– includes measures such as cost, throughput and quality. These are for business processes such as procurement, production, and order fulfilment;

 – The Customer Perspective – includes measures such as customer satisfaction, customer retention, and market share in target segments;

 – The Financial Perspective – includes measures such as operating income, return on capital employed, and economic value added.

There is a logical connection between these four perspectives – learning and growth lead to better business processes, which in turn lead to increased value to the customer, which finally leads to improved financial performance. Each perspective of the balanced scorecard includes objectives, measures of those objectives, target values of those measures, and initiatives that are aimed at meeting the objectives.

In traditional industrial activity, «quality control» and «zero defects» were the watchwords. In order to shield the customer from receiving poor quality products, aggressive efforts were focused on inspection and testing at the end of the production line. The problem with this approach is that the true causes of defects are never identified, and there are always inefficiencies due to the rejection of defects. Variation is created at every step in a production process, and the causes of variation need to be identified and fixed. If this can be done, then there is a way to reduce the defects and improve product quality indefinitely. To establish such a process all business processes should be part of a system with feedback loops. The feedback data should be examined by managers to determine the causes of variation, what are the processes with significant problems, and then they can focus on fixing that subset of processes.

The BSC incorporates feedback around internal business process outputs, as in TQM, but also adds a feedback loop around the outcomes of business strategies. This creates a «double-loop feedback» process in the balanced scorecard.

The BSC does its magic by focusing the organization on the issues which the leadership team decides are key to its success. It does this through the process of implementing the scorecard – so a human element is the key.

There are other benefits – stronger communication (through the cascading and measurement tracking processes), warning of opportunities ahead (from watching key performance indicators), less «information overload» (from focusing on the most important measures), and greater alignment (from agreement on key objectives).

A sheet of paper with numbers on it can be created by one person and implemented by sheer force of authority. However, the point of a BSC is to:

– Align all members of an organization around common goals and strategies

– Link initiatives to the strategy, making prioritization easier

– Provide feedback to people on key issues – areas where they can have an impact

– Be an essential decision-making tool for everyone in the organization

The best process is to first create a clear business model, and then to select measurements based on that model. This increases commitment, brings more agreement on the direction of the organization, builds accountability to company goals, and increases the speed of change. The first part of the process is creating a model for the scorecard. First, review and clarify strategies. The next step is agreeing on what capabilities are needed within the company to actually pursue the strategy. The final part is creating the actual model. This is where you set up a simple diagram that reflects how you think the business works.