The balanced scorecard approach emphasizes the need to provide management with a set of information which covers all relevant areas of performance in an objective and unbiased fashion. The information provided may be both financial and non-financial and cover areas such as profitability, customer satisfaction, internal efficiency and innovation.

Perspectives
The balanced scorecard focuses on four different perspectives, as follows.
Perspective Question Explanation

Customer
In the customer perspective of the Balanced Scorecard, managers identify the customer and market segments in which the business unit will compete and the measures of the business unit’s performance in these targeted segments. This perspective typically includes several core or generic measures of the successful outcomes from a well-formulated and implemented strategy.
The core outcome measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market share in targeted segments. But the customer perspective should also include specific measures of the value propositions that the company will deliver to customers in targeted market segments.
The segment-specific drivers of core customer outcomes represent those factors that are critical for customers to switch to or remain loyal to their suppliers. For example, customers could value short lead times and on-time delivery. Or a constant stream of innovative products and services.

• What do existing and new customers value from us?
• Gives rise to targets that matter to customers: cost, quality, delivery, inspection, handling and so on.

(2.5 marks for points well explained)

Internal
In the internal-business-process perspective, managers identify the critical internal processes in which the organization must excel. These processes enable the business organizations to:
i) Deliver the value propositions that will attract and retain customers in targeted market segments, and
ii) Satisfy shareholder expectations of excellent financial returns.
The key to excellence in any organization is control of its processes to produce reliable and consistent products and services. Performing the right processes in the right manner leads to consistent levels of product and service quality. The difficulty lies in finding the right process variables to measure and setting the standards appropriate to performance levels of each of the process measures. Process and operational measures are leading-edge measures that are more short-term-focused.

• What processes must we excel at to achieve our financial and customer objectives?
• Aims to improve internal processes and decision making.

(2.5 marks for points well explained)

Innovation and learning
For incentive purposes, the learning and innovation perspective focuses on the capabilities of people. Managers would be responsible for developing employee capabilities. Key measures for evaluating managers’ performance would be employee satisfaction, employee retention, and employee productivity.

• Can we continue to improve and create future value?
• Considers the business’s capacity to maintain its competitive position through the acquisition of new skills and the development of new products.

(2.5 marks for points well explained)

Financial
The balanced scorecard uses financial performance measures, such as net income and return on investment, because all for-profit organisations use them. Financial performance measures provide a common language for analysing and comparing companies. People who provide funds to companies, such as financial institutions and shareholders, rely heavily on financial performance measures in deciding whether to lend or invest funds. Properly designed financial measures can provide an aggregate view of an organisation’s success.
Financial measures by themselves do not provide incentives for success. Financial measures tell a story about the past, but not the future; they have importance, but will not guide performance in creating value.

• How do we create value for our shareholders?
• Covers traditional measures such as growth, profitability and shareholder value but set through talking to the shareholder or shareholders direct.

(2.5 marks for points well explained)