The balanced scorecard is a framework that can be used by businesses to assist in finding a proper balance between financial and strategic controls. The scorecard consists of four perspectives, each of which is essential to a firm's success. These four perspectives include: the financial, customer-focused, internal business processes, and learning and growth perspectives.
In each of these, the firm establishes a limited number of specific criteria relevant to its industry and business model that will allow it to measure performance in a given area. Then, the firm regularly reviews its progress against the benchmarks it has established.
First, the financial perspective helps firms to look at what shareholders seek, ie, firm profitability. In this area, firms measure their progress against earnings-per-share, return on invested capital, cash flow and other finance-orientated targets.
From the customer-focused perspective, the organisation assesses its relationships with its customers to help ensure that it keeps in focus the needs of those who will bring it future profitability. Criteria for measurement might include the customer retention rate, percentage of on-time deliveries or the number of co-operative marketing agreements with customers.
The internal business processes perspective helps the organisation focus on what it must do internally to achieve customer and shareholder satisfaction. Measures should centre on the firm's core competencies and business processes that most impact customer satisfaction. Examples include manufacturing cycle time, employee turnover rates and technological capabilities versus those of competitors.
Finally, the learning and growth perspective focuses on improving the firm's ability to innovate, to learn and to improve its products. Criteria in this area might include the number of new products versus those of competitors, the percentage of sales from new products and improvements in employees' skill levels.
Reference - Universitas 21 Global Pte Ltd.
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