The Balanced Scorecard. According to Kaplan and Norton (1996:75) building a scorecard can help managers link todays actions with tomorrows goals.

University Degree Business and Administrative studies

Introduction

The increasing use of organisational measurement systems is changing the way mangers run companies. According to Hasan and Tibbits (2000) the balanced scorecards are a formal management system that provides a realistic framework linking performance measurements to strategic objectives. The interests of key stakeholders such as owners, customers and employees are integrated by the balance scorecards. According Dabhilkar and Bengtsson (2004) balance scorecards cards are seen as a new approach for strategy development and deployment that has entered management. It is also known as a multidimensional approach to performance measurement and management control that is linked specifically to organisational strategy (Dabhilkar and Bengtsson, 2004:2).

According to Kaplan and Norton (1996:75) building a scorecard can help managers link today’s actions with tomorrow’s goals. They developed it to address the perceived shortcomings in financially – oriented performance measurement systems. The Balanced scorecard is known to supplement traditional financial measures with criteria that measure performance from three additional perspectives: customers, internal business processes and learning and growth. It helps companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth. It is vital to understand that the scorecard isn’t a replacement for financial measures but a complement. The balanced scorecard helps managers not to rely on short term financial measures as the sole indicator of the company’s performance (Kaplan and Norton, 1996:75). With the balanced scorecard at the center of a company’s management system, a company can monitor short-term results from the three additional perspectives (customers, internal business processes, learning and growth) and evaluate strategy in the light of recent performance. The Balanced scorecard therefore enables companies to modify strategies to reflect real time learning (Kaplan and Norton, 1996:77).

Four Perspectives of the Balance Scorecard

As mentioned earlier the scorecard presents managers with four different perspectives from which to choose measures. It complements traditional financial indicators with measures of performance for customers, internal processes, and innovation and improvement activities. These measures are grounded in an organization's strategic objectives and competitive demands. And, by requiring managers to select a limited number of critical indicators within each of the four perspectives, the scorecard helps focus this strategic vision (Kaplan and Norton, 1993:134). These Perspective are:

Internal perspective

This perspective enables managers to focus on those critical internal operations that enable a business to satisfy customer needs. These internal measures should start from the business processes that have the biggest impact on customer satisfaction, for example quality, employee skills, price and productivity.

Apart from examining business processes that have the largest impact on customer satisfaction companies should also try to identify and measure their company's core competencies. One way this can be done is using the critical technologies which are useful in ensuring continued market leadership. Examples of these technologies include executive information systems. This technology facilitates and supports the information and decision-making needs of senior executives by providing them with easy access to internal information. This aids in the achievement of the strategic goals of the organisation.

Internal information systems also play an extremely useful role in helping managers break down measures of customer satisfaction into their component parts. For example, a transaction processing system (TPS) is an organised collection of people, procedures, software, databases, and devices used to record completed business transactions(Fundamentals of Business Information Systems, 2012: 16). Any and all transactions occurring within a business are recorded within this system so in the instance that an unexpected signal appears on the balanced scorecard, executives can consult this information system to find the source of the problem. For example, if on-time delivery for a particular product ...

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One concern involving using the balanced scorecard is timing. For example if reports about performance management are days or weeks behind a company's routine management meetings the managers do not access this information on time and therefore important decisions are not made when they need to be. Another concern is that the measures used for performance management may not be linked to measures adopted for managers and employees at lower levels of the organization. Company would be wise to develop a more responsive information system to eliminate these two constraints

Innovation and learning perspective

Innovation measures focus on the company's ability to develop and introduce products that form the bulk of sales rapidly. A company's ability to innovate, improve and learn is directly related to its value. That is, only through the ability to launch new products, create more value for, and improve operating efficiencies continually can a company penetrate new markets and increase its revenues and margins.

Goals of this perspective include technology leadership, manufacturing learning, product focus and having sufficient time to market products. Variables like the time required to develop the next batch of products, the manufacturing time from conception to maturity, the largest percentage of sales and new product introduction versus competition, also need be considered in order for the goals to be achieved

This perspective is important because of the increase in intense global competition and the constant stream of new and more advanced products on the market.

Financial Perspective

It is primarily concerned with the shareholders view of performance generally meaning that the perspectives aim is to succeed financially by delivering value to the shareholders (Figge, Hahn, Schaltegger and Wagner, 2002:270). Furthermore, the perspective indicates if whether the strategy’s transformation leads to an improved economic success of growth (revenue growth rate), sustains (profitability such as ROE, ROCE & EVA) and harvest stage (cash flow & reduction capital requirements) and the perspective also assumes a double role (Figge et al, 2002:270).

However, as it is already mentioned that the financial perspectives assumes a double role we generally mean that it is able to define the financial performance as a strategy that is expected to achieve on the one hand, while on the other hand it is the endpoint of the cause and effect relationships that refers to the BSC perspective (Figge et al, 2002:271). Thus, managers will do anything possible to make sure that the time and accurate data is provided, as it is anticipated that more of the processing can be centralized and automated with the implementation of a corporate database (Markisons, Davison and Dennis, 1999:73).

