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24.2 Explain the Four Perspectives of the Balanced Scorecard

1. Financial Perspective​

Question: How do we appear to shareholders and investors?

Objectives:

  • Increase revenue
  • Improve profitability
  • Enhance cash flow
  • Manage risk
  • Increase shareholder value

**Measures (Examples):

  • Revenue growth rate
  • Gross profit margin
  • Net profit margin
  • Return on investment (ROI)
  • Economic value added (EVA)
  • Cash conversion cycle

2. Customer Perspective​

Question: How do customers see us?

Objectives:

  • Improve customer satisfaction
  • Increase customer loyalty
  • Expand market share
  • Improve brand reputation
  • Enhance customer experience

**Measures (Examples):

  • Customer satisfaction score (CSAT)
  • Net promoter score (NPS)
  • Customer retention rate
  • Number of new customers
  • Market share
  • On-time delivery rate

3. Internal Process Perspective​

Question: What must we excel at internally?

Objectives:

  • Improve operational efficiency
  • Enhance quality
  • Innovate products/services
  • Reduce cycle time
  • Improve supply chain performance

**Measures (Examples):

  • Process cycle time
  • Defect rate
  • First-pass yield
  • Inventory turnover
  • Innovation pipeline (new products)
  • Process compliance rate

4. Learning & Growth Perspective​

Question: Can we continue to improve and create value?

Objectives:

  • Develop employee skills
  • Improve employee engagement
  • Implement new technology
  • Foster innovation
  • Build organizational culture

**Measures (Examples):

  • Employee training hours
  • Employee satisfaction/engagement score
  • Staff turnover rate
  • IT system uptime
  • Innovation ideas generated

Linking Perspectives​

The four perspectives are connected through cause-and-effect relationships:

  • Learning & growth enables better internal processes
  • Improved processes enhance customer satisfaction
  • Satisfied customers drive financial performance

Balanced Scorecard Example: Le Petit Bistro​

Financial Perspective:

  • Objective: Increase annual profit by 15%
  • Measure: Net profit margin, cash flow

Customer Perspective:

  • Objective: Improve customer satisfaction
  • Measure: CSAT score, repeat visits

Internal Process:

  • Objective: Reduce order preparation time by 20%
  • Measure: Average preparation time, error rate

Learning & Growth:

  • Objective: Train staff on new service standards
  • Measure: Training hours per employee, employee satisfaction

Balanced Scorecard Example: Luxembourg Consulting Firm​

Financial: Increase consulting revenue by 10% Customer: Achieve 95% client satisfaction Internal: Reduce project delivery time by 15% Learning: Provide 40 hours of training per consultant annually

Luxembourg Compliance Note​

Luxembourg companies often need to report on corporate social responsibility (CSR) and environmental, social, and governance (ESG) metrics. The balanced scorecard's learning & growth or internal process perspectives can incorporate ESG measures.

Think It Through​

Can you think of a time when a company had strong financial results but failed because of customer or process issues? How would a balanced scorecard have helped?