In the 1990s a new way of evaluating performance improvement in the business industry was introduced. The balanced scorecard (BSC) emerged as a conceptual framework for organizations to use in translating their strategic objectives into a set of performance indicators. Rather than focusing on operational performance and the use of quantitative financial measures, the BSC approach links the organization's strategy to measurable goals and objectives in four perspectives: financial, customer, internal process, and learning and growth (Niven 2003).
The purpose of this article is to evaluate the use of the BSC in the nonprofit sector, specifically at an institution of higher education. Case studies in higher education and personal perspectives are presented, and the opportunities for and challenges of implementing the BSC framework in higher education are discussed.
Balanced Scorecard Principles
Achievement of equilibrium is at the core of the BSC system. Balance must be attained among factors in three areas of performance measurement: financial and nonfinancial indicators, internal and external constituents, and lag and lead indicators. Equilibrium must also be attained between financial and nonfinancial measures; nonfinancial measures drive the future performance of an organization and are therefore integral to its success. Further, the use of nonfinancial measures allows problems to be identified and resolved early, while they are still manageable (Gumbus 2005). The sometimes contradictory needs of internal constituents (employees and internal processes) and external stakeholders (funders, legislators, and customers) should be equally represented in the scorecard system (Niven 2003). A key function of the BSC is its use as a performance measurement system. The scorecard enables organizations to measure performance through a variety of lead and lag indicators relating to finances, customers, internal processes, and growth and development (Niven 2003). According to Niven (2003), lag indicators are past performance indicators such as revenue or customer satisfaction, whereas lead indicators are "the performance drivers that lead to the achievement of the lag indicators" (p. 23).
The BSC's cascading process results in a consistent focus at all levels of the organization.
The BSC framework provides tools to assist business organizations in mapping their performance improvement strategies and establishing connections throughout the various levels of the organization. Additionally, the framework identifies cause-and-effect relationships. The strategy map component of the BSC provides a graphical description of the organization's strategy, including the interrelationships of its elements. This map is considered the blueprint for the organizational plan (Lichtenberg 2008). Further, the BSC's cascading process gives the organization a tool for taking the scorecard down to departmental, unit, divisional, or individual measures of performance, resulting in a consistent focus at all levels of the organization. Ideally, these measures of performance at the various levels directly relate to the organizational strategy; if not, the organization is just benchmarking its metrics. The cascading of the scorecard also presents employees with a clear image of how their individual actions make a difference in relation to the organization's strategic objectives. The cascaded scorecard creates alignment among the performance measurement outcomes throughout the various levels of the organization (Lichtenberg 2009).
The BSC has evolved into a powerful communications tool and strategic management system for profit-based organizations. Harvard Business Review has recognized the framework as one of the top 75 most influential ideas in the 21st century (Niven 2003). Its successful use in the for-profit arena has been clearly demonstrated, but does it have applicability in the nonprofit sector, specifically in institutions of higher education (IHEs)? …