# Balanced Scorecard (BSC): What It Is, Examples, and Uses

> **Definition**
>
> The Balanced Scorecard (BSC) grades a company's performance from the perspective of customer satisfaction, operational excellence, and business innovation as well as financial success.

## What Is the Balanced Scorecard (BSC)?

The Balanced Scorecard (BSC) is a framework for evaluating a [company](https://www.investopedia.com/best-online-brokers-4587872) that goes beyond its financial performance to also take into account the organization's success in satisfying customers, operating effectively, and innovating for the future. This four-pronged approach to grading a company was introduced by business scholars Robert S. Kaplan and David P. Norton in a Harvard Business Review article in 1992.

Kaplan and Norton's broadened performance measurement is designed to give companies a complete picture of their overall health and help leaders implement long-term strategy, synchronize daily operations with their objectives, and foster ongoing enhancements. The BSC approach has been adopted by Fortune 500 corporations, including Apple and Volkswagen, as well as public-sector organizations and nonprofits.  

### Key Takeaways

*   The Balanced Scorecard's (BSC) four standard perspectives are designed to interact to improve long-term financial results.
*   This system allows organizations to convert abstract vision statements into concrete, measurable objectives.
*   The BSC expands the organization's focus from current financial performance to long-term success and innovation.

![Balanced Scorecard (BSC)](https://www.investopedia.com/thmb/I7JxcYko5FM0-YhfmZgp2bwf4pA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Balancedscorecard-712535a81f1c44b2b0cea414c52f7aea.jpg)

*Using the BSC framework effectively requires determining what metrics are the most helpful to track. — Investopedia / Michela Buttignol*

## How the Balanced Scorecard (BSC) Works

Kaplan and Norton argued that "What you measure is what you get," highlighting the need for a more balanced set of metrics to steer organizational behavior toward strategic objectives. They demonstrated through case study research that traditional financial metrics like return on investment (ROI) and earnings before interest, taxes, depreciation, and amortization (EBITDA) often failed to capture the drivers of future performance, such as process capabilities and employee competencies.

To remedy this, the authors proposed adding customer, internal process, as well as innovation and learning measures to financial data, creating a multidimensional dashboard that reflects an organization’s strategic priorities. This integration enabled managers to focus on leading indicators of success, rather than relying solely on lagging financial results that could mask emerging opportunities or risks.

Beyond its academic roots, the Balanced Scorecard (BSC) quickly became a popular tool in strategic planning cycles, board-level performance reviews, and as the foundation for incentive compensation models. Firms can use BSCs to align departmental goals with overall corporate strategy, manage individual business units, and drive cultural change. In the public sector, organizations also utilize the BSC to demonstrate accountability, monitor service quality, and meet regulatory requirements.

Today, digital dashboards and software platforms feature automatic data collection and reporting, further enhancing the BSC’s role as a real-time strategic management system.

## The Four BSC Perspectives

1.  **Financial perspective**: Traditional financial objectives, such as revenue growth and profitability, alongside cost management and [asset utilization](https://www.investopedia.com/terms/c/capacityutilizationrate.asp), make up the main focus of this analysis. Standard financial assessment tools encompass [return on capital employed (ROCE)](https://www.investopedia.com/terms/r/roce.asp), [net profit margin](https://www.investopedia.com/terms/n/net_margin.asp), and cash flow benchmarks. Focusing on these metrics ensures that an organization's strategic initiatives generate tangible financial outcomes, instead of just abstract targets.
2.  **Customer perspective:** The focus here lies in comprehending and fulfilling customer expectations, looking at metrics like customer satisfaction scores, retention rates, and market share. Businesses evaluate their products and services through net promoter scores (NPS) and customer lifetime value (CLV) to determine how well they connect with their intended audiences. Companies build [brand loyalty](https://www.investopedia.com/terms/b/brand-loyalty.asp) and encourage repeat business by aligning their operational procedures with customer requirements.
3.  **Internal business perspective**: This examines how well critical processes perform and maintain quality standards that support fulfilling customer value and achieving financial objectives. The essential performance metrics, known as [key performance indicators (KPIs)](https://www.investopedia.com/terms/k/kpi.asp), track cycle times, defect rates, and process yield measures. Organizations follow these metrics to pinpoint bottlenecks while optimizing operations and developing innovative process improvements.
5.  **Innovation and learning perspective**: This dimension evaluates the organization's capacity to innovate and improve through organizational learning and adaptation. These metrics include the number of training hours employees receive, skill development programs, investments in technology, and employee engagement levels. Long-term organizational success depends on investment in [human capital](https://www.investopedia.com/terms/h/humancapital.asp) development and new product innovation.  
    

> **Fast Fact**
>
> Organizations need to carefully choose KPIs that represent strategic priorities, as oversimplification of metrics can hide important insights and obscure cause-and-effect connections.

## Building Out the Scorecard

The typical implementation of the BSC approach follows these sequential steps:  

1.  **Define the organizational vision and strategy**: Establishes the fundamental groundwork for all subsequent actions.
2.  **Identify strategic objectives for each perspective**: Between three and five distinct goals for every perspective.
3.  **Determine the relevant metrics**: Identify KPIs to track progress towards each objective accurately.
4.  **Set targets**: Develop challenging yet feasible goals for each metric
5.  **Identify strategic initiatives**: Establish concrete programs and projects to promote the established targets.
6.  **Set out cause-and-effect links**: Map out the connections between objectives in various perspectives to illustrate their mutual influence through a strategy map visualization.
7.  **Cascade throughout the organization**: Break down the corporate scorecard into individual scorecards for departments and teams to ensure organizational alignment.
8.  **Integrate with management processes**: Embed the BSC into the organization’s planning and budgeting procedures, reporting systems, and performance evaluations.
9.  **Assess and refine regularly**: Regularly assess how well the metrics function and modify them when necessary.

