What is a balanced scorecard? What role does evaluation play in a balanced scorecard approach? – by Dan Goldstein

As explained by the Balanced Scorecard Institute, the balanced scorecard was designed by Drs. Robert Kaplan and David Norton ”as a performance measurement framework that added strategic, non-financial performance measures to traditional financial metrics to give managers and executives a more balanced view of organizational performance” (see Balanced Scorecard Basics). Balanced scorecards were originally used in the for-profit sector, with organizations defining strategic priorities and then designing measures and key performance indicators to monitor how well those strategies are being executed. More recently, the balanced scorecard has been adopted in the public and nonprofit sector, with leaders using it to define what their organizations are all about and explicitly communicate vision and strategy. The traditional balanced scorecard views an organization from four perspectives. The organization then develops objectives that satisfy each perspective, and collects data for each one. These perspectives are as follows:

1. The financial perspective:  An expert on improving, managing and measuring enterprise performance, Bernard Marr states that this perspective answers questions like “what would you like to deliver in terms of profits? Where would you like to grow your revenues? What sort of value would you like to return to shareholders? And to what level do costs need to be cut.” (See 2012 interview What is a Balanced Scorecard?). In the public and nonprofit sectors, the focus is often on balancing revenue with expenses.
2. The internal business process perspective: Also referred to as operational priorities, this perspective shows “how well a business is running, and whether [these processes result in] products and services that conform to customer requirements” (See Balance Scorecard Basics above).
3. The customer perspective: It is important to deliver to your customers. From this perspective, an organization would consider objectives such as increasing satisfaction with products and services delivered, or improving public perceptions of the organization.  
4. The learning & growth perspective: Includes employee learning and corporate cultural attitudes and leadership. Objectives from this perspective would attempt to maximize both individual and corporate improvement.

An organization is not bound to these four perspectives. It may freely develop its own perspectives to look at depending on what is important to the organization’s success. Because of this, organizations are now deviating from the traditional scorecard and developing ones that are a better fit, depending on their overall goals. This has allowed evaluation to come in to play. Beginning as a passive document, over time the balanced scorecard has evolved to “provide a framework that not only provides performance measurements, but also helps planners identify what should be done and measured” (See Balanced Scorecard Basics). What used to be looked at as a bench mark, the final results of a scorecard are now being evaluated by interpreting the data and then exploring options for improvement. Evaluation is not only used after the balanced scorecard is produced; it also plays a huge role in the scorecard’s original development. Evaluation can help:

• Define what an organization’s key performance indicators are, particularly in the customer and internal business practices areas;
• Determine what the sources of data are for the balanced scorecard; and
• Collect and summarize all of the data.

Evaluation allows organizations to dig deeper under the surface of indicators and act on the results that it finds. The two processes go hand-in-hand. If your organization has developed a balance scorecard, have you used evaluation in the process? If so, how has it helped? If not, would you consider using evaluation for your balanced scorecard in the future?