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.

Financial Perspective: Measures the financial success of the organization, focusing on key performance indicators such as profitability, return on investment (ROI), revenue growth, and cost reduction. It ensures the organization is meeting its fiscal goals.³

Customer Perspective: Examines how well the organization is serving its customers by assessing customer satisfaction, retention, market share, and the company's reputation. It addresses how the organization is perceived by customers and their overall experience.³

Internal Business Processes Perspective: Focuses on the efficiency and effectiveness of internal processes that drive value creation. It identifies key processes that need improvement to deliver the desired customer- and financial outcomes, such as production efficiency, quality control, and innovation in processes.³ For example, this might mean finding new ways to create the product using more recycled material, which could lower costs and reduce environmental impact.

Learning and Growth Perspective: Emphasizes the importance of continuous improvement, employee development, and innovation. It evaluates employee skills, training programs, and corporate culture, ensuring the organization has the capacity to adapt and grow in the future.³

Strategy Map: A visual representation of an organization's strategy that depicts the cause-and-effect relationships between strategic objectives, which help an organization achieve its long-term mission. This is a vital component of the BSC, helping to link measures to strategic goals.

Key Performance Indicators (KPIs): Measurable values demonstrating how effectively a company is achieving its key business objectives. The BSC uses KPIs to track performance across different variables. 

Lagging Indicators: Used in a balanced scorecard to measure past performance, such as revenue and profit.

Leading Indicators: Predict future performance in terms of customer satisfaction and employee engagement, and are used in conjunction with lagging indicators.

Return on Investment (ROI): A metric used to assess the profitability of an investment by comparing its gains to its costs.

Sustainability & Responsibility Performance Measures: A number of environmental impact-related key indicators that combine social responsibility, environmental care, and economic performance. This could include metrics such as carbon footprint, energy consumption, supply chain waste, and water usage.

The first published origins of the balanced scorecard date back to its development in the early 1990s, and are likely based on Art Schneiderman’s original conception from several years earlier.  Around that time, Harvard accounting professor Dr. Robert Kaplan and business theorist Dr. David Norton were conducting a research project with 12 high-profile companies to help them define and achieve long-term success. At the time, businesses primarily used quantitative performance measures, but some had begun recognizing that other factors such as quality, service, customer satisfaction, and internal processes were also essential for success. Kaplan and Norton argued that their balanced scorecard could complement the traditional financial measures, which typically show the results of past actions. Instead, the operational measures included in their new model are the drivers of future financial performance.^1,3

The two researchers began with a simple framework to measure financial success but enhanced the model to include factors related to companies’ long-term capabilities and customer relationships. Once again, including indirect components like customer loyalty in the company review was a major turning point in the approach to evaluating success, as pre-industrial businesses hadn’t previously tracked such aspects of their organizations. The development of the balanced scorecard addressed the limitations of traditional financial measures, which were now seen as inadequate for managing and measuring performance in a rapidly changing business environment.

As the balanced scorecard evolved through years of use by other researchers and organizations, it has become a holistic system for managing strategy, linking various aspects of strategic planning and management. For instance, businesses often have different financial goals depending on what stage of the business life cycle they are in, and managers may look for different KPIs or financial benchmarks based on their company’s development. As economic and management research has grown, the balanced scorecard has incorporated insights from other fields such as marketing, psychology, and even environmental research, to define appropriate goals and expectations for businesses.^1,3 

Although the scorecard was initially designed with for-profit businesses in mind, it’s been adapted for use by nonprofits, government agencies, and other industries like hospitality and tourism. Of course, different types of organizations will also have different goals, but as the balanced scorecard’s measurement strategies have become more nuanced, its flexibility in application has improved as well. 

Despite a decline in adoption rates since its peak in the early 2000s, the balanced scorecard remains a widely recognized and influential management framework. In fact, a recent adaptation of the framework has integrated environmental responsibility as a potential fifth perspective, as sustainability is becoming an important area of growth for many companies.3 Business leaders like the Brazilian businessperson Ricardo Reisen de Pinho have been key voices pushing for more companies to add sustainability as a key perspective.

