The Balanced Scorecard

2. Literature Review

2.1 The BSC Concept

Leading organizations agree on the need for a structured methodology for using performance measurement information to help set agreed-upon performance goals, allocate and prioritize resources, inform managers to either confirm or change current policy or program direction to meet those goals, and report on the success in meeting those goals.(12) Traditionally, business management has been based on financial indicators. In fact, during the industrial age, economic and financial information became almost the sole instrument used to facilitate the decision-making process in the business world. However, with the arrival of the technology revolution, it has become clear that a wider range of information is

They have called it the Balanced Scorecard (BSC). Unlike its predecessors, this model incorporates both financial and non-financial indicators. As a result of the success of this model when applied in the private sector, where it was first tested, studies have been done on how to adapt it to be used in the public sector and in non-profit organizations.(14)

Historically, the BSC was elaborated and fine-tuned by Robert Kaplan and David Norton in the 1990s, arising from the need to incorporate more than merely historical accounting scorekeeping to management. The phrase “Balanced Scorecard” was coined in the early 1990s but the concept originates from the pioneering performance management work of General Electric in the 1950s.(15) The “Balance” in the BSC relates to three areas that are neglected in the traditional financial performance business model (16):

Balance between financial and non-financial indicators of

They also argue that the BSC should be integrated into firms’ action plans, strategies, and visions. The design of the four dimensions deliberately coordinates with the business functions of a firm. More concisely, the financial dimension is associated with the accounting function of the organization, the customer dimension with the marketing function, the internal business processes with the integral value chain, and the learning and growth dimension with the human resources. Meanwhile, these four dimensions share the resources that a firm should input and the functions that a firm should have. (17)

However, the BSC translates a company’s mission and strategy into a set of performance measures that form the base for a measurement and strategic management system. (18) Despite the system measures and preserved traditional financial measures, the system directs the financial measures with perspectives that they stimulate for a future performance, including financial objectives of short, medium, and long term, to the desired economic result to be reached, reflecting the companies life cycle to evaluate if it has possibility of growth, maintenance, and collect