Ssrn id2313780

USE OF BALANCED SCORECARD FOR PERFORMANCE MANAGEMENT & PLANNING
1
STRATEGIC MANAGEMENT SEMINAR
STRA 705
Seminar Paper

“The Use of Balanced Scorecard as a Tool for Performance Management and Planning”
Ahmed M. Al-Baidhani (M1100508)
The German University in Cairo

Outline
1. Introduction……………………………………………….……….………………………… 3
2. Performance Management and Planning……………………………………………………..4
2.1 Performance Management………………………………………………………………..4
2.2 Planning…………………………………………………..................................................5
3. Types of Scorecards…………………………………………………………………….…….5
3.1Balanced Scorecard (B SC)…………….…….
…………….............................................5
3.2Bonus
Scorecard………………………………………………………………………....5
3.3Personal Scorecard………………………...
……………………………………………..5
3.4Process
Scorecard………………………………………………………………………..6
3.5KPI
Scorecard……………………………………………………………………………6
3.6Stakeholder
Scorecard…………………………………………………………………...6
3.7Strategy
Scorecard……………………………………………………………………….6

Electronic copy available at: http://ssrn.com/abstract=2313780

2
3.8Enterprise
Scorecard……………………………………………………………………..6
3.9Board
Scorecard………………………………………………………………………….6
3.10
Executive
Scorecard………………………………………………………………….7
4. Balanced Scorecard…………………………………………………………………………..7
4.1Building B
SC……………………………………………………………………………7
4.2The Four
Perspectives……………………………………………………………………8
4.2.1 Financial………………………………………………………………………….8
4.2.2 Customer………………………………………………………………………….9
4.2.3 Internal Business Process…………….…………………………………………..9
4.2.4 Learning and Growth……………………………………………………………..9
4.3Using B SC to Implement
Strategy……………………………………………………..10
4.4Linking Multiple Scorecard Measures to a
Strategy…………………………………....10
4.5Transforming B SC from Performance Measurement to Strategic
Management……....10
4.6Applying the B SC to Nonprofit and Governmental Organizations (NPGOs)
…............11
4.7Critiques on the B SC………………………………………………………..
………....12
5. Summary and Conclusion…………………………………………….…….……………….12
References…………………………………………………………………………………….....13
Appendix…………………...........................................................................................................15

1. Introduction
For the past few decades, business management traditional approaches were considered as a
systematic, top-down process based on the notion that the top management manages, leads,
organizes, and controls the organization’s members and its resources in order to achieve its
objectives. By early 1990s it was obvious that the traditional planning approaches were very
complicated and too-much-time consuming due to the speedy pace of business changes.
Consequently, it was necessary to match such changes and create new approaches of strategic
thinking that can be initiated and developed in any place and at any time in the organization. As
a result, relevant management theories, such as organizational learning and scenario planning,
were created and developed during the 1990s (Van Der Zee and De Jong 1999).

Electronic copy available at: http://ssrn.com/abstract=2313780

3
After their 1990 introduction of the Balanced Scorecard (B SC), Robert Kaplan and David
Norton published a detailed article in the Harvard Business Review (HBR) in 1992
about the usage of the B SC, which was a very successful article. Additionally, another article
was published in 1993 about the same subject. Afterwards, Kaplan and Norton published three
more articles about the development and usage of the B SC, that is—1996a, 1996b, and 1996c.
And in 1998, Kaplan and Norton published their famous book, The Balanced Scorecard. These
articles and book has spread the concept of the B SC so widely since then and until today.
Whereas organizations worldwide transformed towards competition which is based on
information and capabilities to use and manage intangible assets more than its capabilities to
invest in and manage physical assets (Kaplan and Norton 1996a), and deem it necessary to set
strategic guidelines and performance targets on all levels (organization, unit, department,
section, and individual), and due to the deficiency in the traditional management system in
linking the organization’s long-term strategy with its short-term actions which caused a gap
between the strategy and its implementation (Kaplan and Norton 1996b), it was necessary to
come up with a new concept to match such developments.
Some managers and consultants argue that using financial and non-financial cause confusion
and ambiguity, sending conflicting signals about the organization values. They also state that
these limitations in managing the organization through financial measures only have been like
this for decades; therefore why talking about it now?
The response to the above two arguments is that the financial measures, such as return on assets,
return on equity, and operating income, are not sufficient since the non-financial measures, such
as customer satisfaction, customer preferences, and employee attitudes, are as important as the
financial ones. Regarding why now, it is obvious that the number of organizations (commercial,
industrial, service, governmental, and nonprofit) using the B SC is increasing since 1992 which
indicates that these organizations found what they have been looking for in the past, since the B
SC provides the linkage between the measurement system and strategy and match the
continuous changes in technology, as well as achieving competitive advantage for which the
intangible assets became the most important source to use (Kaplan and Norton 1996b and
2001b).
2. Performance Management and Planning

