Balanced Scorecard
Four perspectives: Financial, Customer, Internal Process, Learning and Growth
The Balanced Scorecard is a way to track a strategy with a short set of objectives and measures seen from four perspectives: financial, customer, internal process, and learning and growth. Robert Kaplan and David Norton introduced it in 1992 because financial numbers only show what has already happened. The other three perspectives track the drivers of the next results.
TL;DR
- What it is
- A short set of objectives and measures that tracks a strategy from four angles: financial, customer, internal process, and learning and growth. Published by Robert Kaplan and David Norton in 1992.
- Best for
- Established organizations that want to see both their results and the drivers behind them, on one page.
- First cycle
- About one to two months to draft the top-level scorecard, then a full year of reviews before the measures settle.
- You leave with
- A few objectives in each perspective, each with a measure, a target and an owner.
The Balanced Scorecard argues that financial numbers alone tell you what already happened. To manage the future, you also track the drivers: how customers see you, the processes you must excel at, and how your people, skills and systems are improving1.
Each of the four perspectives gets a few objectives, each with a measure and a target, so one page shows both the results and the engine producing them. The links between the perspectives matter as much as the boxes: better skills should improve a process, which should win customers, which should show up in the financial results3.
The original Balanced Scorecard, in brief
Developed by Harvard Business School professor Robert Kaplan and consultant David Norton from a yearlong study of 12 companies, and first published in Harvard Business Review in 1992.
The idea first appeared in "The Balanced Scorecard: Measures That Drive Performance," by Robert S. Kaplan of Harvard Business School and consultant David P. Norton, in Harvard Business Review in January 19921. It came out of a yearlong research project with 12 companies that were ahead in how they measured performance1.
Their argument was that managers should not have to choose between financial and operational measures1. Financial results show what has already happened. So the scorecard adds a small number of operational measures that drive future results, and asks four questions: how customers see the company, what it must excel at, whether it can keep improving and creating value, and how it looks to shareholders1. The authors compared it to the dials in an airplane cockpit, and said it limits the number of measures to avoid information overload1.
Four years later they recast it as a way to run strategy, not only to measure it. The 1996 article described four management processes built around the scorecard: translating the vision, communicating and linking it to every level, business planning, and feedback and learning2. In 2000 they added the strategy map, a one-page picture of how objectives in each perspective cause results in the next3, and gave it a full book, Strategy Maps, in 20044.
Common misreadings
- "It is a KPI dashboard." The 1992 article says the scorecard "puts strategy and vision, not control, at the center"1. A long list of every metric the company tracks misses the point.
- "Balanced means equal weight on each perspective." The balance in the original is between financial results and the operational measures that drive them1. It says nothing about giving each perspective the same weight.
- "The four perspectives were always these four." In 1992 the fourth was called the innovation and learning perspective1. By 1996 the authors were calling it learning and growth2.
- "It is only a measurement system." From 1996 the authors presented it as a system for managing strategy: communicating it, linking budgets to it, and learning from the results2.
- "Tie it to pay from the start." The 1996 article describes a company that did, and warns that the link carries risks, starting with whether the measures are the right ones2.
The Balanced Scorecard template
Financial
How you create value for owners or funders. A few objectives for results, each with a measure and a target.
Customer
How customers see you. Objectives for satisfaction, retention and share of the customers you target.
Internal Process
The few processes you must excel at to satisfy customers and owners.
Learning and Growth
How your people, skills, systems and culture must improve to sustain the other three.
Balanced Scorecard examples
A 20-person design agency
Moving from one-off projects to monthly retainers, with margins under pressure.
A 150-person manufacturer
Customers are leaving over late deliveries, and rush fixes are eating the margin.
A 60-person software company
New sales are strong, but churn is eating the growth.
When Balanced Scorecard fits, where it struggles, and what it does not answer
Use it when
- You have a strategy, but the numbers leaders look at every month are almost all financial.
- Leaders in different parts of the business need to see how their work feeds the same few results.
- A board wants a short, steady view of progress that goes beyond the profit and loss statement.
- You are in the public sector or a nonprofit, where money is a constraint, not the goal, and the customer and mission view has to carry the weight.
- You want to test, year by year, whether the drivers you invest in actually move the results.
