Traditional financial performance metrics provide information about a firm's past results, but are not well-suited for predicting future performance or for implementing and controlling the firm's strategic plan. By analysing perspectives other than the financial one, managers can better translated the organisation's strategy in to actionable objectives and better measure how well the strategic plan is executing.
The Balanced Scorecard is a management system that maps an organisation's strategic objectives into performance metrics in four perspectives: financial, internal processes, customers, and learning and growth. These perspectives provide relevant feedback as to how well the strategic plan is executing so that adjustments can be made as necessary.
Financial
Performan
ce
Objectives
Measures
Targets
Initiatives
Customers
Objectives
Measures
Targets
Initiatives
Vision &
Strategy
Internal
Processes
Objectives
Measures
Targets
Initiatives
Learning
&
Growth
Objectives
Measures
Targets
Initiatives
In addition to measuring current performance in financial terms, the Balanced
Scorecard evaluates the firm's efforts for future improvement using process, customer, and learning and growth metrics. The term "scorecard" signifies quantified performance measures and "balanced" signifies that the system is balanced between:
short-term objectives and long-term objectives financial measures and non-financial measures lagging indicators and leading indicators internal performance and external performance perspectives
Financial Measures are insufficient
While financial accounting is suited to the tracking of physical assets such as manufacturing equipment and inventory, it is less capable of