Evaluate the relevance and the effectiveness of the 'Balanced Scorecard' approach to performance measurement with specific reference to a company or organisation which you are familiar.

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Evaluate the relevance and the effectiveness of the ‘Balanced Scorecard’ approach to performance measurement with specific reference to a company or organisation which you are familiar.

What is the Balanced Scorecard?

As business becomes more complex and competitive due to globalization, liberalization of trade, technology innovation and domestic quality issues; traditional financial measures of performance fail to give managers all the information they need to make strategic and day-to-day decisions.

The limitations attached to traditional financial measures are:

  • Backward looking and reflect yesterday’s decision;
  • Unable to reflect contemporary value-creating actions upon which future financial success rests;
  • Reinforce short-term thinking;
  • Doubtful of validity due to the figures manipulation.

Robert Kaplan and David Norton devised the Balanced Scorecard. It provides a better assessment of performance as it “enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth”.

The Four Aspect of the Balanced Scorecard

 

Kaplan and Norton’s Balanced Scorecard describes strategy and performance management from multiple perspectives. The classic Balanced Scorecard has four perspectives:

  • Financial
  • Customer
  • Internal business process
  • Learning and growth

(Kaplan and Norton, 1996)

Financial perspective

– How do we look to shareholders?

This perspective concentrates on how the organisation appears to its shareholders and considers what the organisation’s financial objectives are.

        

Core Objectives                          Measures

1. Minimizing Administrative Costs          - Cost to spend ratio

2. Return on Capital Employed          - % on capital injected


Customers perspective

– How do customers see us?

This perspective focuses on how to satisfy its customers so as to achieve its financial objectives.

Core Objectives                        Measures

        1. Customer Satisfaction                % of customers satisfied with timeliness

                                                    % of customers satisfied with quality

        2. Effective Service Partnership        % of customers satisfied with the responsiveness,

                                        cooperation and communication skills

Internal business perspective 

– At what must we excel?

This perspective relates to what must the organisation do well internally in order to support the product/ market strategy and to achieve its financial objectives.

Core Objectives (e.g.)                        Measures (e.g.)

        1. Effective Quality Control System        - % of defect goods produce

        2. Innovation                                - % of sales from new products

                                                - new product introduction versus competitors

                                                   

Learning and growth perspective

– How will we sustain our ability to change and improve?

This perspective focus on the question what capabilities must the organisation build to improved or acquired to achieve the long-term targets for the customer and internal business process perspectives.

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Core Objectives (e.g.)                        Measures (e.g.)

1. Information Availability for         - The extent of reliable management information

    Strategic Decision-making                

2. Quality Workforce                - % of employee meeting mandatory qualification  

   standards

3. Quality Work Environment        - % of employees satisfied with the work

   environment

Each perspective can be explained by a key question with which it is associated. The answers to each key question become the objectives associated with that perspective, and performance is then judged by the progress to achieving these objectives. There is an explicit causal relationship between the perspectives: good performance in the Learning ...

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