Already, artificial intelligence (AI) has been integrated into many traditional business practices. For the balanced scorecard, AI could automate the collection and analysis of data from various sources, making it easier to gather and process performance metrics. AI systems could enhance predictive modeling by using historical data and external factors to forecast future performance with greater accuracy. Leveraging AI’s powerful real-time pattern detection capabilities, balanced scorecard metrics could be instantly updated to reflect shifts in customer behavior, sales forecasts, and other metrics of interest. As big data access expands, the balanced scorecard’s functionality and complexity will likely continue to evolve as well. 

Robert S. Kaplan

Co-creator of the balanced scorecard, Kaplan is a professor of accounting and Emeritus professor of leadership development at Harvard Business School, as well as a leading authority on strategic performance management.

David P. Norton

Co-creator of the scorecard, Norton is a business and management consultant and theorist, as well as a prominent figure in the development of performance management systems.

Art Schneiderman

Process management expert who conceived one of the first prototypes of the balanced scorecard in 1987, which was later expanded in a larger study by Dr. Kaplan and Dr. Norton.

Ricardo Reisen de Pinho

An engineer and businessperson, Ricardo de Pinho co-authored case studies with Robert Kaplan on the use of the balanced scorecard in businesses. He notably contributed to the implementation of the scorecard at Volkswagen do Brasil, aligning the company’s strategic goals with operational performance, and at Amanco, where he adapted the framework to include sustainability metrics, balancing economic, environmental, and social objectives​.

The balanced scorecard has had a number of major impacts on businesses, governments, non-profits, and management practices as a whole. However, these impacts aren’t always guaranteed outcomes, as the success of a balanced scorecard implementation also depends heavily on the commitment of those in leadership, effective communication, and the selection of relevant KPIs. 

Emphasis on Non-Financial Factors

As we’ve discussed, the balanced scorecard moves away from exclusively using financial measures to define success and begins to incorporate factors such as customer satisfaction, internal processes, and innovation. This is an important development, as it allows companies to capture the long-term value generated by intangible assets not commonly measured.  The broadened scope of the balanced scorecard may motivate managers by highlighting and recognizing areas of improvement that may have gone unnoticed in a purely financial evaluation, as it can be easy for long-term or ethical goals to get lost in the pursuit of a financial bottom line. 

The balanced scorecard’s focus on leading indicators, such as customer satisfaction and process improvement, has encouraged companies to adopt a long-term perspective on value creation, going beyond short-term gains. The more nuanced scorecard can also help managers align their behavior and strategies with the company’s ethical and cultural goals, giving value to less tangible yet equally important pursuits.¹  

Communication and Alignment

In addition to measuring development and facilitating company growth, the balanced scorecard serves as a communication tool within organizations. By defining strategic objectives, measures, and targets across the four perspectives, the scorecard helps ensure that all employees work toward the same goals and report potential deviations. This improved communication can enhance strategic alignment by connecting individual and team efforts to the organization’s overall vision and strategy.¹ Objectives that are clearly defined and solidified through the scorecard also provide an opportunity for decision-makers to discuss and reassess their goals and expectations for the company. Analyzing scorecard results may also raise questions that managers might not have considered otherwise. Frequent and open communication is key in any relationship or organization, and the more opportunities for comprehensive check-ins, the better!

Adaptation and Evolution

Since its inception, the balanced scorecard has been adapted for use in various industries and sectors, demonstrating its versatility and enduring relevance. The framework has been applied in healthcare, government agencies, and non-profit organizations. More recently, the development of the Sustainability Balanced Scorecard (SBSC) integrates sustainability and responsibility performance measures into the traditional BSC framework, reflecting the evolving priorities of the business world.⁴

While the balanced scorecard is useful, it’s only one of many tools decision-makers have at their disposal. Although this framework can be more informative than financial metrics alone, the balanced scorecard still has a number of limitations.

