Introduced by Robert Kaplan and David Norton in 1992, the balanced scorecard (BSC) has left an indelible mark on performance measurement. The BSC is a performance measurement framework that goes beyond financial metrics, taking into account the other aspects of a company’s value creation process.
Traditionally, managers would measure performance through the limited lens of financial returns, even in the wake of introducing new strategies that might not be measurable through mere financial metrics. The BSC, on the other hand, measures performance across four perspectives, each one answering a critical question: Customer (How do customers see us?), Internal (What must we excel at?), Learning and Growth (Can we continue to improve and create value?), and Financial (How do we look to shareholders?).
The BSC’s holistic and forward-thinking approach is making a notable impact on the tech industry due to its dynamic nature. The development and deployment of new technologies occur at such a rapid pace that traditional performance measurement frameworks can’t catch up. Since the BSC looks at performance from several perspectives, companies that use it are more aware of their current strengths and opportunities for improvement, making it easier for them to adapt to fluctuating circumstances and emerging trends.
Apple’s BSC Indicators
A prime example of a tech company that uses the BSC to its advantage is Apple. A prominent player in the tech industry, Apple wanted to shift focus strictly from financial performance (measured by gross margin, return on equity, and market share) to a more overarching, holistic approach. To accomplish this, the company established a small steering committee that had in-depth, firsthand experience with the deliberations and strategic thinking of the Apple Executive Management Team. This committee then developed a BSC that measured performance according to five indicators that aligned with the four perspectives of the BSC. This approach is outlined in an article written by Norton and Kaplan themselves, from which the following discussion is drawn.
For the customer perspective, Apple used customer satisfaction and market share. For internal processes, the company chose core competencies. For learning and growth, Apple emphasized employee attitudes—specifically, commitment and alignment. Lastly, under the financial perspective, the company focused on shareholder value.
Customer Satisfaction
Customer satisfaction sits among the top of Apple’s priorities, but that wasn’t always the case. Previously, the company had its eye almost exclusively on its technology and products. In the 1980s, Apple’s mission was “to make a contribution to the world by making tools for the mind that advance humankind.” The company’s values have since shifted from technology (i.e., tools) to a more seemingly altruistic, people-centric perspective. This was evident when Apple decided to develop its own customer surveys instead of working with third parties, recognizing the diversity of its customer base.
Market Share
Market share is another essential indicator, especially for a company in the tech industry. This is due to the fact that, by acquiring as much of the market as it can, Apple not only increases its profits but also attracts and retains more software developers.
Core Competencies
Under Apple’s BSC, the company’s employees are expected to possess core competencies, such as creating user-friendly interfaces, powerful software architectures, and effective distribution systems. However, many Apple leaders believe that measuring the impact that these have is a complex task. Over time, the tech company has experimented with quantitative measurements to see if enabling employees in this fashion can nurture their skill sets.
Employee Commitment and Alignment
Apple believes employee commitment and alignment are important. In line with this, they conduct a thorough employee survey for every organizational branch every two years. Random employee surveys are done more frequently. The questionnaires aim to determine how well each employee comprehends the company’s overall strategy and whether they are delivering results that contribute towards accomplishing that strategy.
Shareholder Value
Apple views shareholder value as a performance indicator, despite it being a performance result instead of a driver. Doing so enables the company to offset its former reliance on measuring performance via gross margin and sales growth, which did not take into account investments that would bear fruit in the future.
Did Apple make the right choice? It appears so, as the company’s use of the BSC has yielded several net positives throughout the years. It has dominated the market, consistently ranking among the top five smartphone vendors in the world since 2009. The company has also frequently ranked at the top of the American Customer Satisfaction Index, holding the number one spot for two years in a row (2021 and 2022). Moreover, Apple also holds a very high employee satisfaction rating on Glassdoor, with many of its employees praising its culture and values—indicative of the company’s strong employee commitment and alignment. Like many large companies, Apple has also faced its share of challenges. However, its ability to adapt is reflected in its progress, demonstrating the beneficial impact of the BSC.
Another major shift in the business landscape today that’s also reflected in Apple’s recent efforts is sustainability. The need to incorporate sustainability into the BSC can no longer be ignored. Beyond being a responsible choice, it is a strategic move to stay competitive, as today’s consumers increasingly favor brands that align with environmental values.
