The balanced scorecard

05 November 1999

The origins of the balanced scorecard method can be traced back to 1990, when the research arm of KPMG sponsored a study on measuring performance in organisations. The study was motivated by a belief that existing performance measurement approaches, primarily relying on financial parameters, were becoming obsolete. It was a common belief that relying purely on financial accounting measures was hindering companies' abilities to create future economic value.

Analog experience
The early days of the project saw the evaluation of the 'corporate scorecard' being used at Analog Devices as an alternative measure. This scorecard included, in addition to several traditional financial measures, performance measures relating to customer delivery times, quality and cycle times of manufacturing processes and effectiveness of new product developments.

A variety of other ideas, including shareholder value, productivity and quality measurements, and new compensation plans were discussed. In the end, the participants focussed on the multi-dimensional scorecard as offering the best promise for their needs.

The balanced scorecard provides an inter-connected model for measuring performance and revolves around four distinct perspectives -- financial, customer, internal processes, and innovation and learning. Each of these perspectives is stated in terms of the company's objectives, performance measures, targets, and initiatives, and all are harnessed to implement corporate vision and strategy.

The name also reflects the balance between the short- and long-term objectives, between financial and non-financial measures, between lagging and leading indicators and between external and internal performance perspectives.