Balanced Scorecard

Information in Four Dimensions

Each of the four dimensions of the BSC responds to an organizational problem. The financial perspective is a financial model of the firm and identifies types of profitability objectives. The customer perspective points out the means for developing customer and marked preferences and identifies dimensions of the product or service that may meet the value proposition of target customers. The process perspective is a value chain involving questions about production, sales, and distribution facilities. Last, the learning and growth perspective is concerned more generally with organizational capabilities such as infrastructure and intangible assets.

Strategy Translation

The BSC can be understood as a strategic tool for the firm. It communicates the strategy of the firm by showing what it means and by showing how the four types of information identified in the four perspectives are related in the development of the firm. The BSC translated strategy because it takes central strategic proposition, such as a distinction whether the firm competes on products/technology, production/efficiency, or customer intimacy/orientation, and makes it concrete by adding indicators and targets to it. The strategy is only strong if it can be translated into the BSC, which makes it a mechanism to ensure quality and communicate strategy simultaneously. For a strategy to be of quality it has to be formulated so that it translates into all four perspectives, and it has to be formulated so that it can be represented in indicators. The indicators are important because measures are possibly stronger than strategy because they define specifically and concretely what is relevant.

When communicating strategy, BSC shows by way of a strategy map relations between the four elements. Then it identifies and communicates particular actions and projects across the whole BSC picture to implement the firm's strategy coherently.

Causality as a Strategic Hypothesis

A central idea in BSC is that there is a set of strategic causal relations between the perspectives. Investments in learning and growth will lead to improved business [Page 94]processes that in turn will help to develop the customer value proposition, which will develop customer loyalty, and then financial results will be the effect. It is a story of the long-term beginning through translations between the four perspectives, which takes time. The BSC is a strategic tool because it shows how the long term has to be managed on leading indicators rather than lagging indicators. Leading indicators lead from one perspective to the next. Good results in learning and growth lead to good results in internal processes, which again lead to good results in customer relations, and ultimately to good financial results.

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