Balanced Scorecard

If you were seated in the cockpit of a plane getting ready for takeoff, you would see a wide array of dials and indicators giving you tons of detailed information about the expected flight and the different aspects of your plane needed to safely reach your destination. 

The analogy of a pilot’s use of metrics and performance data can help us understand how managers in the business world use performance tools. This includes the balanced scorecard, which is a framework designed to help track and measure non-financial variables. Planes are certainly complex, but so are major organizations, and their executives also require detailed and up-to-date information on a range of factors related not just to performance but also insight into the goals they are trying to direct themselves toward. 

Although many business leaders are aware of the importance of meeting financial goals, traditional financial accounting measures such as return on investment (ROI) and earnings per share (EPS) can give an incomplete view of improvement and innovation when used alone.  While these types of financial figures can be helpful, they’re only a small part of the picture portraying a company’s performance, and they fail to incorporate many of the goals of modern companies. The balanced scorecard, on the other hand, as its name suggests, provides a more, well, “balanced” view.  This more holistic perspective complements traditional financial measures with operational measures on customer satisfaction, internal processes, and innovation and improvement activities.¹

In order to paint this broader picture of company well-being, the balanced scorecard links performance measurement to an organization's strategic goals by identifying objectives, measures, initiatives, and targets for four primary business perspectives. These perspectives include: 

• Financial: The balanced scorecard includes the traditional measures of success for which it was originally developed, including financial metrics such as sales, expenditures, financial ratios, budget variances, or income targets.²
• Customer:  Without customers, the final product is irrelevant. Their perspectives and feedback are collected to gauge customer satisfaction with the quality, price, and availability of products and services, and they may be surveyed about potential future products or changes to services. 
• Internal business processes: The production of goods and services is evaluated to define the strength of business processes. Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or waste in the product manufacturing process, and the scorecard indicates potential areas for improvement. 
• Learning and growth: Goals are based on how effectively employees are able to use new information to gain a competitive advantage in the industry, how well information is gathered, and the quality of the training and knowledge resources available. 

These four key perspectives work together to create a comprehensive view of an organization's health and strategy, and companies can use the insights to make strategic changes, boost financial and operational efficiencies, and eventually increase their profit and improve performance. 

Each perspective offers a look into a different aspect of organizational performance, and collectively the perspectives ensure that companies are aligning their daily operations and resources with their long-term objectives. For instance, the financial perspective provides a baseline for measuring profitability, while the customer perspective reveals satisfaction levels and future customer needs. The internal processes perspective highlights efficiency in operations, and the learning and growth dimension captures the organization’s commitment to innovation and workforce development. By combining these perspectives, organizations can balance immediate financial goals with long-term growth and customer loyalty, providing a full view of performance beyond mere financial figures.

To better visualize these interconnected perspectives, companies often use a strategy map within their balanced scorecard framework. This map illustrates cause-and-effect relationships between different objectives, showing how improvements in one area—like employee training (learning and growth)—can enhance internal processes, ultimately leading to increased customer satisfaction and financial success. Key Performance Indicators (KPIs) are then selected for each perspective to measure progress toward strategic goals. KPIs can be either leading indicators, which predict future performance (such as customer satisfaction scores predicting future sales), or lagging indicators, which reflect past performance (such as quarterly earnings). Together, these tools enable companies to monitor and adjust their strategies in real-time.

Beyond traditional business applications, balanced scorecards are widely adopted in sectors such as healthcare, education, and government, where financial metrics alone don’t capture the full impact of organizational performance. In healthcare, for example, a balanced scorecard might track patient satisfaction and quality of care, while in education, it can measure student engagement and curriculum effectiveness. This adaptability makes the balanced scorecard a valuable tool across various industries, aligning diverse goals with measurable outcomes to guide sustainable success.