An Analysis of Balanced Scorecard

Topics: Balanced scorecard, Strategic management, Management Pages: 8 (2202 words) Published: January 30, 2013
1. Introduction
One of the biggest challenges in organisational management is measuring performance comprehensively, as well as implementing and executing organisational strategy effectively. The inception of Balanced Scorecard (BSC) dramatically contributes to address these issues, as it provides a useful performance measurement approach, and most importantly, a strategic management and control system. Therefore the BSC was widely adopted in practice and treated as one of the most valuable innovations in 20th century (Bible et al, 2006). The purpose of this report is to explore the aims of BSC set out to achieve, then evaluating the extent to which BSC has achieved its goals. In additional, this report focuses on investigating the reason why BSC has widely adopted through out the world and achieved such a high degree of acclaim.

2. The aims of Balanced Scorecard
2.1 A Performance measurement tool
The balanced scorecard was created by Robert S. Kaplan and David P. Norton in 1992, and their initial aim is to provide a new performance measurement tool to measure the performance of organisations comprehensively (Kaplan and Norton, 1992). Since 1980s, Executives began to realise that traditional performance systems are not capable enough to cope with the new business environment, which intangible assets, such as customer and supplier relationships, and innovation in production, play a significant role in creating value for a company (Norreklit and Mitchell, 2007). The invention of BSC overcomes the shortcomings of traditional performance measurement approach by recommending companies to measure performance in four perspectives – financial, customer, internal business process and learning and growth.

In this way, the BSC is designed to help managers keep balance in three aspects when they measure performance (Gautreau and Kleiner, 2001). Firstly, keeping balance on lagging and leading indicators. Financial measures are lagging indicators which can only imply what has happened in the organization but provide little help in predicting future performance (Ittner and Larcker, 1998). Integrating leading indicators such as customer, innovation and operation into performance measurement, managers are forced to focus on drivers of future performance. Secondly, keeping balance on short-term and long-term objectives. Financial measures are short-term performance measures. However, short-term good financial performance, such as cutting down staff training fees, may negatively affect long-term development. Thirdly, keeping balance on external and internal performance. The BSC not only concentrates on internal business process and employers, but also attaches great importance on external performance, such as customer satisfaction. Therefore, the BSC makes significant contributions on measuring organizational performance comprehensively.

2.2 A Strategic Management system
Another problematic area in management is the implementation of strategy as in majority of companies, strategies do not work as well as they are designed to achieve – directing a company’s daily actions (Speckbacker et al, 2003). The BSC contributes to address this problem since Kaplan and Norton developed BSC into a strategic management system for implementing organizational strategy effectively.

The BSC intends to enhance strategy communication by clarifying organizational strategy by translating it into specific strategic objectives and measures in four Scorecard perspectives (Kaplan and Norton, 1996). The translation overcomes one of the major barriers in executing strategy by clarifying the ambiguous strategic statements, such as providing best service, satisfying customers. Therefore, all employees have the consensus on what the strategy actually mean, and most importantly, they have a clear direction on how to behave to achieve the stated strategy. Moreover, all the initiatives, such as resources allocation, budgeting, as well as employees’ efforts tend...
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