This paper explores the similarities and differences between two popular business strategies that have helped to shape modern strategic management. The two strategies discussed are Kaplan and Norton’s “Balanced Scorecard”, and Porter’s “Five Forces”. Kaplan and Norton present a model that help businesses investigate and understand their internal resources, and how to align high-level goals to objectives. Porter’s model attempts to help businesses identify and understand the external forces that affect strategic management and long-term sustainability.
Keywords: Strategic Management, Balanced Scorecard, Measurement, Strategic Planning
Inside Out: A comparative view of Kaplan and Norton’s “Balanced Scorecard” and Porter’s “Five Forces”
Although many studies have been conducted and properly communicated on the topic of Strategic Management, perhaps none have generated as significant an impact as the articles published by these three business leaders. As we delve into their unique business frameworks, we will explore their relationship through lenses of advantages and criticisms. Kaplan, Norton, and Porter’s strategies need to be identified as frameworks, and understood as just that. If we focus our lens too narrowly, it is easy to miss the object of each strategy. As with any business philosophy, we should approach them as an ongoing exercise in improvement. Kaplan and Norton’s Balanced Scorecard
Understanding the Balanced Scorecard (BSC), involves understanding perspectives. In their original article, Kaplan and Norton innovated the way modern businesses could strategically plan, by considering alternative perspectives of capital. These perspectives are offered in addition to traditional financial measures and include 1) learning and growth 2) customer considerations and 3) internal business process. (Kaplan and Norton, 1996) Financial considerations include return of capital expended, economic value summation, increase in sales and flow of cash. The learning and growth perspective addresses a way to measure the employees in the organization including retention, morale, and training. This particular perspective also contains a space for the measurement of employee processes in real time. The perspective of customer considerations include market share, client acquisition and retention, and overall client satisfaction. Finally, the internal business perspectives addresses measurements for innovation, client treatment post sale, and business operations. In its simplest form, the balanced scorecard takes these measures, and uses cause and effect relationships to link long term goals with short term objectives. The last portion of the balanced scorecard is the value chain. The value chain displays a causal relationship between the four legs of the scorecard. Advantages
The balance scorecard’s biggest draw, is the ability to analyze and observe the additional factors that should be taken into consideration, outside the context of traditional financial factors. Next, the balanced scorecard also pays mind to the future. Whereas in traditional financially based planning models, an accountant might identify a problem and offer an immediate solution, without accounting for the future implications of this solution. Lastly, and perhaps one of the greatest strengths of the balanced scorecard is the ability to tie long term goals into short term objectives. If a corporation’s long term goal is increase product quality, the balanced scorecard also allows them to create short term objectives that would ensure customer satisfaction as well. Criticisms
As robust as the balanced scorecard can be, researchers have identified some limitations found within this strategy. For the purposes of this paper, I will focus on two major criticisms. In his 2008 article, author Rozhan Othman communicates one of the more serious criticisms of the BSC. He states the BSC can be...
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Othman, R. (2008). Enhancing the effectiveness of the balanced scorecard with scenario planning. International Journal of Productivity and Performance Management, 57(3), 259-266. doi:http://dx.doi.org/10.1108/17410400810857266
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