Although Apple has not publicly disclosed an updated version of its BSC that incorporates sustainability, its recent results—such as achieving carbon neutrality for corporate operations in 2020 and generating 20% lower carbon emissions in 2023 compared to 2022—are evidence of the company’s commitment to sustainable practices.
Harness the Power of the BSC
Whether you’re a consultant or the owner of a small, medium, or large organization, knowing the ins and outs of a BSC and how it can best be used to propel an organizational entity to a higher level of performance is paramount. As such, The KPI Institute offers the Certified Balanced Scorecard Management System Professional, along with resources like templates and webinars, for those looking to deepen their knowledge of the BSC, from design and implementation to managing key performance indicators (KPIs) within the framework and how its components work.
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Editor’s Note: This article was originally published on September 10, 2021. It has been updated as of May 2, 2025, with the help of Paolo Orduña, Senior Editor at The KPI Institute.
The balanced scorecard (BSC) is a widely used performance measurement framework for strategic planning. It is so popular, in fact, that The KPI Institute’s latest State of Strategy Management Practice report found that 40% of respondents from Middle Eastern companies were using it. Why is that the case? It’s likely in the name—the BSC offers a balanced perspective of a company’s performance, focusing not just on financial gains but the various aspects of value creation as well. This enables companies who use it to establish sustainable business practices that can meet long-term goals without sacrificing short-term improvements.
What Is the BSC?
In 1992, Robert Kaplan and David Norton dreamed of a better way. Aware of the limitations of traditional practices that focused solely on financial indicators such as return on investment (ROI) to measure a company’s performance, the two designed a tool that incorporated non-financial variables to paint a more holistic, comprehensive picture. Thus, the balanced scorecard was born.
The BSC was further refined by connecting performance metrics directly to strategy, which marked a formal link between strategic goals and performance measurement. In 1996, it became a performance management system (PMS) that effectively integrated the various crucial aspects of an organization—i.e. strategic processes, resource allocation, budgeting and planning, goal setting, and employee learning.
By 2001, the BSC had outgrown its original form, no longer seen as a mere management tool but instead as an all-encompassing strategic management and control system. The BSC has continued to evolve alongside the ever-changing priorities of the business world. In 2021, many companies began integrating environmental and social dimensions into their BSCs to reflect their triple bottom line strategies.
The BSC gives managers a view of the business from four crucial perspectives. Each perspective deals with an integral aspect of the organization and answers a specific question:
Customer Perspective: How Do Customers See Us?
Companies typically have a mission statement that encapsulates how they interact with customers. For example, e-commerce platform Etsy’s mission statement is “Keep Commerce Human.” This sentiment informs the way the company does business, which places importance on leaving a positive economic, social, and ecological impact.
The BSC holds companies accountable to their mission statements by translating them into specific measures that must be followed. For Etsy, one aspect to consider would be the diversity of its workforce, which falls under social impact. To address this, the company has taken measures such as increasing the presence of underrepresented communities in its seller community by interviewing candidates from those backgrounds. This has enabled the company to stay true to its mission and show customers that it walks the talk.
Internal Perspective: What Must We Excel At?
Balance is the primary focus of the BSC—it’s in the name, after all. Thus, the framework doesn’t only take into account the way customers perceive the company, but it also considers what the latter does to shape this perception. This is composed of the various operational and organizational processes that drive the company.
By giving managers an internal perspective, they can identify, track, and measure the processes that yield the most benefits and close the gaps on the ones that fall short.
Learning and Growth Perspective: Can We Continue to Improve and Create Value?
The business landscape is constantly shifting, and in order to keep pace with its changes, businesses must consistently learn and innovate. That is the importance of this perspective, which states that a company’s value hinges on its ability to improve. In any industry, competition can be fierce, which means companies must always find new ways to stand out.
Financial Perspective: How Do We Look to Shareholders?
Among the four perspectives, this is perhaps the most straightforward. Put simply, it indicates if a company is profitable. Although financial performance is no longer the end-all, be-all measure of a company’s success, it still plays a crucial role in determining whether a company is simply surviving or thriving. Shareholders understandably value profitability, and they won’t keep investing in a company that doesn’t produce ROI.