Therefore, the main point generally being highlighted in this perspective is that is that current emphasize on financials can lead to unbalanced situations when associated to other perspectives, then conceivably a need to include additional financial-related data, such as cost-benefit data and risk assessment, in this category is necessary (Markisons et al, 1999:73).

Customer Perspective

It is primarily concerned with delivering value to customers as it defines the customer/market segment in which it competes in. Thus, by means of suitable strategic objectives, measure, targets and initiatives that the customer value proposal is represented in and the customer perspectives side through which the firm can achieve a competitive advantage is the envisioned market segment (Butler, Letza and Naele, 1997:153).

However, the recent management philosophy has shown that an increasing understanding of the importance of customer focus and satisfaction in any company can either worsen or improve the conditions of the business (Butler et al, 1997:153). This generally means that if customers are not satisfied, they will eventually find other suppliers that will meet their needs which will lead to a decline in the company’s financial position (Butler et al, 1997:153). Meanwhile, the opposite can happen meaning that a good a set of results from this perspective can lead to quite impressive future financial gains (Butler et al, 1997:153).

Furthermore, in the process of developing satisfaction metrics customers view the company in terms of cost, quality, time and performance with the objectives that the company needs to be able to introduce new products, respond to supply (on time delivery), to be the preferred supplier (share of key accounts) and create a relationship with the customers (number of cooperative efforts) (Butler et al, 1997:153). However, customer are in return analyzed in terms of the type of customers they are and the kind of processes for which are providing a product or service to those customer groups (Butler et al, 1997:153).

The Management Processes:

The balanced scorecard lets companies introduce four new management processes that, separately and together, contribute to the linkage of long term strategic objectives with short term actions. The first new process is; Translating the Vision, this process helps managers build a consensus around the organizations vision and strategy. What the organization hopes to achieve in the future must be translated to employees and must link with the strategic objectives the organization has identified. The second process is; Communicating and Linking, this process lets managers communicate their strategy up and down the organization and link it to departmental and individual objectives; it basically involves communicating and educating, setting goals and linking rewards to performance measures, Therefore, helping to ensure that employees understand the long term strategy, the relations among the various strategic objectives and the association between the employees’ actions and the chosen strategic goals. The third process is; Business Planning, this process enables companies to integrate their business and financial plans, mainly by setting targets, aligning strategic initiatives, allocating resources and establishing milestones. This is possible because the balance scorecard takes into consideration the vision of the firm which encompasses the firm’s objectives. By having everything clearly stated for the employees it increases employee confidence because direction is clearly obvious and there is little confusion. Lastly the fourth process is; Feedback and Learning, this process gives companies the capacity for what we call strategic learning, it involves articulating the shared vision, supplying strategic feedback and facilitating strategy review and learning. Because the balance Scorecard incorporates non-financial indicators of the drivers of strategic and financial success, it is able to provide firms strategic feedback and promote learning through the monitoring of short-term strategic results, thereby, allowing firms to adjust or change objectives or strategies they see don’t form a perfect fit before financial results turn down. (Kaplan and Norton, 1996:75-77),(Itter.C.D,Lacker.D.F.,Meyer.M.W.,1997:37-42)

A balanced scorecard enables a company to align its management processes and focuses the entire organization on implementing long term strategy. It provides a framework for managing the implementation of strategy while also allowing the strategy itself to evolve itself in response to changes in the company’s competitive markets, and technological environment (Kaplan and Norton, 1996:85).According to Kaplan and Norton (1993:134) the balanced scorecard is much more than a measurement exercise, it is also a management system that motivates breakthrough improvements in such critical areas as product, process, customer, and market development.

Balance Scorecard Limitations

Even though balance scorecards have been widely accepted by academics and practitioners, several limitations exist. The first is that it is a top-down approach only hence the interactions between top management team and working level employees are limited. Secondly, balance scorecards did not provide an opportunity to develop, communicate and implement strategy in a corporate setting. It does not have a formal implementation methodology. Therefore this lack of formal implemented methodology and subjective measures often leads to focusing on short-term financial measures (Chiang and Lin, 2009:3). Balance scorecards are also said to lack a single focus for accountability for example a comprehensive index to summarise the interaction between these leading and lagging measures of performance. While the balance scorecards states what measures to look at, it does not state how to look at them or their relative importance to the environment (Chiang and Lin, 2009:3).

Conclusion

However, although balance scorecards has its limitations it is recognised for its resource deployment and improving internal process. Enhancing the quality of a firm’s controlling system in various ways is another advantage of the balance scorecards (Chiang and Lin, 2009:4). The balance scorecards is able to minimise information overload by limiting the number of measures used but also to develop the scorecard by linking to key success factors (Chiang and Lin, 2009:4). This helps the organisation develop systems that are strategy-supportive to keep it on track with regards to pursuing its strategy. On the other hand balance scorecards are said to fail because the metrics are poorly defined (Schneiderman, 2004:7). Improvement goals are negotiated rather than based on stakeholder requirements, fundamental process limits and improvement process capabilities (Schneiderman, 2004:7). The other reason why they fail is because there is no deployment system that breaks high level goals down to the sub-process level where actual improvement activities reside (Schneiderman, 2004:7). The balanced scorecard can serve as the focal point for the organization's efforts, defining and communicating priorities to managers, employees, investors, even customers (Kaplan and Norton, 1993:135).

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