Feb 4, 2012

- 4 Perspectives on the Balanced Scorecard


The four perspectives are:

  • Financial perspective - how does the firm look to shareholders?
  • Customer perspective - how do customers see the firm?
  • Internal perspective - how well does it manage its operational processes?
  • Innovation and learning perspective – can the firm continue to improve and create value? This perspective also examines how an organisation learns and grows.
For each of four perspectives it is necessary to identify indicators to measure the performance of the organisations.
More on the financial perspective
This is concerned with the shareholders view of performance.
Shareholders are concerned with many aspects of financial performance: Amongst the measures of success are:

  • Market share
  • Revenue growth
  • Profit ratio
  • Return on investment
  • Economic value added
  • Return on capital employed
  • Operating cost management
  • Operating ratios and loss ratios
  • Corporate goals
  • Survival
  • Profitability
  • Growth
  • Process cost savings
  • Increased return on assets
  • Profit growth
  • Measures
  • Cash flow
  • Net profitability ratio
  • Sales revenue
  • Growth in sales revenue
  • Cost reduction
  • ROCE
  • Share price
  • Return on shareholder funds
More on the customer perspective
How do customers perceive the firm?

This focuses on the analysis of different types of customers, their degree of satisfaction and the processes used to deliver products and services to customers.

Particular areas of focus would include:
  • Customer service
  • New products
  • New markets
  • Customer retention
  • Customer satisfaction
  • What does the organisation need to do to remain that customer’s valued supplier?
Potential goals for the customer perspective could include:
  • Customer satisfaction
  • New customer acquisition
  • Customer retention
  • Customer loyalty
  • Fast response
  • Responsiveness
  • Efficiency
  • Reliability
  • Image
The following metrics could be used to measure success in relation to the customer perspective:
  • Customer satisfaction index
  • Repeat purchases
  • Market share
  • On time deliveries
  • Number of complaints
  • Average time to process orders
  • Returned orders
  • Response time
  • Reliability
  • New customer acquisitions
  • Perceived value for money
More on the internal perspective

This seeks to identify:
  • How well the business is performing.
  • Whether the products and services offered meet customer expectations.
  • The critical processes for satisfying both customers and shareholders.
  • Activities in which the firm excels? 
  • And in what must it excel in the future?
  • The internal processes that the company must be improved if it is to achieve its objectives.
This perspective is concerned with assessing the quality of people and processes.
Potential goals for the internal perspective include:
  • Improve core competencies
  • Improvements in technology
  • Streamline processes
  • Manufacturing excellence
  • Quality performance
  • Inventory management
  • Quality
  • Motivated workforce
The following metrics could be used to measure success in relation to the internal perspective:
  • Efficiency improvements
  • Reduction in unit costs
  • Reduced waste
  • Improvements in morale
  • Increase in capacity utilisation
  • Increased productivity
  • % defective output
  • Amount of recycled waste
  • Amount of reworking
More on the innovation and learning perspective
This perspective is concerned with issues such as:        

  • Can we continue to improve and create value?
  • In which areas must the organisation improve?
  • How can the company continue to improve and create value in the future?
  • What should it be doing to make this happen?
Potential goals for the innovation and learning perspective include:
  • New product development
  • Continuous improvement
  • Technological leadership
  • HR development
  • Product diversification
The following metrics could be used to measure success in relation to the innovation and learning perspective:
  • Number of new products
  • % sales from new products
  • Amount of training
  • Number of strategic skills learned.
  • Value of new product in sales
  • R&D as % of sales
  • Number of employee suggestions.
  • Extent of employee empowerment 

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