Building on previous management concepts such as total quality management, it is both a measurement and management system that was developed in the 1990's by Kaplan and Norton. They believed that it was an approach providing organisations with a means of balancing the traditional financial perspective of assessing an organisation's performance. This is how they described it:
The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology and innovation.
Kaplan and Norton believe that an organisation should be viewed from four different perspectives :
For each of the perspectives there should be :
The balanced business scorecard provides a comprehensive approach to both the measurement and management of a business. Increasingly viewing an organisation purely from a financial perspective, as many still do, gives a one dimensional and, arguably, a distorted view and does not take account of any other factors that can lead to success or failure.
As we move increasingly to a knowledge based economy, where information is key, people will be seen as an increasingly valued resource. It is an organisation's people together with their thoughts, ideas and innovation that will fuel future growth. Any organisation, which is planning seriously for future growth and development, will have to ensure that it enhances and maintains its knowledge base.
If we want to know how well an organisation is performing a view of all factors included in the balance's scorecard will be required.
Although well received by academics and management consultants, this approach to managing an organisation has not yet been widely adopted by organisations. There appears to be a reluctance to move away from the one dimensional finance perspective. This may not change until an increasing number of organisations show conclusively that they have improved their performance by adopting the balanced scorecard.