Balanced Scorecard Development

Topics: Balanced scorecard, Strategic management, Strategic planning Pages: 9 (3030 words) Published: March 23, 2013
The balanced scorecard was introduced in 1992 as a performance measurement tool and has developed now to form a strategic management system. This paper uses eight articles, identified in Figure 1 along with extra materials to track and analyse developments in the design and implementation. The paper shows examples of the scorecard in practice and concludes that developments have been beneficial overall. It also highlights problems encountered along the way and further areas for improvement.

For years managers have used financial measures to monitor performance however a study carried out in 1990 led to the development of the first generation balanced scorecard (BSC); a strategic planning and management system. By including financial and operational measures,it solved the issue that managers were beginning to reject financial measures during the 1980s and 1990s (Letza, 1996).The BSC originated analysing four perspectives; customer, internal, learning and financial,with focus driven by four questions shown in Figure 2. The BSC encouraged managers to focus on few critical measures to prevent complexity and information overload, however ensured several areas were looked at simultaneously as organisations became more complex (Kaplan & Norton, 1992). Choice around the measures allows adaptability and flexibility when using the model. This is vital in order to keep up with global competition and the ever changing environment. Companies must acknowledge this flexibility and as their strategy changes, so must the measures to stay in line with overall aims. The introduction of the BSC coincided with the recession in the 1980’s and 1990’s. Therefore companies will have been more enthusiastic about performance measurement and seen this as a good way to track progress towards strategy, growth and profit. Today, 20 years on, the core perspectives have stayed with the individual measures being adapted and perspectives added depending on the company’s strategic goals. The BSC has evolved from a performance measurement tool enforced by few, to a strategic management tool used worldwide; with the main developments being ‘driven primarily by observed weaknesses in the design process rather than in the architecture of the original idea’ (Cobbold&Lawrie, 2002). Financial measures were satisfactory for the industrial era however adapting to change in skills and competencies allowed the scorecard to produce ‘richer and more relevant information about activities they are managing than is provided by financial measures alone’ (Cobbold&Lawrie, 2002). No individual measure produces adequate information to plan. When planning a journey, the objective is to get from one point to another with lots of dials producing information on the likelihood of succeeding. The fuel gage alone doesn't set the scene however collectively the measures allow a judgements and decisions to be made. For example, to increase the likelihood of success you may add more oil or fuel. In business with the objective to boost sales you may increase quality and therefore sales. Introducing operational measures to performance measurement, allows these factors be monitored as the drivers of future financial performance. As the number of measures is limited, companies must identify the factors that are key performance drivers in order to achieve successful implementation. With the first generation scorecard, very little was known about the implementation of the BSC. This meant companies were not gaining the full effects of improved performance. ‘What you measure is what you get’ (Kaplan &Norton, 1992). Therefore if you measure things that have no influence, directly or indirectly to profitability and growth then it will be impossible to improve. Hence the measures must be in line with a company’s strategic objectives. Kaplan and Nortonintroduced the four processes for managing strategy shown in Figure 3 to emphasise the need for the BSC to be linked to...
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