Table of Contents
Why Does the Balanced Scorecard Balance Financial and Non-Financial Goals?
Go beyond finances and prepare for your Lean Six Sigma exam by understanding the purpose of the Balanced Scorecard. Learn how this strategic management tool balances financial, customer, internal process, and learning measures to align performance with high-level strategy.
Question
What is the purpose of a Balanced Scorecard?
A. To measure only financial performance
B. To replace customer feedback mechanisms
C. To design experiments for improvement
D. To balance financial and non-financial measures
Answer
D. To balance financial and non-financial measures
Explanation
It aligns strategy with performance metrics. The Balanced Scorecard is a strategic management framework designed to provide a comprehensive view of organizational performance by integrating both financial and non-financial metrics.
A Framework for Strategic Alignment
The core purpose of the Balanced Scorecard is to translate an organization’s strategic objectives into a set of performance measures that can be tracked and managed. It moves beyond a traditional focus on lagging financial indicators (like revenue and profit) to include leading indicators of future performance. This is achieved by organizing metrics across four distinct but interconnected perspectives, creating a “balanced” view of the business.
The four perspectives are:
- Financial Perspective: This addresses how the company appears to its shareholders, focusing on metrics like profitability, revenue growth, and return on investment.
- Customer Perspective: This focuses on how customers perceive the company and is tied to the Voice of the Customer (VOC). Metrics include customer satisfaction, loyalty, market share, and Critical to Quality (CTQ) characteristics.
- Internal Business Process Perspective: This identifies the key operational processes at which the organization must excel to meet customer and shareholder expectations. It focuses on quality, efficiency, and cycle time, which are common targets for Lean Six Sigma projects.
- Learning and Growth Perspective: This looks at the organization’s ability to innovate, improve, and learn. It includes metrics related to employee skills, information systems, and organizational culture.
Analysis of Incorrect Options
A. To measure only financial performance: This is incorrect and describes the limitation of traditional performance measurement systems that the Balanced Scorecard was designed to overcome. It explicitly adds three non-financial perspectives to the financial one.
B. To replace customer feedback mechanisms: This is false. The Customer Perspective of the Balanced Scorecard depends on customer feedback mechanisms like surveys, focus groups, and VOC analysis to gather the data needed for its metrics.
C. To design experiments for improvement: This describes a different set of tools, such as Design of Experiments (DOE), which are used in the Analyze and Improve phases of DMAIC to test and optimize process inputs. The Balanced Scorecard is a high-level strategic tool, not a project-level tool for experimental design.
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