## **Learning Outcomes**

By studying this article, you will be able to explain the Balanced Scorecard approach and its strategic linkages. You will define the four views, set objectives for each, and establish appropriate KPIs. You will be able to discuss how the Balanced Scorecard drives alignment between strategy and performance measurement, and evaluate common implementation issues, all of which are relevant for ACCA Advanced Performance Management (APM).

## **ACCA Advanced Performance Management (APM) Syllabus**

For ACCA Advanced Performance Management (APM), you are required to understand the use of strategic models in performance management and their application across different organisational contexts. In particular, this article supports your revision of:

- The design and application of performance management frameworks, including the Balanced Scorecard
- The role of financial and non-financial performance indicators in measuring and controlling strategic objectives
- The process of linking strategic goals to operational measures
- Evaluating strengths and weaknesses of multi-dimensional performance systems
- Advising on the alignment of KPIs and critical success factors with organisational strategy

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. The Balanced Scorecard’s “Customer” view is best measured by:
   a) Staff turnover rates  
   b) Customer satisfaction scores and repeat business rates  
   c) Net profit margin  
   d) Inventory days

2. Which statement best describes a Key Performance Indicator (KPI)?
   a) Any financial ratio  
   b) A measure directly linked to a critical success factor  
   c) An annual operating plan  
   d) An employee reward

3. Give one objective and a suitable KPI for the “Innovation and Learning” view of a technology company.

4. True or false? The Balanced Scorecard focuses solely on non-financial performance indicators.

## **Introduction**

Balanced performance measurement frameworks are required for modern organisations, as financial metrics alone cannot drive long-term success. The Balanced Scorecard is a widely used approach that links an organisation’s strategic vision to operational activities using a mix of financial and non-financial measures. Understanding how to set objectives and choose KPIs within each Scorecard view is essential for ACCA APM.

> **Key Term: Balanced Scorecard**  
> A strategic management framework that uses a mix of financial and non-financial measures, grouped into views, to monitor and control progress towards strategic objectives.

## THE BALANCED SCORECARD FRAMEWORK

The Balanced Scorecard combines four key views, each guiding the selection of objectives and KPIs to support strategic aims.

### The Four Views

#### 1. Financial

How do we appear to our shareholders?

- Focuses on profitability, value creation, and financial efficiency.
- Typical objectives: increase shareholder value, improve return on investment, reduce costs.
- KPIs: ROCE, net profit margin, cash flow from operations.

#### 2. Customer

How do customers see us?

- Focuses on delivering value, meeting customer needs, and building loyalty.
- Typical objectives: improve satisfaction, increase market share, strengthen brand.
- KPIs: customer satisfaction scores, market share, number of complaints, repeat purchase rate.

#### 3. Internal Business Process

What must we excel at?

- Focuses on operational excellence and efficiency in key processes.
- Typical objectives: streamline production, reduce lead times, improve product quality.
- KPIs: defect rates, process cycle time, percentage on-time delivery.

#### 4. Innovation and Learning

Can we continue to improve and create value?

- Focuses on the company’s ability to develop, adjust, and grow.
- Typical objectives: encourage innovation, upgrade employee skills, respond to change.
- KPIs: percentage of sales from new products, number of staff training hours, employee turnover.

> **Key Term: Key Performance Indicator (KPI)**  
> A specific, quantifiable measure used to assess performance against key objectives and critical success factors.
>
> **Key Term: Critical Success Factor (CSF)**  
> An aspect of business performance that must be achieved for the strategy to succeed.

### Setting Objectives and KPIs

Each view requires translating strategic aims into specific, measurable objectives and KPIs. Objectives should be SMART (specific, measurable, attainable, relevant, time-bound).

#### Financial Example

- Objective: Increase operating profit by 10% within 12 months
- KPI: Operating profit margin (%)

#### Customer Example

- Objective: Achieve a customer satisfaction rating above 90%
- KPI: Customer satisfaction survey average score

#### Internal Business Process Example

- Objective: Reduce average delivery lead time to under 48 hours
- KPI: Average delivery time (hours)

#### Innovation and Learning Example

- Objective: Launch three new products per year
- KPI: Number of new products launched

### Strategic Linkages and Alignment

All objectives and KPIs must be aligned—success in internal processes should drive customer satisfaction, which supports financial targets. Measures should not conflict; short-term cost cuts must not undermine quality or innovation.

### **Worked Example 1.1**

ABC Manufacturing adopts the Balanced Scorecard. The Board sets a strategic goal to improve customer retention. The following objectives are proposed for each view:

- Financial: Grow revenue by 8%
- Customer: Increase repeat customer rate
- Internal: Reduce product returns
- Innovation: Introduce a new loyalty program

Propose relevant KPIs for each objective.

> **Answer:**
>
> - Financial KPI: Year-on-year revenue growth (%)
> - Customer KPI: Percentage of repeat customers
> - Internal KPI: Product return rate (% of sales)
> - Innovation KPI: Implementation status of loyalty program (completed/active)

### **Worked Example 1.2**

ServiceCo’s Balanced Scorecard includes the objective “improve staff skills” under Innovation and Learning. Which KPI best supports this objective?

- a) Average customer wait time
- b) Staff training hours per employee
- c) Number of complaints
- d) Operating margin

> **Answer:**  
> b) Staff training hours per employee

### **Exam Warning**

> In APM exam scenarios, always check that KPIs truly reflect the stated objectives and that measures for each view are balanced and aligned. Evaluate any unbalanced focus on one area (e.g. only financials), and avoid suggesting too many KPIs, which can cause confusion and dilute focus.

## COMMON ISSUES IN IMPLEMENTATION

While the Balanced Scorecard has clear advantages, implementation often fails due to:

- Too many or poorly defined KPIs
- Failure to link measures to strategy
- Lack of data or weak information systems
- Inconsistent or conflicting incentives

### **Revision Tip**

> Limit KPIs to a handful per view and ensure each links directly to CSFs and strategic objectives. Always justify your choice of KPIs in the exam.

## **Summary**

The Balanced Scorecard aligns strategy with measurement by combining financial and non-financial objectives across four views. It demands carefully defined KPIs tailored to each aim and regular review of alignment and balance across measures.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the four views of the Balanced Scorecard
- Set SMART objectives and KPIs for each view
- Link CSFs and KPIs directly to strategic aims
- Recognise the need for balance and alignment across measures
- Identify and address common implementation problems in Scorecard use
- Apply the Balanced Scorecard in scenario-based performance management assessments

## **Key Terms and Concepts**

- Balanced Scorecard
- Key Performance Indicator (KPI)
- Critical Success Factor (CSF)

Balanced Scorecard and strategic linkages - Views objectives and KPIs