It struggles when
- The links may not be real cause and effect. Hanne Nørreklit argued in 2000 that many links between the perspectives are true by definition, not tested causes, and that the model has no sense of time lag between them5.
- It assumes strategy flows from the top down. Nørreklit and later critics questioned whether a top-down design fits how strategy actually forms in most organizations56.
- Measures multiply. Adding a measure is easy and removing one is hard. The original warned against this and limited the number of measures on purpose1.
- People fall back on the financial numbers. In one bank studied by Ittner, Larcker and Meyer (2003), managers put most of the bonus weight on financial measures and ignored ones that predicted future results7.
- Unique measures get ignored. In an experiment by Lipe and Salterio (2000), people evaluating units paid attention only to the measures all units shared, not the ones specific to each unit8.
- Very small teams. Four perspectives with several measures each can be more structure than a team of ten needs.
What it does not answer
- What your strategy should be. It measures a strategy; it does not choose one.
- Which objective matters most this quarter.
- Whether your assumed links between perspectives hold. Only watching the data over time can tell you that5.
- What is changing in your market.
Pair it with
- Playing to Win Choose the strategy first. The scorecard translates a strategy into measures, so it needs one to translate2.
- OKR Pick the two or three scorecard objectives that need a push this quarter and run them as OKRs.
- McKinsey 7S When the measures stall, 7S checks whether the organization can carry the strategy. Kaplan argued in 2005 that the two fit together9.
How to implement Balanced Scorecard
- Start from the strategy. Write down the few choices the scorecard has to track. The scorecard translates a strategy into measures; it cannot stand in for one2.
- Set a few objectives in each perspective. Two to four per perspective is plenty. Work from the top: what financial results do you want, which customers produce them, which processes win those customers, and what people and systems those processes need.
- Draw the links. Connect each objective to the one it is meant to drive, on one page. This strategy map is where you state your assumptions about cause and effect, so you can test them later3.
- Give each objective a measure, a target and an owner. One or two measures per objective, a target with a date, and one person who answers for it. Fund an initiative only where it closes a gap to a target.
- Review it, and test the links. Look at the scorecard monthly or quarterly as a leadership team. Once a year, check whether the drivers you invested in actually moved the results, and change the measures that did not2.
Adopting Balanced Scorecard: the first cycle and the rhythm
First cycle. Plan on one to two months for the top-level scorecard. Start from the strategy, draft objectives in each perspective, draw the links between them, then choose a measure and a target for each. Expect some measures to have no data yet; decide how you will collect it rather than dropping the objective.
Rhythm. Review the scorecard monthly or quarterly as a leadership team, and test the links once a year: did the drivers you invested in move the results you expected? The 1996 article calls this feedback and learning, and notes that most review processes only checked whether budgets were met2.
How long until it runs. Longer than most teams expect. In the 1996 article, one insurer built its system step by step over 30 months2. Expect some measures to change in the first year as the team learns which ones it trusts. Scorecards for the teams below the top can wait until the company scorecard is trusted.
What derails it. Too many measures. Reports nobody discusses. Tying pay to it before the measures are trusted27. And treating the four boxes as the method, with no links between them.
How to set Balanced Scorecard at your leadership retreat
The decision the session has to produce: The few objectives in each of the four perspectives, the links between them, and a measure, a target and an owner for each.
A half-day outline
- Restate the strategy in a few sentences and agree on it (20 minutes).
- Financial and customer: what results you want and which customers produce them. Everyone drafts alone before anyone speaks (45 minutes).
- Internal process: the few processes you must excel at to win those customers (40 minutes).
- Break.
- Learning and growth: the skills, systems and culture those processes need (40 minutes).
- Draw the links on one page and cut any objective that does not connect (30 minutes).
- Choose a measure, a target and an owner for each objective, and book the first review (30 minutes).
Ask the team beforehand
- Which numbers do we look at every month today, and how many of them are financial?
- What would customers say we must be best at?
- Which skill or system, if it improved, would make the biggest difference to results in two years?
Who should be in the room
The chief executive, the heads of finance, sales or service, and operations, and the head of people. Each owner of a perspective should be in the room.
Make a full retreat agenda with the free agenda maker.
Common Balanced Scorecard mistakes
- Too many measures. The original limited the number of measures on purpose1. Forty measures is a report, not a scorecard. Aim for a page leaders can discuss in an hour.