4
2.1 Performance Management
Performance management is defined as a strategic and incorporated approach for increasing an
organization’s effectiveness through improving its members’ performance. Using this
performance process appropriately makes the employees and stakeholders take their
organization’s objectives into consideration and increase the organization’s productivity and
profitability. The process can be used at all levels (organization, unit, department, section, and
individual). Additionally it can be used in other places, such as schools, mosques, churches, and
clubs where people act, react, and interact to produce desired outcome (March and Sutton 1997).
Performance management is comprised of the activities which lead to the aforementioned
objectives in a more effective and efficient way possible. In case there is a gap between actual
results produced by performance and desired results, such as when the actual is less than the
desired there should be a so-called “performance improvement” efforts to close such a gap.
For competitive advantage, organizations compete with each other, resulting in competitive
imitation. Two rankings emerge from such situation: first, good performance ranking which
encourages admiration and activates imitation and competition to gradually destroy a favorable
position; second, poor performance ranking which shows that a practice does not work or a
market does not exist (March and Sutton 1997).
2.2 Planning
Planning is the process of thinking about arranging and organizing the courses of actions
towards accomplishing a desired goal. Planning involves establishing the plan and maintaining
it. While forecasting predicts what the future could be, planning predicts what the future should
be.

As a management process in organizations, planning focuses on defining goals for

guidelines in the future, as well as deciding on the time and resources that would be used to
accomplish these goals. The concept of planning is concerned with answering the questions:
Where are we today? Where do we want to go? How are we going to get there? Planners do not
have the managers’ authority to make commitment, or managers’ access to soft information that
is important for plan preparation (Mintzberg 1994).
3. Types of Scorecards
There are many types of scorecards, some of which are as follows:
3.1 Balanced Scorecard

5
The B SC is a strategic performance management tool assisted by other tools, enabling the
managers to keep track, monitor, and control their subordinates’ activities and relevant
consequences. It has been widely used all over the world. It includes both financial and nonfinancial measures (referred to above) as well as the organization’s innovation and improvement
activities (Van Der Zee and De Jong 1999). Further details are stated here-below under No.4.
3.2 Bonus Scorecard
The Bonus Scorecard comprises important measures linking compensation to the B SC in order
to reward employees for their accomplishments towards the organization’s goals (Kaplan and
Norton 1996a).
3.3 Personal Scorecard
This scorecard could be carried in a person’s shirt pockets or wallets so that the information
could be kept close at hand. It is used to communicate the objectives of the organization as a
whole and the business unit in particular to the concerned people and teams performing the
work, so that they translate these objectives into meaningful tasks and targets (Kaplan and
Norton 1996a).
3.4 Process Scorecard
The process scorecard was introduced by Guillermo Granados (2007) as a support to the B SC.
It has been used for organizing and structuring the organizational Key Performance Indicators
(KPIs).
3.5 KPI Scorecard
This scorecard is used in quality management as measures, checklists, or other elements.
However, since it does not describe the relevant strategy, it is not advisable to use it unless it has
a clear link to strategy (Kaplan and Norton 2000 and 2001).
3.6 Stakeholder Scorecard
In addition to stating the organization’s goals and targets, this scorecard lists the organization’s
major stakeholders, such as shareholders, employees, customers, suppliers, and community
(Kaplan and Norton 2001).
3.7 Strategy Scorecard
Strategy scorecard provides graphs and maps that describe strategy in a logical and
comprehensive manner. It shows the organization’s hypotheses, its desired outcomes, and how
to achieve them (Kaplan and Norton 2001).