Lack of Empirical Support for Causality

The balanced scorecard framework centers on its four perspectives—financial, customer, internal processes, and learning and growth—and asserts that each area influences the rest. While this makes sense logically, some critics claim that there's insufficient empirical evidence to support these connections. Specific examples where the balanced scorecard has been put into place have often shown major benefits (as we will see in the case study section later), but research on companies that have adopted the scorecard framework tends to simply measure performance before and after implementation, without accounting for other potential variables of influence. Critics argue that the assumed causality between improving non-financial areas, like customer satisfaction or internal processes, and improved financial performance, lacks robust empirical validation. 

Although connecting the different areas is intuitively appealing, some argue that the balanced scorecard is more of a "persuasive rhetoric" than a "convincing theory" due to this lack of strong empirical backing.³ In order to appropriately and accurately establish causality between the areas of focus, researchers will need to conduct additional studies using a method like randomized controlled trials which are designed to establish causality. Still, even if their presumed connection is based on correlational studies rather than statistically validated causality, it cannot hurt for managers to understand a variety of data points about their organizations. 

Oversimplification of Complex Human Systems

Another criticism targets the balanced scorecard’s potential to oversimplify complex human systems within organizations. Some management researchers point out that the BSC doesn't adequately account for the crucial role of human relations.⁵ They posit that human decision-making processes introduce a level of complexity that the balanced scorecard framework, with its emphasis on a relationship between defined measures of input and output, might not fully capture. Of course, we know that decision-making is incredibly complex; thus, the concern is that a faulty assumption of a neat cause-and-effect relationship in the balanced scorecard might not accurately reflect the nuanced realities of human behavior and interactions within organizations. 

For example, imagine an organization that implements a new performance evaluation system based on the balanced scorecard’s internal process and customer satisfaction metrics. While these metrics may suggest that improved efficiency should lead to better customer experiences, the system may overlook the interpersonal dynamics between employees and managers. If employees feel micromanaged or undervalued, their job satisfaction could decrease, leading to disengagement, poorer performance, or a slough of two-week notices—all outcomes not easily predicted by the scorecard’s linear cause and effect approach. 

Subjectivity in Performance Measurement and Potential for Bias

A third controversy revolves around the subjective nature of performance measurement within the framework—particularly in how it can lead to bias. Although financial performance theoretically provides objective data, measurements for areas like customer satisfaction, internal processes, and learning & growth often rely on subjective assessments and surveys. This reliance on subjective data introduces the risk of confirmation bias. Managers responsible for implementing the balanced scorecard framework may unconsciously interpret data in a way that confirms their prior beliefs about its effectiveness. This could lead to an overly positive view of the scorecard and its framework’s impact, making it difficult to accurately assess its true effect on organizational performance.⁶

For example, consider a company using employee satisfaction surveys to gauge progress in the learning and growth perspective of the balanced scorecard. If a manager strongly believes that recent training programs have improved morale, they might unintentionally focus on positive survey responses while downplaying negative feedback. This confirmation bias could lead to an inaccurate assessment of the training's effectiveness, potentially masking deeper issues like dissatisfaction with leadership or workplace culture. As a result, the subjectivity in interpreting such data can hinder the balanced scorecard’s true performance evaluation.

AT&T & Weekly Reviews

In 1999, Harvard Business published a case study on AT&T Canada's use of a new strategic governance system that combined the balanced scorecard with several other strategic management tools. The system they had implemented in 1997 focused heavily on linking strategy to shareholder value. Importantly, the entire executive team and several direct reports conducted all operational reviews of the scorecard on a weekly basis. Each meeting had a focused theme and each executive owned a specific scorecard domain. Since the mandatory weekly meetings kept everyone involved, every executive had full accountability for reporting, explaining, and defending their scorecard areas.⁷ 

