Balanced Score Card (BSC)

							Balanced Score Card (BSC)
The Balanced Scorecard was developed by Robert Kaplan and David Norton, published for
the first time in the article “The Balanced Scorecard – Measures That Drive Performance“
and presented to a broad audience in 1996 with the book “The Balanced Scorecard –
Translating Strategy into Actions“. This management approach is primarily concerned with
overcoming company development and control focused on financial performance indicators
only. For this reason, the BSC recommends “a breakdown” of the company vision and
strategy into objective-oriented measures. Strategy implementation is measured by means of
four perspectives, i.e. finance, customers, processes and learning & growth. These four
dimensions are linked by the so-called cause and effect chain (see figure 1).


                         The four perspectives of the Balanced Scorecard



                                                   Financial
                                                  perspective




                              Learning- +          Strategy
                                                    Strategie         Customer
                                growth              Vision
                                                     Vision            market




                                                    Internal
                                                    process




                    Figure 1: The four perspectives of the Balanced Scorecard

1. The financial perspective
   The financial success of a company is thus measured, e.g. cash flow, profit, return on
   investment (ROI).

2. The customer perspective
   Customer orientation is thus both analysed and measured, e.g. by means of customer
   satisfaction, customer loyalty.

3. The process perspective
   In this perspective business and internal processes are measured with regard to
   effectiveness and efficiency, e.g. by process speed, quality of default rates.

4. The learning & growth perspective
   This fourth dimension refers to the future company potential, particularly with regard to
   individual and organisational learning and innovations. Relevant key performance
   indicators may thus be employee satisfaction, fluctuation, the number of days of training.

The relevant stakeholder groups of a company have also been integrated into the four BSC
perspectives (shareholder, customers, employees). Hence the BSC goes beyond a one-
sided shareholder value perspective (see figure 2).
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                           Stekaholder expectations of a company
                                                                  Financial
                                                                 perspective
                                                                  What do
                                                                shareholders
                                                               expect from us?




                                     How can we
                                                                                             How are we
                      Learning & our promote for
                                            -
                                     potential
                                                                  Strategy
                                                                   Strategie               supposed to deal Customers
                        growth     change and                      Vision
                                                                    Vision                     with our      Market
                                      growth?                                                customers?


                                                               Which process do
                                                                   we have
                                                                     to be
                                                               particularly good
                                                                      at?

                                                                   Internal
                                                                  processes




                     Figure 2: The stakeholder expection of a company

In order to effectively use the BSC, the four BSC perspectives are linked to each other in a
so-called cause and effect chain. The starting points are always vision and strategy, which
are made more concrete and measurable by means of objectives and relevant key
performance indicators (see figure 3). This linkage of key performance indicators enables
managing directors and the management team to systematically reflect on assumptions
made and on occasion either revise or rule out cause and effect assumptions on a case-by-
case basis. For instance it may become evident that the assumptions “higher customer
satisfaction“ results in “higher profit“ or “shorter time to market“ results in “larger market
shares“ have not been confirmed yet. Consequently the cause and effect map forms an ideal
means for strategic learning.


                          BSC cause and effect map



                                                                      Higher
                         Finance                                       profit



                                               Higher
                                                                                             Larger
                         Customers            Customer
                                                                                           market share
                                             satisfaction




                         Internal               Shorter                              Increase
                                                                                                       Post-sales
                         Ppocesses              time to                             consultancy
                                                                                                       activities
                                                market                             competenceh



                         Learning+                 Higher             Knowledge             Internal
                         growth                   motivation         management             academy




                                                                                                                        b
                     Figure 3: BSC cause and effect map

The introduction of a BSC may be illustrated as follows (see figure 4).
The starting point consists in clarifying and reviewing both vision and strategy. The strategic
objectives are derived thereof and linked in the four perspectives of the cause and effect

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chain. Moreover, for the respective objectives measure criteria are defined and completed by
objective values or target values. Finally a catalogue of measures is determined, which is to
ensure that these strategic objectives are actually achieved.



                        Introduction/Derivation
                        Introduction/Derivation of BSC




                                                                    Select
                        Clarificatio                 Define
                                         Derive                      key                     Define
                           n of                       cause                     Define
                                        strategic                performanp                 strategic
                         strategy                   and effect                 objectives
                                       objectives                      e                    measures
                         & vision                     chain
                                                                  indicators




                                                      Implementation




                    Figure 4: Introduction/Derivation of a BSC




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