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Balanced scorecards are a vital component of process improvement, monitoring, and evaluating business performance. Many organizations have not embraced balanced scorecards to assist in improvement of process and performance. These scorecards can assist companies in having a competitive advantage over other companies. Determining company specific performance measures can be challenging for management, but obtainable through the use of balanced scorecards.

Kaplan and Norton point out that it is imperative that effective measurement be an integral part of the management process (1993). In the absence of effective performance measurement, the overall organization performance can be impacted negatively. For example, if an organization does not have a mechanism in place to monitor sales, sales could not be effectively monitored. Sales could be up or down and the company would not know because there are no scorecards in placed to monitor. This is an example of the importance of having balanced scorecards to manage and monitor sales or performance in general.

Improvements in Critical Areas

Managers and executives are provided a view of the organization from four perspectives, which assist in the development of metrics, collect and analyze data through the use of balanced scorecard.

1.	Financial perspective This perspective is considered the traditional perspective used by the majority of organizations. There are three measures, which are return-on-capital-employed and cash flow, projected profitability and sales backlog (Kaplan and Norton, 1993). Companies are enable to review their performance from a financial perspective with this method. Finance is one of the essential components in demonstrating the success of companies. Hence, this is an important perspective.

2.	Customer perspective The customer perspective considers the wants and needs of the customer, while focusing on competitive position. (Kaplan, 1993). In past years companies where more focused on the interest of the company and its key stakeholders rather than the customer. This caused decline in sales and the success of companies. As, the importance of customer satisfaction has come to the forefront, more companies are taking the stance of a customer centered approach. Kaplan and Norton discussion the cause-effect relationship log in regards to customer satisfaction. The example give was training people improved skills, which in turn improved quality, which satisfied customers, which increased sales which increased profits (Kaplan and Norton, 2012). Imagine if the first step was not taken and people where not trained. Would the end result be increased or decreased profits? One step could impact the overall success of the company.

3.	Innovation and learning perspective This perspective focuses education and training, while empowering individuals to continue to grow and be innovative. Improvement in financial, customer, and internal process performance are driven by innovation and improvement according to Kaplan and Norton (1993). In the 2007 article by Kaplan and Norton this objective is echoed with the statement, “Financial and customer goals are driven by learning and growth”. Many companies fail to focus on the individuals performing the task that impact the overall success of the company. The staff should receive as much training as management if not more. Ultimately these are the individual keeping the company going and impact success.

4.	Internal business perspective The internal business perspective enables managers to gain a better understanding of the company’s long-term strategic goals. A stronger commitment to achieving the outlines goals is essentially built (Kaplan and Norton, 2007). This enables managers to contribute to the company’s competitive edge. The management team becomes more familiar with the business process and can share that knowledge with staff to get by in on the company’s goals from the top down. Metrics are established which management and staff have a clear understanding of. The metrics clearly outlines the business strategy for the entire organization. Management and staff organizational wide have clear understanding of the company’s business processes.

The use and understanding of balanced scorecards have become increasingly important across industries. Kaplan and Norton provide detailed information regarding balanced scorecards and the perspectives used to create these scorecards. Although, financial is known as the traditional perspective, all four perspectives are important and considered when developing balanced scorecards. The ultimate goal is customer satisfaction and the success of the company. Balanced scorecards are becoming more widely used as a result of increasing knowledge of the use and importance of the scorecards.