6
3.8 Enterprise Scorecard
In addition to defining the organization’s strategy, this scorecard describes in details the
organizations’ objectives, targets, measures, et al that should be implemented by the
organization’s executives and managers (Creamer and Freund 2005).
3.9 Board Scorecard
This scorecard provides strategic data to the board and monitor the board’s and its committees’
operations (Creamer and Freund 2005).
3.10 Executive Scorecard
This card is used to evaluate the organization’s executives (top managers) performance and
related compensations the evaluation which is usually done by the board and its compensation
committee as part of corporate governance procedures (Creamer and Freund 2005).
4. Balanced Scorecard
In their 1992 study results which were reported in the HBR, Kaplan and Norton concluded that
financial measures alone cannot measure performance since there are other important elements
that should be taken into consideration, such as customer satisfaction, knowledge, innovation,
operational efficiency, quality growth, competence, and customer focus which are not included
in traditional financial reporting. The B SC uses the measurement language to define the
meaning of such non-financial measures. Hence, the B SC could present a mixture of both
financial and non-financial measures, providing a set of metrics that tracks the organization’s
progress towards its targets. It could be used as a map to achieve the organization’s business
success, allowing the organization and its members to measure their performance and monitor
relevant progress (Gumbus and Lussier 2006).
The B SC has become a strategic tool used by executive teams to set strategy, align operations,
and communicate with internal and external stakeholders (Gumbus and Lyons 2002; Gumbus,
Lyons, and Bellhouse 2002; Schatz 2000). The B SC helps the organization in promoting its
long-term and short-term growth, in tracking performance against goals in providing focus on
important issues (Kaplan and Norton 1999), in linking measures and align them to goal (Kaplan
and Norton 1996b), in making the organization’s goals clear so that each member would know
what and how to contribute towards these goals, and what would be his/her relevant
responsibility and accountability (Kaplan and Norton 1999).

7
4.1 Building B SC
Before an organization starts to build a B SC, it should have the support and commitment from
all of its stakeholders. Each relevant business unit, department, section and individual should
recognize the value and necessity of developing the B SC; and project teams representing the
above units, departments, and sections should be established (Kaplan and Norton 1996a). In
order to translate strategy into action, a B SC should be developed to answer the questions: 1What are the organization’s goals? 2- How to achieve them? And 3- What should be measured?
(Van Der Zee and De Jong 1999). This process is helpful in managing the organization’s
different programs.
4.2 The Four Perspectives
The B SC provides a balanced picture between short-term and long-term objectives, and
between performance and required results (Gumbus and Lussier 2006). It also balances what
gets measured, both financial and non-financial factors, taking into consideration that these
factors are equally important and that the relevant results relate to each other. It also provides a
framework that helps organizing the strategic goals into four perspectives (Kaplan and Norton
1996a), as follows:
4.2.1 Financial
The financial measures identify the long-term goals of the business unit. There are three
different stages in a business life cycle: first, Rapid Growth Stage, that is—the business’s early
stage where large investments are made to develop and/or expand production and services;
second, Sustain Stage, when the business still attracts investments and reinvestments, but
considers making profits and maintaining its market share, and third, Harvest Stage which is the
mature phase of a business life cycle where it harvests the investments made in the above two
stages, focusing on maximizing the business’s cash flow. Financial objectives vary from one
stage to another. During the Growth Stage, businesses focus on sales growth, while their main
concern during the Sustain Stage is financial measurements, such as operating income, return on
capital, and shareholder value. Financial objectives during the Harvest Stage emphasize cash
flow (i.e., all investments should have prompt and affirmed cash paybacks). The themes which

8
are used to achieve these strategies are: 1- Revenue Growth and Mix, 2- Cost Reduction/
Productivity Improvement, and 3- Asset Utilization/Investment Strategy; a relevant matrix is
shown as Table 1 in the Appendix (Kaplan and Norton 1996b).
4.2.2 Customer
The customer perspective enables the business managers to show their customer and marketbased strategy where they identify their customer and market segments, as well as the business’s
performance in these targeted segments. The core outcome measures of this perspective are
customer acquisition, customer retention, customer satisfaction, customer profitability, and
market and account share (Kaplan and Norton 1996b).
4.2.3 Internal Business Process
In this perspective, managers define the most critical internal processes in which the
organization should excel to meet both customer satisfaction and shareholder expectations of
financial returns. This perspective of the B SC also integrates objectives and measures for both
long-term innovation cycle and short-term operations cycle (Kaplan and Norton 1996b).