- Measuring what is easy, not what the strategy needs. Start from the objectives, then find measures. If an objective has no data yet, decide how to collect it rather than swapping in a number you already have.
- Four boxes with no links. Without the links between perspectives, it is four lists. The strategy map is what makes it a strategy tool3.
- Tying pay to it too early. The authors warned that linking pay carries risks2, and one firm studied by researchers dropped its scorecard bonus after managers complained of favoritism7. Trust the measures first.
- Reporting it without discussing it. A scorecard that is circulated but never debated changes nothing. The review meeting, and the yearly test of the links, is where the value is2.
Does Balanced Scorecard work? The evidence
The scorecard is widely used. In Bain & Company's 2007 survey of management tools, 66% of respondents said they used it, and later Bain surveys put the figure around 50%, as reported in a 2015 review in the American Journal of Management106. The same review notes that a 2003 study of large companies in Germany, Austria and Switzerland found fewer than 10% used the full version, with links to strategy and pay6. Popularity is not proof that it works.
The strongest single test is small. Stan Davis and Tom Albright, writing in Management Accounting Research in 2004, followed two divisions of one bank for 18 months. The division that adopted the scorecard improved on a combined financial measure significantly more than the division that did not11. It is one company, so it cannot rule out other differences between the two divisions.
Survey studies point the same way, with the usual limits. A 2009 study in European Accounting Review by De Geuser, Mooraj and Oyon surveyed 76 business units and found the scorecard linked to better performance, mostly through clearer translation of strategy and better alignment12. Surveys like this rely on managers' own reports. The 2015 review concluded that "the jury is still out" on performance, and that results depend on whether it is used as a strategy system or only as a set of measures6.
Some evidence shows how it goes wrong. At one financial services firm, Ittner, Larcker and Meyer (2003) found that subjective scoring let managers put most weight on financial measures, and branch managers complained of favoritism. The firm dropped the scorecard bonus for one based on revenue alone7. A review in The British Accounting Review in 2014 covered 181 studies from 1992 to 2011 and mapped where research was still thin13. Kaplan replied to his academic critics in 2012 that they often ignore the scorecard's role in carrying out strategy14.
Balanced Scorecard compared
| Balanced Scorecard | OKR | Hoshin Kanri | |
|---|---|---|---|
| The question | Are we making progress on the strategy, from four angles? | What must we achieve this quarter? | Which few breakthrough goals does every level work toward? |
| Horizon | A year or more, reviewed monthly or quarterly | Usually a quarter | Three to five years, with a plan for each year |
| What gets measured | Objectives, measures and targets in four perspectives | Key results, mostly outcomes | Breakthrough objectives and yearly targets, cascaded level by level |
| Best for | Established organizations that want results and drivers on one page | Fast-moving teams that want a few ambitious goals | Large organizations aligning many levels |
After the retreat: Balanced Scorecard in Throughline
What it holds. Each scorecard objective becomes a priority with an owner, a date and a measure. Owners check in from an email in one click; a missed check-in counts as off track and their manager is told.
What it doesn’t. Throughline does not store the four perspectives or draw a strategy map, so which perspective each priority serves, and the links between them, are yours to keep. Review the whole scorecard together at your own leadership meeting.
Balanced Scorecard glossary
- Perspective
- One of the four angles the scorecard looks from: financial, customer, internal process, and learning and growth.
- Objective
- What you want to achieve in one perspective, in words. For example, "keep the best customers longer".
- Measure
- The number that shows whether an objective is being met. The original kept these few on purpose1.
- Target
- The level of a measure you aim to reach, and by when.
- Initiative
- A project that exists to close the gap between a measure today and its target.
- Strategy map
- A one-page diagram of how objectives in one perspective are meant to drive objectives in the next3.
- Leading and lagging measures
- Lagging measures report results that already happened, like revenue. Leading measures move first and predict them, like on-time delivery.
- Learning and growth
- The perspective for people, skills, systems and culture. Called innovation and learning in the 1992 article1.
- Cascading
- Building scorecards for teams and units that link to the company scorecard2.
Free tools that help
Balanced Scorecard: frequently asked questions
- What is a Balanced Scorecard?
