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Balanced Score Card

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Foundations of BSC
David and Kaplan introduced balanced score card in 1992. It was based on a 1990 Nolan, Norton multi-company research project that studied performance measurement in companies whose intangible assets played a central role in value creation. Norton and Kaplan believed that measurement was as fundamental to managers as it was for scientists.

Its roots lie in 1950s-1980s where a team of employees in GE did a project to find out non-financial metrics to measure the performance of a company. They came out with a single financial and 7 non-financial metrics. They are :

1. Profitability (measured by residual income)
2. Market share
3. Productivity
4. Product leadership
5. Public responsibility (legal and ethical behavior, and responsibility to stakeholders including shareholders, vendors, dealers, distributors, and communities)
6. Personnel development
7. Employee attitudes
8. Balance between short-range and long-range objectives

This concept was later on carried out by many academic experts including Simon, Drucker and Anthony. Even Japanese also influenced this concept. By 1990 authors that companies should focus on improving quality, reducing cycle times, and improving companies’ responsiveness to customers’ demands. Doing these activities well, they believed, would lead naturally to improved financial performance. stakeholder theory was useful to articulate a broader company mission beyond a narrow, short-term shareholder value-maximizing model. It increased companies’ sensitivity about how failure to incorporate stakeholder preferences and expectations can undermine an excessive focus on short-term financial results. The Balanced Scorecard, however, incorporates stakeholder interests endogenously, within a coherent strategy and value-creation framework, when outstanding performance with those stakeholders is critical...

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