4.2.4

Learning and Growth

This is the fourth and last B SC perspective. In order to meet their long-term goals for
customers and internal processes, as well as intense global competition, businesses should be
able to build the infra-structure that would create long-term growth and improvement. Since the
objectives of the aforementioned three perspectives—financial, customer, and internal business
process—on the B SC will show large gaps between existing and required capabilities to
achieve the organization’s goals, the objectives of learning and growth perspective are to close
these gaps through investing in employees, improving information technology and systems, and
bringing the organizational procedures into line (Kaplan and Norton 1996b).
4.3 Using B SC to Implement Strategy
Performance management systems are designed to promote short-term tactical behavior, such as
operating plans and annual budgets (Kaplan and Norton 1999). Whereas strategy cannot be
managed with a system designed for tactics, Kaplan and Norton, in their 1992 HBR article

9
introduced the B SC as a new approach to implementing strategy (i.e., an organization’s strategy
should be translated into terms that can be understood and acted upon). In addition to providing
a framework for managing the implementation of the organization’s long-term strategy, the B
SC also allows the evolution of the strategy itself in response to various market and
technological changes (Porter 2002).
4.4 Linking Multiple Scorecard Measures to a Strategy
As soon as they define the strategy and identify the drivers, managers are influenced by the B
SC to focus on improving the processes which have been the most critical strategic success to
the organization (Kaplan and Norton 1996a). Since there are many business units in a complex
organization, each unit should have its own B SC describing its strategy and managing it. Such
B SCs are then used to define the strategic linkage which integrates the performance of these
business units, forming a corporate scorecard which defines the common objectives and themes.
This corporate scorecard is then used by all of these units since the value of the whole is
considered to be greater than the sum of the parts (Kaplan and Norton 1996b).
4.5 Transforming B SC from Performance Measurement to Strategic Management
When Kaplan and Norton introduced the B SC in 1992, they thought of it as a performance
measurement tool only. Shortly afterwards, they realized that measurement serves reporting on
the past as well as creating focus on the future. Since managers could communicate the chosen
measures to all of their subordinates and relevant units and individuals, organizations could
integrate their new measures as a management system. “Thus the Balanced Scorecard concept
evolved from a performance measurement system to become the organizing framework, the
operating system, for a new strategic management system” (Kaplan and Norton 1996c, p16). In
order to benefit from its investments in assets and development of new products or services, an
organization should capitalize on its already-existing capabilities and assets, both tangible and
intangible. The B SC together with the new strategies released the capabilities and assets which
were already captured within the organization (Kaplan and Norton 2001).
4.6 Applying the B SC to Nonprofit and Governmental Organizations (NPGOs)

10
The application of the B SC by NPGOs has been challenged with some barriers, one of which
was the extreme difficulty the NPGOs have in clearly defining their strategies, most likely
because these organizations focus on what they intend to do and disregard what they decide not
to do. Since most of the NPGOs do not focus on a strategy to achieve product leadership or
customer intimacy, their scorecards look like KP1, not strategy, scorecards. Nevertheless,
studies revealed that in addition to their operational excellence (i.e., working efficiently and
effectively), NPGOs can be strategic and can build competitive advantage if they move from
concentrating on processes improvement only to strategically thinking about which processes
are critical to fulfill their missions (Kaplan and Norton 2001).
Since the accomplishment of financial success is not a primary objective of most NPGOs, they
modify the architecture of the B SC, taking the financial perspective from the top of the
hierarchy and replacing it with customers or constituents. Consequently and in order to match
these organizations’ objectives, their B SC framework shows three high-level perspectives as
follows: 1- Cost Incurred perspective which emphasizes the importance of operational
efficiency, showing both the NPGO expenses and social costs imposed on others, 2- Value
Created perspective that indentifies the benefits created by the NPGO, and 3- Legitimizing
Support perspective that states the donor or legislature which is the funding source of the
organization and its important customer. After defining the above three perspectives, the NPGO
can identify its objectives for internal processes, and learning and growth so that the objectives
in the aforementioned three perspectives could be accomplished (Kaplan and Norton 2001).