The BSC is by nature a holistic framework, meaning each part is interconnected to the others. This is why it’s important to take a balanced (pun intended) approach when considering the four perspectives. If one side is prioritized over the others, it could lead to the formation or widening of inefficiency gaps that impede business growth and success.
As previously mentioned, the BSC is quite popular. This is due to the myriad of benefits that it brings to organizations that use it wisely. The most obvious benefits of the BSC are twofold. First, it consolidates the seemingly disparate aspects of a business in a single report, leading to increased efficiency in performance reporting and measurement as well as faster decision-making. Second, the BSC helps mitigate suboptimization by making managers consider the entirety of the company’s operational measures, demonstrating whether one objective was achieved at the cost of another.
A more concrete example of the BSC benefiting companies can be seen in how Apple uses the framework. By shifting its focus from innovating its products to also paying mind to customer satisfaction by establishing it as one of the company’s core tenets, the tech giant was able to improve its already stellar reputation by catering to its customers’ desires. Apple also values core competencies, employee commitment and alignment, market share, and shareholder value. Together, these indicators make up the metrics of their BSC.
World-renowned electronic company Philips is also known for its use of the BSC, using a bespoke version of the framework to fit its organizational needs. The company’s focus is on its employees, and it uses the BSC to ensure that each member of its workforce has a clear understanding of the company’s strategic policies and long-term vision.
What Does the Future Hold?
There must be a stronger emphasis on customization as companies realize that there is no such thing as a one-size-fits-all approach to performance management. This aligns with the proliferation of new advancements in artificial intelligence (AI) and machine learning (ML), technologies that must be integrated into the BSC lest the framework fall behind the ever-shifting realities of the business world. Regardless of the future, the BSC appears poised to remain a vital tool for companies of all sizes and in all industries.
Interested in learning more about the BSC? Browse our articles here.
The Balanced Scorecard (BSC) is one of the most important performance management tools used to improve business functions and their outcomes. This tool is used not only at the organizational level but also at the departmental level.
By using departmental scorecards, managers are able to get detailed insights into the performance of their departments. The scorecards can also determine the responsibilities of the employees in terms of achieving strategic objectives.
To implement an effective balanced scorecard for the departmental level, organizations should take into consideration these best practices.
Develop the Right Template
Employees are often asked to collect data since every manager knows that it is essential in generating qualitative insights. However, the different performance reports could easily lead to different interpretations. A well-designed template leads to a clear, structured reporting and improves communication through standardization.
The template should contain four perspectives that meet the organization’s strategic needs. The most commonly used perspectives are Financial, Customer, Internal Processes, People Learning, and Growth.
Moreover, the template should also display the objectives associated with each perspective and the KPIs associated with each objective. For each KPI, the target and thresholds, the trend, and the previous and current result should also be presented.
Choose the Right Objectives
When preparing a departmental scorecard, one of the most important steps is to select the right objectives for the different categories, and those objectives should align with the organizational and departmental strategy. Through the cascading process, the organizational objectives and KPIs are translated from the strategic level down to the departmental level.
The departmental scorecard must contain some specific objectives depending on the activities of the operations team. The same objective can be cascaded to more departments, each of them measuring it through different KPIs. Some organizational objectives may not be cascaded to lower levels.
For example, the objective of the Financial perspective is to Increase profit. This organizational objective can not be directly cascaded to the human resources department since the human resources department has no direct influence on the revenue of the organization. However, they could reduce their spending in order to increase organizational profit. Therefore, the objective for the human resources department could be to minimize operational costs. Since the sales department is responsible for profit generation, they can cascade down this organizational objective without any modification.
Choose the Right KPIs to Measure Chosen Objectives
As mentioned before, it is recommended not to cascade all objectives and KPIs from the organizational level to the departmental level, but organizations may add specific ones that represent the department. The most important attributes in KPI selection are relevance, clarity, and balance.
In many cases, organizational and departmental scorecards may not be enough to communicate the organizational strategy to all employees. Therefore, individual scorecards should also be created for them.
Data Sources for a Balanced Scorecard
During the scorecard development process, organizations may find it hard to determine the right objectives and KPIs. Objectives and KPIs must be based on relevant data. There are two types of sources of data to consider: primary and secondary.
