A third-generation balanced scorecard is a version of the traditional balanced scorecard

Balanced scorecard

The Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...

. It was developed in the late 1990s to address design problems inherent to the earlier generations of balanced scorecard. It is distinguished by the components making up the balanced scorecard and the design process used to develop these components.

Components of a third-generation balanced scorecard

A third-generation balanced scorecard has four main components:

• A destination statement. This is a one or two page description of the organisation at a defined point in the future, typically three to five years away, assuming the current strategy
  Strategy
  Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
  
   has been successfully implemented. The descriptions of the successful future are segmented into perspectives for example financial & stakeholder expectations, customer
  Customer
  A customer is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...
  
   & external relationships, processes & activities, organisation & culture
• A strategic linkage model. This is a version of the traditional ‘’strategy map’’ that typically contains 12-24 strategic objectives segmented into two perspectives, activities and outcomes, analogous to the logical framework
  LF (logical framework)
  In logic, a logical framework provides a means to define a logic as a signature in a higher-order type theory in such a way that provability of a formula in the original logic reduces to a type inhabitation problem in the framework type theory. This approach has been used successfully for ...
  
  . Linkages indicate hypothesised causal relations between strategic objectives.
• A set of definitions for each of the strategic objectives.
• A set of definitions for each of the measures selected to monitor each of the strategic objectives, including targets.

Design process for a third-generation balanced scorecard

The design process for third-generation balanced scorecard requires the active involvement of the entire management team who will eventually use the balanced scorecard. The managers themselves, not external experts, make all decisions about the balanced scorecard content. The process begins with the development of a ‘destination statement’ to build management consensus on longer term strategic goals; this document is then used to build a ‘strategic linkage model’, describing the shorter term management priorities, both the strategic activities to complete and the strategic outcomes to achieve. Once the ‘strategic objectives’ are decided these are assigned ‘owners’ from within the management team, who subsequently define the objective itself, plus the measures and targets associated with the objective.
The main apparent improvements with this third generation of balanced scorecard relate to the greater relevance of the strategic objectives, because objectives are selected in the context of the organisation’s longer-term strategic goals, using a destination statement, and the greater “ownership” of the objectives by managers, because objectives are selected and defined by the responsible managers themselves.