4.7 Critiques on the B SC
The application of the integrated B SC is relatively easy; however, Kaplan and Norton (1996c)
identified the following four barriers to effective and efficient B SC: “1- Visions and strategies
that are not actionable; 2- Strategies that are not linked to departmental, team, and individual
goals; 3- Strategies that are not linked to long- and short-term resource allocation; 4- Feedback
that is tactical, not strategic” (Van Der Zee and De Jong 1999, p153). Since the B SC does not
enforce the integration of business processes, the above barriers should be recognized and
addressed before starting the implementation of the B SC because such starting without
overcoming these barriers would be a waste of money, time, and efforts. In order to have such

11
integration succeed, managers should be able and willing to share information about business
planning, people who will define and use the integrated B SC should have the appropriate skills
to do so, and formal responsibilities and authorities should be delegated to the right units and
individuals. Other challenges might appear in the future regarding the organization and its
various units or departments, as well as the integration that would be measured against the
organization’s industry as a whole (Van Der Zee and De Jong 1999).
5. Summary and Conclusion
In this paper, we saw the transfer from the traditional business management approaches to the B
SC approach so that organizations can match the fast changes in technology and gain
competitive advantages. The main types of scorecards have been identified, with focus on the B
SC and its effects on performance management and planning. We learned about building the B
SC, passing by its framework’s four perspectives. We also learned about some of its usage,
linkage, transformation, application, and limitations. We know that many articles and books
have been published about the B SC which became a necessity for most organizations
worldwide so that managers can develop strategies and objectives for competitive, innovative,
and high-tech future businesses.
Organizations build a B SC because it describes the organization’s future vision and strategy,
creates a shared understanding allowing contribution from all organization’s members, focuses
on change efforts, and permits learning of executives and managers as they adapt and test their
strategy. The worldwide transformation from industrial economy to a knowledge-based one
drives us to the need for strategy which requires the use of the B SC. In order to build an
executive leadership team, a shared vision and strategy should be established. The B SC
framework provides the structure for such a team to work together towards a new vision and
strategy.
References
Berman, E.M., and West, J.P. (1998). Productivity enhancement efforts in public and nonprofit
organizations. Public Productivity and Management Review, 22(2), 207- 219.
Creamer, G., and Freund, Y. (2005). Using Adaboost for Equity Investment Scorecards. British
Columbia, Canada: SSRN-id 940729.

12
Crossan, M.M., Lane, H.W., and White, R. E. (1999). An organizational learning framework:
From intuition to institution. Academy of Management Review, 24(3), 522-537.
Dixon, N. M. (1994). The organizational learning cycle: How we can learn collectively. London:
McGraw-Hill.
Gumbus, A., and Lyons, B. (2002). “The Balanced Scorecard at Philips Electronics,” Strategic
Finance 84(5) (November), 45–49.
Gumbus, A., Lyons, B., and Bellhouse, D. (2002). “Journey to Destination 2005,” Strategic
Finance 8(4), 46–50.
Gumbus, A., and Lussier, R. (2006). Entrepreneurs Use a Balanced Scorecard to Translate
Strategy into Performance Measures. Journal of Business Management.
Kaplan, R.S., and Norton, D.P. The Balanced Scorecard- measures that drive performance.
Harvard Business Review (January-February 1992), 71-79.
Kaplan, R. S., and Norton, D. P. (1996). Strategic Learning and the Balanced Scorecard.
Strategy and Leadership, 24(5), 18-29.
Kaplan, R.S., and Norton, D.P. (1996a). Using the Balanced Scorecard as a Strategic
Management System: Boston: Harvard Business Review (January-February 1996).
Kaplan, R.S., and Norton, D.P. (1996b). Linking the Balanced Scorecard to Strategy. California
Management Review (Fall 1996).
Kaplan, R.S., and Norton, D.P. (1996c). The Balanced Scorecard: Translating the Strategy
Action. Boston: Harvard Business School Publishing.
Kaplan, R.S., and Norton, D.P. (1999). Building a Strategy-Focused Organization. Boston:
Harvard Business School Publishing.
Kaplan, R.S., and Norton, D.P. Having Trouble with Your Strategy? Then Map It. Boston:
Harvard Business Review (September-October 2000).
Kaplan, R.S., and Norton, D.P. Transforming the Balanced Scorecard from Performance
Measurement to Strategic Management: Part I. Accounting Horizons (March 2001).
Kolb, D.A. (1983). Problem management: Learning from experience. In S. Srivastava etal.
(Ed.), The Executive Mind. 28 PPMR / September 2004
March, J.G., and Sutton R.I.

