail how the business is running/operating and whether the product conforms to the business mission. The internal process majorly measures the efficiency of the business in delivering the services to their customers. The balanced scorecard helps to transform the vision and strategy



Chavan, M. (2009). The balanced scorecard: A new challenge. The Journal of Management Development, 28(5), 393-406. doi:http://dx.doi.org/10.1108/02621710910955930

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Hladchenko, M. (2015). Balanced scorecard – a strategic management system of the higher education institution. The International Journal of Educational Management, 29(2), 167-176.

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