The Balanced Scorecard (BSC) is one of ‘Performance Management System’ used widely around the world (Kaplan, 1993). This system is used to track the pivotal elements of a business, and allow managers to make decisions based on these measures to improve the company. Firstly, this essay will further introduce the BSC and then, its development throughout the years. Thirdly, the essay will suggest that the BSC is indeed effective as a ‘Performance Management System’ and that, lastly, it does help with the process of acquiring other companies.
What is the Balanced Scorecard?
The Balanced Scorecard comprises of a set of measurements that track financial measures that ultimately boost financial performance (Kaplan 1993). Kaplan (1993) introduced the BSC as a tool to address the ‘inability to link a company’s long-term strategy with its short-term financial goals’. The BSC bridges this gap and helps develop a comprehensive understanding of which areas they must change for the better through four key perspectives (Kaplan 2007).
The Financial perspective shows that financial measurements are important, however, financial information shouldn’t have such heavy emphasis that other perspectives are disregarded (Value). The Customer perspective is understanding the importance of consumer satisfaction of the business and focuses on the long-term projection of the company (Value). The Business processes perspective details internal information, like how the business is running and if the
From these four perspectives, the two that I would focus on would be customer satisfaction because customers are very important in any industry. If customers are not happy with
“The balanced scorecard should translate a business unit’s mission and strategy into tangible objectives and measures. The measures represent a balance between external measures for shareholders and customers and internal measures of critical business processes, innovation and learning and growth. The measures are balance between outcome measures, the results of past efforts, and the measures that drive future performance. And the scorecard is balanced between objective, easily quantified outcome measures and subjective, somewhat judgmental, performance…”
A balanced scorecard is a performance measurement system, which takes into account the customers, internal business processes, learning and growth, as well as financial
The internal perspective focuses on employees and their contentment with the organization, the quality of products and services, and cost management (Kinney and Raiborn 2013, 11).
The internal processes perspective is in charge of defining each processes that will be the most important factors in "achieving customer and shareholder objectives" (Malvutova, 2013). Finally, the learning and growth perspective "links company's objectives and measures to company's learning and growth" (Malvutova, 2013).
The balanced scorecard shows the innovation, finance, learning and customers as well to gain the goals associated with this paradigm. In the second column the, measures are there to achieve the goals set in the first column. It extracted through management information knowledge and the environment scanning after research (Whitaker, 2016, pg 131).
The Balanced Scorecard Institute reports that in the 1950’s General Electric was the first to use the Balanced Scorecard approach, but it was not until the 1990’s when Dr. Robert Kaplan a Harvard Business School professor and Dr. David Norton officially titled it the Balanced Scorecard. Once used as only a measurement tool for organizations, it is now a complete strategic planning and management system (Balanced Scorecard Institute, n.d.). Originally, businesses looked at the financial reports to distinguish whether it was a quality company or not. Kaplan and Norton however believed the financial reports only showed past history and an organization must also track how it is performing currently and look at ways to constantly improve future performance. Kaplan and Norton established there are four business segments or perspectives to measure and make improvements on. The four segments
These perspective are interdependent, they collaborate to form an efficient system that can track flaws in the companies to improve and hence provides a clearer target for companies. The companies view the perspective from customers objectively, by doing so they can understand what customers want or do not want. This insight then allows the company to tweak on their internal processes to provide such services.
The Balanced Scorecard complements this historical financial perspective by also looking at other aspects of the business (as shown) that are the key drivers of future financial performance
The main goal when defining the internal process perspective was to answer the following question “To satisfy our customers, at which processes must we excel” (BSI 2009, ¶5). Scents & things strategic goals should be developed in a way that will internally meet the customer’s needs and satisfaction. All strategic goals should be defined with the purpose of keeping the company running smoothly and in a way that will help to achieve the promises being made in the mission and vision statement. The strategic goals for Scents & things are to improve business processes and efficiencies, acquire additional services and business options, and improve marketing of store and the marketing of the products and services.
Quality and the Balanced Scorecard Approach: Customer satisfaction, both internal and external, is an important component of a Balanced Scorecard. A Balanced Scorecard approach (BSA) is often seen as one of the key tools that translate strategy into performance. The balanced scorecard model is a clear direction outlining what the organization should measure to balance the financial output. The scorecard retains financial measurement as a summary of their business performance (Kocakulah and Austill, 2007). Moreover, the scorecard will highlight an integrated set of measurement that will link customers, processes, resources, and performance to long-term financial success. The balanced scorecard is a tool that provides the company the framework that translates vision and strategy into actionable tasks. The scorecard is a set of performance measures allowing management a dashboard view of their business. These performance measurements are used to aid the company in setting goals and manage the business's
More importantly, the BSC helps in motivating and educating the employees (Qin, Atkins and Yu 2013). This essay critically evaluates the use of the balanced scorecard (BSC) as a performance measurement tool.
The balanced scorecard is a strategic measurement strategy used in business and government as a measurement tool. The balanced scorecard should reflect businesses plans and strategic goals. The balance scorecard “was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton (n.n October 8th, 2015). Balanced scorecard is used by managers not only to measure performance but to align their goals and execute the visions and missions of any agency. The balanced scorecard include metrics in different perspective views, these include “The learning and growth perspective, the business process perspective, the customer perspective and the financial perspective”.
Balanced Scorecard is a strategic performance management framework that helps organizations to align strategies with both financial and non-financial measures to monitor progress, measure performance, prioritize and reveal improvement opportunities (Henderson, Gary & Mittl). BSC is generally implemented at the corporate level, but it is useful for all levels of the organization. It should not only act as an information system for corporate management, but form a basis for encouraging behavioral change in the organization in order to conform to the vision and
Kaplan and David P. Norton stated that the balanced scorecard is defined as the translation of an organization’s mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system.” (Kaplan, R.S. and Norton, D.P. 1996)