What is Balanced Scorecard?
The Balanced Scorecard, by Kaplan and Norton (1992), translates strategy into a coherent set of measures across four perspectives. Financial — what shareholders expect (revenue, margin, ROE). Customer — what customers value (satisfaction, retention, share). Internal Process — what we must excel at (cycle time, defect rate, innovation rate). Learning & Growth — what capabilities we must build (employee skills, IT infrastructure, culture). Each perspective contains objectives, measures, targets, and initiatives. The scorecard creates strategic alignment — every team's KPIs cascade from the corporate scorecard — and exposes leading indicators that financial measures alone miss.
How Balanced Scorecard actually works
The framework breaks down into the following moving parts. Knowing what each piece is — and what it is not — is what separates a B-grade answer from an A-grade answer in a written assignment.
- Define strategy and translate into objectives
- For each perspective, define 3–5 measures with targets
- Cascade scorecards from corporate to division to team
- Review monthly; adjust quarterly
- Tie compensation to scorecard performance
A worked example: Mobil Oil
Mobil's 1990s North American Marketing & Refining unit applied the Balanced Scorecard to turn around a struggling business. Financial: net cash flow, ROCE. Customer: NPS at retail stations, dealer satisfaction. Internal Process: refinery yield, station cleanliness, on-time delivery. Learning: employee engagement, IT capability. The cascade reached every gas-station manager. Within five years, Mobil M&R moved from bottom-quartile to top-quartile profitability in the industry. The case is in Kaplan & Norton's book and is the textbook BSC implementation example.
Don't lose marks for these
- Treating BSC as a KPI dashboard, not a strategy translation tool
- Picking too many measures (more than 25 across four perspectives)
- Failing to cascade to operational teams
How to use this on the exam
Score-maximizing moves
- List all four perspectives
- Distinguish leading from lagging indicators
- Cite Kaplan & Norton 1992
When to use Balanced Scorecard (and when not to)
Use Balanced Scorecard when your assignment asks you to analyze, structure, or recommend — and when you have at least two data points to populate every cell of the framework. Skip it when the question is asking for a numerical answer or a single recommendation, since Balanced Scorecard is a structuring tool, not a calculator.