- A short set of objectives and measures that tracks a strategy from four perspectives: financial, customer, internal process, and learning and growth. Robert Kaplan and David Norton introduced it in Harvard Business Review in 1992.
- What are the four perspectives of the Balanced Scorecard?
- Financial (how you look to owners or funders), Customer (how customers see you), Internal Process (what you must excel at), and Learning and Growth (how your people, skills and systems improve). In the 1992 article the fourth was called innovation and learning.
- Why is it called "balanced"?
- Because it balances financial results, which report what already happened, with the customer, process and people measures that drive future results. It does not mean each perspective gets equal weight.
- How many measures per perspective?
- Keep it tight: two to four objectives per perspective, each with one or two measures. The scorecard loses its power when it becomes a list of every metric you can capture.
- What is a strategy map?
- A one-page diagram, added by Kaplan and Norton in 2000, that shows how objectives in one perspective are meant to drive the next: skills improve processes, processes win customers, customers produce financial results.
- What is the difference between a Balanced Scorecard and OKRs?
- The scorecard is a steady, balanced view of the whole strategy, reviewed through the year. OKRs are a few ambitious goals for a quarter. Many teams use both: the scorecard for the long view, and OKRs to push the two or three objectives that need it most this quarter.
- Does the Balanced Scorecard work?
- It is widely used, and some studies link it to better performance, including an 18-month study of one bank published in 2004. Reviews of the research call the evidence mixed: results depend on whether it is used to run the strategy or only to report numbers.
Sources
- Robert S. Kaplan and David P. Norton, "The Balanced Scorecard: Measures That Drive Performance," Harvard Business Review, January to February 1992. hbr.org
- Robert S. Kaplan and David P. Norton, "Using the Balanced Scorecard as a Strategic Management System," Harvard Business Review, 1996; reprinted July to August 2007. hbr.org
- Robert S. Kaplan and David P. Norton, "Having Trouble with Your Strategy? Then Map It," Harvard Business Review, September to October 2000. hbr.org
- Robert S. Kaplan and David P. Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes, Harvard Business School Press, 2004.
- Hanne Nørreklit, "The balance on the balanced scorecard: a critical analysis of some of its assumptions," Management Accounting Research 11(1), 2000, pp. 65 to 88. doi.org
- Dag Øivind Madsen and Tonny Stenheim, "The Balanced Scorecard: A Review of Five Research Areas," American Journal of Management 15(2), 2015.
- Christopher D. Ittner, David F. Larcker and Marshall W. Meyer, "Subjectivity and the Weighting of Performance Measures: Evidence from a Balanced Scorecard," The Accounting Review 78(3), 2003, pp. 725 to 758. doi.org
- Marlys Gascho Lipe and Steven E. Salterio, "The Balanced Scorecard: Judgmental Effects of Common and Unique Performance Measures," The Accounting Review 75(3), 2000, pp. 283 to 298. doi.org
- Robert S. Kaplan, "How the balanced scorecard complements the McKinsey 7-S model," Strategy & Leadership 33(3), 2005. doi.org
- Darrell Rigby and Barbara Bilodeau, "Bain's global 2007 management tools and trends survey," Strategy & Leadership 35(5), 2007, pp. 9 to 16. doi.org
- Stan Davis and Tom Albright, "An investigation of the effect of Balanced Scorecard implementation on financial performance," Management Accounting Research 15(2), 2004, pp. 135 to 153. doi.org
- Fabien De Geuser, Stella Mooraj and Daniel Oyon, "Does the Balanced Scorecard Add Value? Empirical Evidence on its Effect on Performance," European Accounting Review 18(1), 2009, pp. 93 to 122. doi.org
- Zahirul Hoque, "20 years of studies on the balanced scorecard: Trends, accomplishments, gaps and opportunities for future research," The British Accounting Review 46(1), 2014, pp. 33 to 59. doi.org
- Robert S. Kaplan, "The balanced scorecard: comments on balanced scorecard commentaries," Journal of Accounting & Organizational Change 8(4), 2012, pp. 539 to 545. doi.org
The Balanced Scorecard was created by Robert S. Kaplan and David P. Norton and first published in *Harvard Business Review* in 1992; Throughline is not affiliated with or endorsed by its creators, Harvard Business School or Harvard Business Publishing. Written by Tom Olajide, Founder. Last reviewed September 24, 2026.