The Balanced Scorecard

In one paragraph

Kaplan and Norton's argument that financial results tell you what already happened, so you need three other kinds of measure that tell you what is about to.

Four perspectives, each with its own objectives and measures:

Financial — how do we look to shareholders? Revenue, margin, return on capital. These are lagging indicators: they report the past.

Customer — how do customers see us? Satisfaction, retention, share of wallet, complaints.

Internal process — what must we be excellent at? Cycle time, defect rates, on-time delivery.

Learning and growth — can we keep improving? Skills, staff retention, systems, culture.

The causal chain is the point

They are not four independent dashboards. The claim is that they cause each other from the bottom up: better skills and systems produce better processes, which produce happier customers, which produce financial results. Financials are the last thing to move, which is why running on them alone means finding out too late.

The discipline that matters is limiting yourself. A scorecard with forty measures is a report, not a strategy — it says everything matters, which means nothing is prioritised.

How to actually use it

• Pick one measure per perspective. Four numbers you look at every month beats forty you look at never.
• Write the causal sentence out loud: 'if we improve X, then Y should follow.' If you cannot, the measure is being tracked out of habit.

Where it breaks down

• Heavy to implement, and it tends to accumulate measures until it collapses under its own weight.
• The assumed causal links are often asserted rather than tested, and can simply be wrong for a given business.

If you are being examined on it

Name a measure for each perspective for the specific business, and explain the link from learning through to financial.

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