balanced scorecard

Topics: Balanced scorecard, Management, Strategic management Pages: 9 (2946 words) Published: December 3, 2013
Balanced scorecard
The notion of the Balanced Scorecard was developed by Robert Kaplan and David Norton in 1992 which has already widely used by many companies in the world (Helen Atkinson, 2006). The balanced scorecard not only focuses on the financial information but also nonfinancial information.

However, with the rapid development the value of intangible assets such as intelligence becomes more important. Because the traditional management performance system always focuses on financial aspect.According to Martinsons, Davison and Tse (1999.p73), nowadays the modern companies should focus on market segments not only the financial measures and also need to improve the technology to develop the processes. It means financial measures are not only method to do decision making. Hence, because of the traditional performance evaluation system it produces some problems with companies’ performance evaluation system. One problem is that the value of the intangible assets created by employees such as intellectual property and competitive advantage can not be fully reflected in the financial measures. In addition, financial measure is suitable for managers to make short-term decisions rather than long-term decisions (Kang and Fredin, 2012. p639). To some extent, balanced scorecard can avoid these problems.

The balanced scorecard includes both financial and non financial information, it help managers to balances short-term and long-term interests when they make decisions (Kang and Fredin, 2012. p639). The financial aspects of the balanced scorecard sets forth the organization's financial goals, and measure whether the implementation of the strategy and implementation to contribute to the improvement of the final results of its operations. Balanced scorecard objectives and metrics are linked, this linkage includes not only the cause-and-effect relationship, but also including outcome measures and results in a measure of combined, ultimately reflected in the organizational strategy. In fact, recently the balanced scorecard has been used by 60 percent of Fortune 1000 companies in the world (Lipe and Salterio, 2002, p539).

According to Kaplan and Norton (1996), the balanced scorecard which is illustrated in Figure 1 is different from another strategy measures, it consists of 4 perspectives to evaluate company performance: the financial perspective, the customer perspective, internal business perspective and learning and growth perspective. 1) Financial perspective: Financial measure is the important one in balanced scorecard; it define the long-term goals in decision making, and it also can reflect the corporate strategy, shareholder satisfaction, strategy implementation and enforcement which are to contribute to improving the profitability of company. Financial measures are usually associated with profitability, operating income, return on capital, economic value added measure, or may be the rapid increase in sales and to create cash flow. 2) Customer perspective: emphasizing customers, managers ensure the key goals of customers and market which they will be competed, as well as the indicators in these target customers and market segments, managers should identify the need of customers. The customer perspective indicators usually include market and account share, customer satisfaction, customer retention, customer acquisition and customer profitability. Hence, the managers can throw these information to clarify the need of customers and market strategies, and then to create an excellent financial return. 3) Internal business perspective: focusing on critical internal processes which are illustrated in figure 2. In this perspective, managers should confirm the organization the key internal processes, these processes can help business units to provide value proposition to attract and retain customers in the target segment market, to complete the corporate financial objectives and to achieve shareholder expectations of...

Cited: in Kaplan, 2010, pp23 to 26).
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