The Harvard report suggested that AT&T Canada quadrupled its market value in just two years following the implementation of this system. Likely, the weekly check-ins that were conducted to fill out the scorecard kept the executives in communication with each other and helped to define clear company objectives. However, because multiple strategies were used at once (and because this wasn’t a randomized controlled trial), it’s still unclear whether this increase in market value can be solely attributed to AT&T’s use of the balanced scorecard or to the other strategic management tools that they used in conjunction with it.⁷

Electronic Circuits Inc. & Customer Perspectives 

In 1992, Kaplan and Norton’s article defining the balanced scorecard showcased how the semiconductor company Analog Devices—referred to under the pseudonym “Electronic Circuits Inc.”—utilized the balanced scorecard to connect its strategic vision with operational performance. In the article, the authors recognized the limitations of relying solely on financial indicators. Analog Devices as a company sought a more holistic approach to performance measurement. They aimed to operationalize their strategic vision by identifying a limited set of critical indicators, and these indicators provided a comprehensive snapshot of both current and future performance.¹

Central to Analog Devices’ balanced scorecard was the "Customer Perspective," reflecting the company's commitment to a focus on the consumer. To translate this commitment into concrete actions, the managers identified specific customer-centric goals: expedited time-to-market for standard products, enhanced customer support, the establishment of strong customer partnerships, and the development of innovative, customized products. 

To track progress toward these goals, Analog Devices selected a set of quantifiable measures within the customer perspective of their balanced scorecard. These measures included:

• Market share in target customer segments: This metric allowed Analog Devices to monitor its competitive position and gauge its success in capturing market share among its desired customer base.
• Customer satisfaction with product performance, quality, and delivery: By measuring customer satisfaction across these key dimensions, Analog Devices aimed to identify areas for improvement and enhance customer loyalty.
• Customer profitability: This measure helped the company evaluate the financial viability of its customer relationships and prioritize those that were mutually beneficial.

In the end, the company successfully used the balanced scorecard to translate its high-level customer-centric vision into actionable goals and quantifiable measures, allowing them to track progress and make informed decisions.

How do you predict the ROI of innovation? 

The balanced scorecard highlights the importance of incorporating measurements of success not exclusively related to financial components. This article dives into the intersection of traditional and less tangible financial measures such as ROI and innovation. 

Holistic, Human, and Honest Financial Planning with Cary List 

In this The Decision Corner podcast episode, financial planner Cary List discusses the importance of a holistic lens when conducting financial planning in cooperation with clients. He emphasizes the use of behavioral economics, behavioral psychology, and the understanding of the intersection of human behavior and technology to depict companies’ well-being and strategy. 

1. Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard: Measures that drive performance. Harvard Business Review, 70(1), 71–79. https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2 
2. Tarver, E. (2024, July 26). Balanced scorecard (BSC): What is it and how is it used in business? Investopedia. https://www.investopedia.com/terms/b/balancedscorecard.asp
3. Tawse, A., & Tabesh, P. (2023). Thirty years with the balanced scorecard: What we have learned. Business Horizons, 66(1), 123-132. https://doi.org/10.1016/j.bushor.2022.03.005
4. Agarwal, S., Kant, R., & Shankar, R. (2022). Exploring sustainability balanced scorecard for performance evaluation of humanitarian organizations. Cleaner Logistics and Supply Chain, 3, 100026. https://doi.org/10.1016/j.clscn.2021.100026
5. Dinesh, D., & Palmer, E. (1998). Management by objectives and the balanced scorecard: will Rome fall again? Management Decision , 36(6), 363-369  
6. De Geuser, Fabien & Mooraj, Stella & Oyon, Daniel. (2009). Does the balanced scorecard add value? Empirical evidence on its effect on performance. European Accounting Review. 18. 93-122. https://doi.org/10.1080/09638180802481698 
7. Harvard Business Publishing. (2000). AT&T Canada: A new strategic governance system quadruples market value (Product No. B0001B-PDF-ENG). Harvard Business Publishing Newsletters.