Organizational Performance as a Dependent Variable.

Organization Science (November–December 1997).

13
Mausolff, C. (1999). Organizational learning in response to performance monitoring: A study of
our employment programs. PhD dissertation, University of Pittsburgh.
Maxwell, J.A. (1996). Qualitative research design: An interactive approach. Thousand Oaks,
CA: Sage.
Mayne, J., and Zapico-Goni, E. (1997). Monitoring performance in the public sector. New
Brunswick, NJ: Transaction.
Mintzberg, H. The fall and rise of strategic planning. Boston: Harvard Business Review
(January-February 1994), 107-114.
Nolan, R.L., and Croson, D.C. Creative Destruction: A Six-Stage Process for Transforming the
Organization. Boston: Harvard Business School Press, 1995.
Nolan, Norton and Co. Measuring Performance in the Organization of the Future: A Research
Study. Lexington, MA: Executive Summary, 1991.
Porter, M.E. Balance Scorecard Report: The Importance of Being Strategic. Boston: Harvard
Business School Publishing (March-April 2002).
Prahalad, C.K., and Hamel, H. The core competence of the corporation. Harvard Business
Review (May-June 1990), 79-91.
Rockart, J.F. Chief executives define their own data needs. Harvard Business Review (MarchApril 1979), 8 1-93.
Schatz, W. “The Balancing Act,” AFP Exchange (Summer 2000), 40.
Starre, D., and De Jong, Β. IT Governance and Management: Results of an International Study
on IT Governance and Management Typologies. Utrecht, Netherlands: Nolan Norton Institute,
1998.
Van Der Zee, J.T.M. In Search of the Value of Information Technology. Tilburg, Netherlands:
Tilburg University Press, 1996.
Van Der Zee, J.T.M., and De Jong, B. Alignment is not enough: Integrating Business and
Information Technology Management with the Balanced Business Scorecard.
Management Information Systems (Fall 1999).
Appendix
Table 1 (Kaplan and Norton 1996b):
Customizing Measures for Business Strategies and Financial Themes

Journal of

14
Financial Themes

Revenue Growth and Mix
Sales growth rate by segment
Gro
wth

Busine
ss Unit
Strateg
y

Percentage revenue from new product,
services, & customers
Share of targeted customers and
accounts

Improvement

Asset Utilization
Investment (percentage of sales)
R&D (percentage of sales)

Cost versus competitors’

Working capital ratios (cash-to-cash
cycle)

Cost reduction rates
Sust
ain

Harv
est

Cross-selling
Percentage revenues from new
applications
Customer and product line profitability
Customer and product line profitability
Percentage unprofitable customers

ROCE by key asset categories
Indirect expenses (percentage of
sales)

Unit costs (per unit of output, per
transaction)

Asset utilization rates

Payback
Throughput

Ssrn id2313780

Recommended

Recommended

More Related Content

What's hot

What's hot (16)

Similar to Ssrn id2313780

Similar to Ssrn id2313780 (20)

More from Dr. Ahmed M. Al-Baidhani

More from Dr. Ahmed M. Al-Baidhani (12)

Recently uploaded

Recently uploaded (20)

Ssrn id2313780