Feedback from internal stakeholders can be considered as an internal primary data source, while feedback from external stakeholders is an external primary data source. Secondary internal sources could a company’s previous reports and strategy plans, while smartkpis.com and academic articles are external secondary sources.
Figure 2: Marketing Departmental Scorecard Example
Throughout the years, many studies have examined the use of the balanced scorecard (BSC) in a board’s performance evaluation. Why is this important and how can this be implemented?
The modern business landscape is characterized by fast-changing trends, an expanding weight from the competition, and risks emerging from new trends. This is why a good corporate governance system is what can help companies achieve high business performance despite uncertainties. Having a control mechanism will help managers carry out business activities that can maximize profits for shareholders. Board members represent an important internal control mechanism.
The BSC, designed by Robert Kaplan and David Norton, is primarily made of financial and non-financial benchmarks. The BSC model starts from a defined mission, vision, goals, and strategy of the company and identifies specific goals, tasks, benchmarks, and initiatives from four basic causal relationships: financial perspective, stakeholder perspective, internal business process perspective, and learning-growth perspective.
The BSC Component in the Context of a Board’s Performance
In 1996, Kaplan & Norton suggested that the vision and strategy of a company be more specifically defined from four basic, interconnected perspectives:
Financial Perspective – how to implement a strategy that will maximize profits for equity owners.
Customer Perspective – how to achieve customer satisfaction and loyalty.
Internal business process – how to achieve an effective and efficient business process.
Learning and Growth Perspective – how to gain human capital competitive advantage.
Later, in 2004, Kaplan & Michael E. Nagel proposed a three-part BSC program:
Enterprise Scorecard – synchronized list of results at company level
Board Scorecard – synchronized list of Board results
Executive Scorecard – synchronized list of executors’ scores
Synchronized lists at the company level ensure that top managers, starting from a well-defined company strategy, goals, tasks, benchmarks and initiatives through the four outlined perspectives. This process converts the company’s strategy into operational terms.
It is necessary to build a synchronized list at the board level. That is, the board of directors should evaluate and approve the corporate strategy map and the corporate level’s harmonized list. According to Kaplan and Nagel, a synchronized list at the board level also has four perspectives:
Financial Perspective – Similar to the company level, the goal is to maximize value for equity owners.
Stakeholder perspective – This is a broader perspective than at the company level because it is now important to respect the interests of all stakeholders.
Perspective on internal business processes – This explains how the board contributes to achieving shareholder goals and relates to performance monitoring, reward systems, etc.
Learning and Growth Perspective – This captures human capital as a source of competitive advantage, related to the specific skills and the knowledge and capabilities of board members.
Application of the BSC to a Board’s Performance Evaluation
According to research published in the Managerial Auditing Journal, studies that have suggested the possibility of using the BSC in evaluating the board performance recognize the financial dimension, the stakeholders’ dimension, the internal processes dimension, and the learning and growth dimension in the BSC.
The framework of the board’s BSC is based on identifying four basic elements in each dimension: the objectives, the performance drivers, the measures, and the targets:
The objectives reflect the board responsibilities;
The performance drivers are actions taken by the board to achieve the objectives. Each performance driver should be linked to specific measures and targets;
The performance measures are used to control the performance drivers and assess whether the board has achieved the goals;
The targets reflect the best practices of the industry.
Using the BSC in a board’s performance evaluation can help define strategic contributions of the board; provide a tool to manage the composition and the performance of the board and its committees; clarify the strategic information required by the board, and help monitor the structure and performance of the board and its committees.
The Evaluation Process: Agents and Contents
According to the study “Evaluating Boards and Directors”, evaluating board performance may be done by an internal party represented by the chairman of the board. In some cases, it may be appropriate to delegate the evaluation process to a non-executive member, a lead director, or a committee of the board. Also, the evaluation process may be carried out by an external party who has experience in corporate governance and performance evaluation.
The self-evaluation method is a common way to evaluate board performance. Even though this method is characterized by confidentiality, biases can still occur. The close work relationship between chairman or the non-executive member and the board members can affect the objectivity of their point-of-view. The lack of skills and time in conducting performance evaluation can be a major influence on the evaluation results.