## Example of Using BSC

Consider a mid-sized microchip manufacturer, “Chip Co.,” that seeks to revitalize its performance measurement system by implementing a BSC.

The management team at Chip Co. starts by translating their corporate strategy into the four BSC perspectives through a strategy map that demonstrates cause-and-effect relationships like fostering innovation to introduce new products (Innovation and Learning), leading to enhanced process efficiency (Internal Processes), which results in better customer satisfaction based on on-time deliveries (Customer), and ultimately creates revenue growth and improved market share (Financial). This creates a rough process map:

> \[Innovation and Learning\] ──▶ \[Internal Processes\] ──▶ \[Customer\] ──▶ \[Financial\]

Every objective would further receive a specific set of KPIs with a target and corresponding initiative. For example, they may set a deadline of 12 months (down from 15 months) for next-gen development and an on-time delivery percentage goal of 95% (up from 92%).

During monthly management meetings, results analysis leads to resource redistribution or strategic changes when actual performance deviates from target values. The BSC framework converts theoretical objectives into quantifiable tasks to create uniform strategic direction throughout organizational levels.

> **Tip**
>
> Kaplan and Norton developed the BSC approach because, "The traditional financial performance measures worked well for the industrial era, but they are out of step with the skills and competencies companies are trying to master today."

## Advantages and Disadvantages of Balanced Scorecards

Implementing a BSC provides a structured framework that helps organizations align strategy across financial, customer, internal-process, and learning perspectives. It enhances strategic communication and departmental alignment through clear strategy maps and shared KPIs. By incorporating leading indicators alongside traditional financial metrics, the BSC drives long-term performance management and continuous improvement.

However, organizations can encounter challenges like metric misalignment, KPI overload, stakeholder resistance, time-intensive development, and an overly internal focus.

As with any management system, successful BSC implementation depends on careful design, strong sponsorship, and regular review to keep the scorecard a living tool rather than a static report.

Pros

*   Provides a clear structure to strategy implementation
    
*   Communicates corporate vision understandably
    
*   Aligns departments and divisions around common objectives
    
*   Offers a holistic view of organizational performance across multiple dimensions
    
*   Supports long-term growth and continuous improvement through leading indicators
    

Cons

*   Risk of picking the wrong metrics, which can misrepresent performance
    
*   Potential to overload on KPIs, overwhelming teams and obscuring priorities
    
*   Difficulty obtaining buy-in from stakeholders
    
*   Risk of the BSC becoming a “checkbox” exercise 
    
*   Can encourage an inward focus if external factors aren’t balanced with stakeholder perspectives
    

## What Is the Main Goal of a Balanced Scorecard (BSC)?

The Balanced Scorecard (BSC) is a framework for quantifying a business' performance beyond its finances, while also broadening the company's focus toward long-term success and growth.

## What Are the Four Key Measures of a BSC?

The BSC system is based on the following four key perspectives: financial, customer, internal, as well as innovation and learning. While tracking finances is something every company does in some capacity, incorporating the other perspectives makes it easier for business owners to spot emerging opportunities and risks.

## Is the Balanced Scorecard Still Relevant?

In a 2008 study, 53% of organizations surveyed worldwide reported using the BSC approach. However, a later report found that usage had dropped to 38% by 2014.

## The Bottom Line

The Balanced Scorecard (BSC) enables organizations to connect strategic planning with operational execution through the use of varied financial and nonfinancial performance metrics. This approach employs a four-perspective framework that enhances complete performance understanding while promoting organizational alignment and ongoing improvement through effective communication.

The BSC functions effectively as a well-established instrument that transforms strategic objectives into measurable metrics, driving decision-making and success across changing conditions regardless of application complexity.

> **Article Sources**
>
> 1.  The Balanced Scorecard Institute. "[What Organizations Are Successfully Using Balanced Scorecard?](https://balancedscorecard.org/bsc-basics/examples-success-stories/)"
>     
> 2.  Harvard Business Review. "[The Balanced Scorecard—Measures That Drive Performance](https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2)."
>     
> 3.  Harvard Business School. "[What Is a Balanced Scorecard?](https://online.hbs.edu/blog/post/balanced-scorecard)"
>     
> 4.  Smartsheet. "[Free Balanced Scorecard Templates and Examples](https://www.smartsheet.com/balanced-scorecard-examples-and-templates)."
>     
> 5.  BPM Institute. "[Problems Implementing a Balanced Scorecard](https://www.bpminstitute.org/resources/articles/problems-implementing-balanced-scorecard/)."
>     
> 6.  ScienceDirect. "[Thirty Years With the Balanced Scorecard: What We Have Learned](https://www.sciencedirect.com/science/article/pii/S0007681322000258)."
>     
> 7.  Bain & Company. "[Management Tools & Trends 2009](https://www.bain.cn/pdfs/200907260331013214.pdf)," Page 7 (Page 9 of PDF).
>     
> 8.  Bain & Company. "[Management Tools & Trends 2015](https://www.bain.com/contentassets/bdbe69e0ca9e4cb58305303ee58fe06d/bain_brief_management_tools_2015.pdf)," Page 10 (Page 12 of PDF).