The Balanced Scorecard

Most companies measure performance using standard financial and accounting measures such as return on capital, return on assets, return on investments, cash flow, net income, and net margins. The balanced scorecard encourages managers to look beyond such traditional financial measures to four different perspectives on company performance.

The balanced scorecard has several advantages over traditional control processes that rely solely on financial measures. First, it forces managers at each level of the company to set specific goals and measure performance in each of the four areas.

The second major advantage of the balanced scorecard approach to control is that it minimizes the chances of suboptimization, which occurs when performance improves in one area at the expense of decreased performance in others.