## **Learning Outcomes**

After reading this article, you will be able to explain the purpose of the Balanced Scorecard, describe the use of strategy maps, and analyse how cause-and-effect linkages support strategic alignment. You will also learn to apply these concepts to performance management scenarios and evaluate the design and implementation of linked measures in an exam context.

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

For ACCA Advanced Performance Management (APM), you are required to understand the use of performance measurement frameworks, in particular the Balanced Scorecard and its practical application. In your revision, ensure you are comfortable with:

- The structure and four dimensions of the Balanced Scorecard
- How strategy maps illustrate cause-and-effect linkages between objectives
- The process of developing clear strategic objectives and cascading them into aligned measures
- Identifying and evaluating effective linkages between financial and non-financial indicators
- Common pitfalls and limitations when implementing Balanced Scorecard frameworks

## **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. What are the four dimensions of the Balanced Scorecard, and why is it important to establish linkages between them?
2. Which tool is used in Balanced Scorecard methodology to visually represent the relationships between strategic objectives?
3. How does a strategy map ensure that performance measures drive the achievement of strategic goals?
4. True or false? Non-financial objectives in a Balanced Scorecard do not need to be linked to financial outcomes for effective performance management.

## **Introduction**

The Balanced Scorecard is widely used in performance management to ensure an organisation’s objectives and metrics are aligned with its overall strategy. Central to this approach is the concept of strategic linkages—explicit connections showing how activities and improvements in one area produce results in another. Strategy maps are used to chart these cause-and-effect relationships, enabling management to design, monitor, and control performance measures that truly support long-term value creation.

> **Key Term: Balanced Scorecard**
> A strategic planning and performance management framework that incorporates financial and non-financial dimensions to track organisational objectives through a set of linked measures.
>
> **Key Term: Strategy Map**
> A visual diagram that shows the cause-and-effect relationships between strategic objectives within the Balanced Scorecard’s dimensions, clarifying how value is created.

## **The Balanced Scorecard and Strategic Linkages**

### What is the Balanced Scorecard?

The Balanced Scorecard measures performance from four distinct dimensions: Financial, Customer, Internal Processes, and Learning & Growth. Each dimension defines a set of objectives and measures to deliver the organisation’s strategy.

- **Financial**: How do we create value for shareholders?
- **Customer**: How do customers see us?
- **Internal Processes**: What must we excel at operationally?
- **Learning & Growth**: How do we sustain our ability to improve and innovate?

### Strategy Maps: Making Links Explicit

The Balanced Scorecard is most effective when the relationships between objectives are clearly understood and communicated. A strategy map is a diagram that lays out these relationships from bottom to top:

- Learning & Growth objectives underpin Internal Process development,
- Internal Process improvements drive Customer satisfaction,
- which in turn leads to improved Financial results.

This helps clarify how achieving objectives at one level (e.g., improving employee skills) will ultimately contribute to higher-level goals (e.g., increased profitability).

### Cause-and-Effect Logic

Linking objectives through cause-and-effect ensures actions are focused on what will truly deliver strategic outcomes. For example, improving a process (Internal) can lead to faster delivery times (Customer), resulting in repeat business (Financial). Measures cascaded from these objectives should be aligned—the scorecard should show not just what is measured, but why, and how metrics relate to strategic aims.

> **Key Term: Cause-and-effect relationship**
> The logical chain whereby improvement in one objective (the cause) can be shown to influence another objective (the effect), supporting strategic alignment.

## **Creating Effective Strategy Maps**

### Steps in Developing a Strategy Map

1. **Clarify Mission and Vision**: State the strategic aim clearly.
2. **Set Strategic Objectives in Each Dimension**: Define what success looks like for Shareholders, Customers, Internal Processes, and Learning.
3. **Identify Cause-and-Effect Links**: For each objective, specify how its achievement supports the next level up.
4. **Select Measures for Each Objective**: Establish KPIs that monitor progress and trigger corrective action.
5. **Test and Communicate the Map**: Ensure the logic is sound and that staff understand how their roles contribute to organisational goals.

### Example of Strategic Linkages

A simple strategy map for a manufacturer might look like:

- **Learning & Growth**: Increase employee skills →
- **Internal Process**: Achieve production error reduction →
- **Customer**: Deliver higher quality to customers →
- **Financial**: Increase sales and profit margin

### **Worked Example 1.1**

**Scenario:**  
A retail company aims to "Increase net profit by 10% within two years." Management believes that achieving this will require, among other things, improved customer loyalty. They create a strategy map linking objectives:

- _Learning & Growth_: Train staff in customer service skills
- _Internal Process_: Reduce checkout waiting times
- _Customer_: Improve customer satisfaction/loyalty
- _Financial_: Increase repeat business, leading to higher profits

**Question:** Explain how the cause-and-effect relationship is established across these dimensions.

> **Answer:**
> By investing in staff training (Learning & Growth), the company aims to reduce checkout times through better processes (Internal). Smoother checkouts increase customer satisfaction (Customer), leading customers to return, which raises sales and profit (Financial). The linkage shows that focusing solely on financial outcomes without improving staff skills or processes would not achieve sustainable results.

### **Worked Example 1.2**

**Scenario:**  
A logistics firm’s Balanced Scorecard includes the objective: "Reduce delivery errors." On their strategy map, this is linked as follows:

- _Learning & Growth_: Upgrade driver route-planning technology
- _Internal Process_: Fewer routing mistakes
- _Customer_: More on-time deliveries
- _Financial_: Higher revenue from satisfied repeat clients

**Question:** What KPI could be used for each objective, and why should they be linked?

> **Answer:**
> Learning & Growth: % of drivers trained on new system; Internal Process: Number of delivery errors/month; Customer: % of deliveries on time; Financial: % of revenue from repeat business. Choosing measures this way ensures that progress on training can be tracked all the way through to financial impact, providing feedback on whether strategic investments deliver intended business results.

### **Exam Warning**

> In APM exam scenarios, avoid discussing performance measures in isolation. Ensure you explain and, where appropriate, evaluate the logical links between objectives and measures across all Balanced Scorecard dimensions. Weak or missing links often signal poor strategy map design—a frequent exam weakness.

### **Revision Tip**

> When revising Balanced Scorecard questions, practise drawing simple strategy maps. For each objective, ask yourself: "How does this support objectives in the next dimension up?" This checks your understanding of cause-and-effect.

## **Limitations and Common Issues**

- Lack of clear logical connections: Including objectives and measures that do not connect leads to unfocused action and can result in failure to achieve the intended outcomes.
- Overloading the scorecard: Too many objectives or measures distract from strategic priorities.
- Weak communication: If staff cannot see how their actions contribute to overarching goals, motivation and performance will suffer.

## **Summary**

The Balanced Scorecard, when supported by a robust strategy map, enables organisations to connect day-to-day activities with high-level strategy. The cause-and-effect logic illustrated by strategy maps ensures that performance measures support, rather than contradict, each other. This approach supports both control and learning, helping organisations manage change and drive long-term value.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define the Balanced Scorecard and its four dimensions
- Explain the purpose and construction of a strategy map
- Demonstrate cause-and-effect relations between objectives
- Illustrate how linked objectives and measures drive strategy
- Recognise and avoid common pitfalls in Balanced Scorecard implementation
- Apply these concepts to exam scenarios in performance management

## **Key Terms and Concepts**

- Balanced Scorecard
- Strategy Map
- Cause-and-effect relationship

Balanced Scorecard and strategic linkages - Strategy maps cause and effect