The Balanced Scorecard A Literature Review on the Balanced Scorecard’s impact on performance

Executive Summary Since Kaplan and Norton introduced the Balanced Scorecard (BSC) in the early 1990s, it has become widely adopted by companies and divisions within companies. The BSC was conceived as way to operationalize a company's vision and strategy. In this regard, it is a management system, or as the originators note, a tool for change within the firm or unit. Not surprisingly, the swift adoption and creation of BSCs has led to a number of different applications and variations of the tool. When implemented well, it appears that BSC is consistent with the principles of good management in that it promotes strategic planning, better definition of accountabilities, and more effective feedback. Background When Kaplan and Norton introduced the Balanced Scorecard in 1992, companies were already searching for new measurement systems to replace the age-old accounting measurements used for budgetary control. The BSC is an apparent antidote to the limitations of using lag measurements that are historically based and cannot be used to help the manager moving forward (e.g., financial ratios). In addition, the BSC attempted to bring objective value to non-financial measures such as customer satisfaction and operational processes. The BSC is an integrated tool that is designed to link sets of activities and outcomes by individuals and groups to broader strategic goals of the firm. Done correctly, the BSC is believed to help the troops see how their work impacts the important company goals. The BSC is more of a conceptual tool, where the company and each unit within the company must customize the scorecard to their particular goals and strategy. In fact, the literature is clear by those that extol the use of the scorecard: executives and managers must spend plenty of time determining what the strategic goals of the company (or unit) are before BSC can be designed and implemented. Kaplan and Norton (2001) insist that a BSC program should be a change project rather than a metric or measurement tool. That is, instituting a BSC requires the critical involvement of executives who must determine and lay out a clear strategic direction. Under the BSC framework, once this strategic direction is clear, it can then be operationalized down through the structure. In this way, the lower level employee will be able to see the link between what he or she does and its impact on the company's bottom line goals (e.g., results benchmarks like profit). And …