The balanced scorecard is a strategic performance management tool that evaluates a company’s effectiveness in four perspectives: finance, business processes, learning and growth, and customer. It helps companies make decisions and assess current strategies to improve their operations.
The balanced scorecard is a strategic performance management tool used by companies to evaluate the effectiveness of their business functions. This tool was developed by Dr. Robert Kaplan of Harvard Business School in the United States and Dr. David Norton, and the term was coined in the 1990s. The balanced scorecard uses a strategic plan that focuses on four perspectives that the company can use to balance different functions when developing business strategies: finance, business processes, learning, and growth and the customer.
The first perspective of the balanced scorecard concerns the financial operations of the company. Financial perspective includes operating income, rate of return on equity investments. Financial information is important for companies because all economic resources or business inputs must eventually be paid for by the company. Excessive use of external debt or equity financing can limit the company’s operating effectiveness since interest must be paid on such financing. The financial perspective refers to how shareholders view a company.
The second part of the balanced scorecard is the business process perspective. This perspective focuses on a firm’s business costing process for allocating goods and services, quality of goods produced, how resources or economic inputs are acquired, and fulfillment of customer orders. This perspective highlights how the business operates and which functions may need improvement to increase productivity. It relates to how well a company’s products and services are meeting customer requirements.
The third part of the balanced scorecard is the learning and growth perspective. This perspective focuses on internal business operations and how the company is maximizing its employees’ resources. Common measures from a learning and growth perspective include employee job satisfaction, the company’s employee retention rate, each employee’s skill set, and each employee’s individual abilities to effectively and efficiently complete management duties. business. It highlights the importance of easy communication between employees, mentoring, mentoring, and efficient teaching and learning of new skills. The ability to effectively train employees is critical to a company’s ability to change with technology and not only meet customer needs, but anticipate them.
The final part of the balanced scorecard system is the customer perspective. This perspective involves how the company measures customer satisfaction, repeat sales, and analyzes the target market or demographic group. Customers are an important part of the business process; Using the key indicators described by the customer perspective method of balanced scorecards can help companies understand how well they are meeting customer needs and future customer desires.
The balanced scorecard combines these four perspectives to help companies make decisions about creating competitive business strategies in the business environment. This management tool can also be used to assess current business strategies and make corrections to improve the strategy. Companies can also use the balanced scorecard to plan, set goals, and develop feedback channels for use in business operations.
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