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Introduction to a Balanced Score Card -2013

posted 1 Feb 2013, 09:35 by Manish Abraham   [ updated 2 Feb 2013, 07:37 ]

Introduction to the Balanced Scorecard-
    The balanced scorecard was initiated by two researchers from Harvard Business School, Robert. S. Kaplan and David. P. Norton in the early 1990’s. It was designed and developed for measuring strategic performance and management structure of an organization. Kaplan and Norton define balanced scorecard as:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation" (Harvard business review).

At present balanced scorecards is being used as an organizational performance measuring tool which measures the company from four different perspectives to transform the strategy in to action in the critical divisions of a company.

Kaplan and Norton’s balanced scorecard helps people to view the organization in to four different perspectives:

  • Financial perspective
  • Customer perspective
  • Internal business process perspective
  • Learning and Growth perspective
Balanced Score Card 2013
“These perspectives are interlinked and layered: so that financial results are determined by customer satisfaction, which are in turn determined by internal processes and, underneath these three layers, is the foundation of the learning and growth perspective” by Marr and Adams (2004) who developed the  Balanced scorecard for strategic performance measurement. They also proved and said that the relationships between these 4 perspectives can be visualized in strategy maps.

“The Balanced scorecard is like the dials in an airplane cockpit; it gives managers complex information at a glance” by Robert. S. Kaplan and David. P. Norton. Many managers and academic researchers have tried to remedy the inadequacies of current performance measurement systems by focusing on making financial measures more relevant. Others have said “Forget the financial measures. Improve operational measures like cycle time and defect rates; the financial results will follow.”

 When managers finding a hard situation of what choose between financial and operational measures, Kaplan and Norton observed and worked with many companies and found that senior executives don’t rely on one set of measures to the exclusion of the other. This also helped them realize that no single measure can provide a clear performance target or focus attention on the critical areas of the business. Managers needed a balanced form of financial and operational performance measures. This made Kaplan and Norton to devise balanced scorecard that helped the managers have a fast but comprehensive view of their business.

balanced score card 2013 by manish abraham

However, according to Marr and Adams (2004) a major weakness in the balanced scorecard is the learning and growth perspective. The researchers Marr and Adams (2004) believe that this latest attempt to evolve the balanced scorecard by Kaplan and Norton might have had an adverse effect. Marr and Adams outline how Kaplan and Norton failed to acknowledge the large body of writing on intangible assets and, therefore, produced an inconsistent, incomplete, and potentially very confusing classification of intangible assets.

The scorecard tracks the objectives, measures, targets and initiatives of a company. But it is not a cure at all, especially for the companies with bad financial situations and which has no time to implement the plan. It also involves a high initial investment to educate and train their employees to work for the new strategy. The advancement in technologies have also created software for creating balanced scorecard by just giving inputs. But this is very expensive and also a wrong balanced scorecard software or one wrong input can set back the company’s ability to evaluate their employees and performance.

References 
  • Harvard Business Review, available at http://www.stevens-tech.edu/MSISCourses/450/Articles/ValueOfIT/TheBalancedScoreCard.pdf. [accessed 17/01/2013]
  • Kaplan, R.S., Norton, D.P. (1996) The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, Boston, MA,.
  • Marr, B., Adams. C. (2004) ‘The balanced scorecard and intangible assets: similar ideas, unaligned concepts’, Measuring Business Excellence, Vol. 8(3), pp 18-27
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