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Rather than evaluate a corporation using a few financial measures, Kaplan and Norton
argue for a “balanced scorecard” that includes non-financial as well as financial
measures. This approach is especially useful given that research indicates that non-
financial assets explain 50% to 80% of a firm’s value. The balanced scorecard
combines financial measures that tell the results of actions already taken with
operational measures on customer satisfaction, internal processes, and the
corporation’s innovation and improvement activities—the drivers of future financial
performance. Management should develop goals or objectives in each of four areas:
1. Financial: How do we appear to shareholders?
2. Customer: How do customers view us?
3. Internal Business Perspective: What must we excel at?
4. Innovation and Learning: Can we continue to improve and create value?
Each goal in each area (for example, avoiding bankruptcy in the financial area) is then
assigned one or more measures, as well as a target and an initiative. These measures
can be thought of as key performance measures—measures that are essential for
achieving a desired strategic option. For example, a company could include cash flow,
quarterly sales growth, and ROE as measures for success in the financial area. It could
include market share (competitive position goal) and percentage of new sales coming
from new products (customer acceptance goal) as measures under the customer
perspective. It could include cycle time and unit cost (manufacturing excellence goal) as
measures under the internal business perspective.
Titany answered the question on October 19, 2021 at 13:45
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