The Balance Scorecard Enhances

Only available on StudyMode
  • Download(s) : 115
  • Published : November 11, 2010
Open Document
Text Preview
According to Kaplan R. S. & Norton D. P. (1996), the balance scorecard enhances the traditional financial measures with standards for performance in three non-financial areas like relationship between company and customer, internal business process and, learning and growth. It will assist the company to coordinate its’ operation and ensure all businesses activities parallel to the company’s strategies. The balance scorecard consists of four processes that combine short-term activities to long-term objectives. These processes include translating the vision, communicating and linking, business planning and, feedback and learning. The main objective of the first process - translating the vision - is to clarify the understanding of management team about the vision and strategy. Then, it will help managers to build a consensus around the organization’s vision and strategy. After that an integrated set of objectives and measures in vision and strategy statement will be developed which subsequently required the agreement by all senior executives. This strategy can be referred as the long term drivers of success. The second process – communicating and linking – is to disseminate the strategy up and down the organization and link it to departmental and individual objectives. So the long-term strategy will be understood by all the level of the organization. Then, it will communicate and educate these targets to individual performance and link the rewards based on their performance measures. As a result, each individual will understand their objective and target and support the overall strategy. The third process - business planning – is to integrate the company business with the financial plans. Normally, the balance scorecard will force the manager to integrate strategic planning with budgeting in order to make sure the financial budgets support the strategic goal. They will allocate resource and set the priorities according to four scorecard perspectives which are financial; customer; internal business processes; and, learning and growth. Then, they will undertake and coordinate those initiatives that move toward the long-term strategic objectives. The fourth process – feedback and learning – provide a mechanism for strategic feedback and review to the company, and fosters a strategic learning to the organization. The strategic feedback and review will evaluate whether the individual, departments and company performance able to achieve the company’s budgeted financial goal or not. Normally, they perform the short-term results monitoring from the three additional perspectives like customer, internal business processes and, learning and growth. They will compare the current performance with previous achievement and future objectives. On the other hand, strategic learning involves feedback collection, testing the hypothesis on which strategy was used and formulate the necessary adjustment. These four scorecard processes are a continuous cycle which allows strategic adjustment to be made continually. Meanwhile, it also allows managers to evaluate the effectiveness of the strategies at any point of implementation. The usage or purpose of balance scorecard had evolved from performance measurement to strategic management via a series of processes that consist of translating the vision; communicating and linking; business planning; feedback and learning which are described clearly above. There are several reasons that make the balance scorecard a tool for strategic management. First, the balance scorecard consists of the measures that are linked together on a cause-and-effect basis where the nonfinancial measures are communicated into the strategy implementation. Second, the evolution of economy from tangible assets dominated to intangible assets dominated at the end of 20th century had made financial statements inadequately to capture vital information for company. This is because the value of intangible assets is implicit or...
tracking img