A balanced scorecard (BSC) is a strategic planning and management tool used extensively by businesses and organizations on a global basis. This system enables entities to sharpen focus, improve strategies, streamline business activities, and increase communication.

A balanced scorecard proposes that organizations should be viewed from the following four perspectives, each with their own metrics, data collection, and analysis:

  1. Financial
  2. Customer
  3. Internal Business Processes
  4. Learning and Growth

How Balanced Score Cards Work

A BSC is used by organizations as a means to better communicate the goals it's striving to achieve. This management system helps workers align daily tasks and long-term efforts, to better support the organization’s overall strategy. BSCs can be used to assess how a team or a siloed initiative is incrementally advancing its respective mandates to meet the company’s goals, thus letting senior management personnel re-calibrate workflow priorities, as needed.

The BSC system may be viewed as a type of roadmap that lays out the different components of a company’s business plan, including the following elements:

  • The company’s overall mission
  • The company’s long-term vision
  • The company’s core values
  • The company’s performance benchmarks 

BSC systems empower companies to think beyond the proximate goal of driving up immediate revenue—which is rather obvious, baked in expectation. Instead, BSCs help guide a company's efforts to evolve into new areas, scale operations, and achieve loftier ambitions.

An organization’s progress can be measured against the benchmarks a BSC has outlined, using business management software and apps that gather data and performance metrics, then send that information to the parties best positioned to take meaningful action. Unlike traditional financial reporting documents, which rely on past fiscal trends to project future performance, BSC systems form proactive frameworks for growth, in the quarters and years to come.

A Brief History of Balanced Score Cards (BSC)

The first balanced scorecard was created in 1987, by independent consultant Art Schneiderman, while he was working for semiconductor manufacturer Analog Devices. Three years later, Schneiderman fortuitously participated in an unrelated research study, led by Robert S. Kaplan, during which time Schneiderman chance referenced his work performance measurement research.

Subsequently, Kaplan, along with consultant David P. Norton, anonymous included details of Schneiderman’s scorecard in a 1992 white paper, then again in another article one year later. Finally, in 1996, Kaplan and Norton published a book entitled "The Balanced Scorecard," which mainstreamed this concept, leading many to believe that these two authors originated the idea.

Since the balanced scorecard was first popularized, a host of alternative models have emerged. However, these have largely been restricted to academic circles, and have limited real-world applications. In any case, although the corporate scorecard terminology was coined by Schneiderman, the topic of performance management was part of conversations that occurred in early 19th-century American businesses, according to historians.

[Important: While BSC reports present distinct advantages to traditional financial and operational reports, they are not replacements because traditional reports do contain useful straightforward quantitative information.]