Through a nominating committee or an audit committee, a higher degree of objectivity and independence can be achieved; however, the bias risk will remain.
Hiring an external advisor is applicable for the non-availability of the necessary skills for the evaluation process and achieving greater transparency and objectivity. The external counselor may be a professional advisor. Several enterprises use a trusted adviser as the board prefers to deal with people whom they know and trust, but it is better to use a professional advisor that has a proven technical skill in their past experiences and a high degree of independence.
The responsibilities element aims to evaluate the fulfillment of the board’s responsibilities.
The operations element aims to assess the board’s relationship with the management.
The structure element aims to assess the board’s composition.
The board membership element aims to assess the overall board’s skills and knowledge, experience, competence, ethics, diligence, and independence.
Figure 1. Strategic Objectives and KPIs | Source: The KPI Institute
The BSC is an advanced performance management tool that supports organizations to transform vision and strategy into short-term and long-term targets and specific measuring rules. The application of a balanced scorecard in evaluating a board’s performance has been proven through many studies as an effective performance management tool. It also helps a board’s direction to be more aligned at the company and operational level.
Using a BSC in a board’s performance evaluation requires skillful and independent evaluation agents to maximize its potential. To gain the right skills and learn how to implement a balanced scorecard management system in your organization, sign up for The KPI Institute’s Certified Balanced Scorecard Management System Professional course.
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Editor’s Note: This article has been updated as of September 17, 2024.
In an era when environmental concerns are at the forefront of global discussions, businesses are being called upon to integrate sustainability into their operations. Developed as an extension of the traditional Balanced Scorecard (BSC), the Sustainability Balanced Scorecard (SBSC) aims to provide businesses with a tool to align their environmental, social, and economic objectives, driving positive impact while ensuring long-term success.
The Genesis of the SBSC
The concept of the BSC was first introduced by Robert Kaplan and David Norton in the early 1990s as a framework to measure business performance beyond financial metrics. The BSC aimed to provide a more holistic view of an organization’s health by incorporating four hierarchical perspectives: Financial, Customer, Internal Processes, and Learning & Growth.
A decade later, as sustainability became a critical global concern, scholars started looking into the possibility of integrating sustainability considerations into the BSC. They agreed on the potential of extending the focus of the well-established BSC to include measuring business performance through the lens of environmental stewardship, social responsibility, and ethics. Thus, the concept of the SBSC began to crystallize.
When it comes to the best architecture for the SBSC, there have been conflicting discussions ever since the concept was introduced. Two major approaches took prominence: one is to add a fifth perspective to the traditional BSC that was dedicated to sustainability; the other is to integrate sustainability objectives and KPIs into the already existing perspectives.
A 2009 study showed that in the fifth perspective approach, sustainability KPIs tend to be overlooked by management in organizations with no established sustainability culture. That is why the four-perspective approach can be a safer choice, especially for organizations that are only starting to integrate sustainability in their measures.
In a 2021 article, Kaplan supported the four-perspective approach, introducing a suggested restructuring of three out of the four perspectives to make them more relevant to environmental, social, and governance (ESG) elements:
From “Financial” to “Outcomes” to include environmental and societal objectives besides the financial aspect
From “Customer” to “Stakeholder” to reflect the value of different members of the whole ecosystem
From “Learning & Growth” to “Enablers” to encompass the various capabilities across all stakeholders in the ecosystem
Reaping these sustainability integration benefits can be a bit of a long shot, and further studies are needed to prove such benefits even exist. However, the only way to reap said benefits is to plant the seeds of sustainability integration. To help accomplish this, the SBSC can be a potent tool that allows organizations to measure, manage, and optimize their sustainability performance. As global challenges such as climate change, resource depletion, and social inequality loom larger, businesses must go beyond profits and consider their broader impact. The SBSC empowers organizations to embrace sustainability as a strategic imperative, paving the way for a more responsible, resilient, and prosperous future.
For more on utilizing the Balanced Scorecard, The KPI Institute has developed the Certified Balanced Scorecard Management System Professional to help organizations maximize the tools’ potential. And if you are interested in expanding your toolkit further, consider subscribing to smartkpis.com and gain access to the world’s largest database of documented KPIs, which includes a thorough collection of sustainability metrics.
