Evaluate the Relevance and Adequacy of the Balanced Score Card Essay
The Balanced Scorecard is a strategic performance management framework that has been designed to help an organisation monitor its performance and manage the execution of its strategy. Kaplan and Norton (1996a, 1996b) pointed out that the implementation of the Balance Score Card is to attain the following goals clarify and translate vision and strategy, communicate and link objectives and measures, plan, set targets, and align strategic initiatives; and enhance strategic feedback and learning.
A growing number of firms are replacing their financially-based performance measurement and compensation systems with a “balanced scorecard” incorporating multiple financial and nonfinancial indicators. Proponents of the balanced scorecard concept contend that this approach provides a powerful means for translating a firm’s vision and strategy into a tool that effectively communicates strategic intent and motivates performance against established strategic goals (Kaplan and Norton, 1996).
Kaplan and Norton (1992, 1996) developed the balanced scorecard concept to address the perceived shortcomings in financially-oriented performance measurement systems. The balanced Score card approach supplements traditional financial measures with non-financial measures focused on at least three other perspectives–customers, internal business processes, and learning and growth. According to the Financial Gazette dates 24 July 2009, it pointed out that more and more organisations today are resorting to the balanced scorecard as a performance management system.
This method of performance management allows performance to be measured across four different perspectives, where traditionally it was based on financial indicators alone. The four balanced scorecard perspectives are financial, customer, internal business processes and learning and growth. Through the use of the various perspectives, the Balance Score Card captures both leading and lagging performance measures, thereby providing a more “balanced” view of company performance.
Leading indicators include measures, such as customer satisfaction, new product development, on-time delivery and employee competency development. Traditional lagging indicators include financial measures, such as revenue growth and profitability. The Balance Score Card performance management systems have been widely adopted globally, in part, because this approach enables organizations to align all levels of staff around a single strategy so that it can be executed more successfully.
The balanced scorecard’s relevance also lies as it lets executives see whether they have improved in one area at the expense of another .Essentially the balanced scorecard is a framework of the four most important aspects of an organization (financial, customer, learning and growth and internal business process) that enable predictions to be made about performance on a number of levels and this is shown below
The balance Score Card is relevant to the organization in the sense that it gives the organization the ability to provide financial profitability and stability (private) or cost-efficiency/effectiveness (public).Also it is fully adequate in most organization and is adequately distributed. The companies are able to succeed financially and the share holders will be happy because of the cash flow within the organization. Managers are able to track financial success and shareholder value.
Furthermore the balance score card enables the organization to have the ability to provide quality goods and services, delivery effectiveness, and customer satisfaction by offering after sales service, visiting customers to verify whether the product they sold are of good quality and they are not problematic to the customer. Again The Balance score card enables the organization to be performing well in a business scenario by practicing customer ranking survey, customer satisfaction index and even market share.( Robert Kaplan and Dr. David Norton 1992).With The Balance score card managers the organization is able to cover customer objectives such as customer satisfaction, market share goals as well as product and service attributes.
Internal Business Processes
Internal processes that lead to high financial goals for example quality and product reliability, speed in fulfilling customer needs and also speed in response to customer complaints and these elements will have an impact on the service to customers. According to Arifinfo June 2, 2011, the internal processes include improving the quality and reliability products lowering the number of products that fail, increase speed of service developing innovation process and develop production capacity hence performance management is enhanced. Again organizations can cover internal operational goals and outlines the key processes necessary to deliver the customer objectives.
Learning and Growth
The Balance Scorecard is relevant and its adequacy lies on that it gives the organization the ability of employees, technology tools and effects of change to support organizational goals. A learning-and-growth metric (or employee metric) is a framework for quantitatively assessing employee satisfaction, productivity, and retention in the framework of the balanced scorecard (BSC).A metric that is not just behavioral and statistical but “developmental,” in the sense of development of adult mental growth over the life span (Laske, 1999a/b, 2000), adds to learning-and-growth enablers a second “tier” that refines the metricization of a company’s strategic human resources.
The Learning & Growth Perspective focuses on the intangible assets of an organization, mainly on the internal skills and capabilities of the employees that are required to support the value-creating internal processes. The Learning & Growth Perspective focuses on human capital jobs and people issues, information capital systems and technology issues and organization capital that is organizational climate and quality of work-life.
According to Van Eerde and Thierry (1996, he advocated that this approach allows companies to build consensus around the organization’s vision and strategy, effectively communicate strategic objectives, and motivate performance against established strategic goals. Although the balanced scorecard literature acknowledges that linkages to reward systems ultimately are required for the scorecard to create cultural change and improve economic performance, the specific form of these linkages remains an open issue. Balance Score card’s relevance and adequacy lies in that organizations enjoyed the following advantages Better Strategic Planning
The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualized in a strategy map which forces managers to think about cause and effect relationships. The process of creating a Strategy Map ensures that consensus is reached over a set of interrelated strategic objectives. Improved Strategy Communication & Execution
The fact that the strategy with all its interrelated objectives is mapped on one piece of paper allows companies to easily communicate strategy internally and externally.
Better Management Information The Balanced Scorecard approach forces organizations to design key performance indicators for their various strategic objectives. This ensures that companies are measuring what actually matters. Research shows that companies with a BSC approach tend to report higher quality management information and gain increasing benefits from the way this information is used to guide management and decision making. Improved Performance Reporting
Companies using a Balanced Scorecard approach tend to produce better performance reports than organizations without such a structured approach to performance management. Increasing needs and requirements for transparency can be met if companies create meaningful management reports and dashboards to communicate performance both internally and externally. Better Strategic Alignment
Organizations with a Balanced Scorecard are able to better align their organization with the strategic objectives. In order to execute a plan well, organizations need to ensure that all business and support units are working towards the same goals. Cascading the Balanced Scorecard into those units will help to achieve that and link strategy to operations. Better Organizational Alignment
Well implemented Balanced Scorecards also help to align organizational processes such as budgeting, risk management and analytics with the strategic priorities. This will help to create a truly strategy focused organization. However, with the extra time and expense required to implement and operate the balanced scorecard and it is said by advocates that of about forty four percent encountered problems developing the extensive information systems needed to support the scorecard approach. The use of a large number of performance measures may also cause managers to spread their efforts over too many objectives, reducing the effectiveness of the incentive plan hence the relevance of the balance scorecard will be to a lesser extent.
However, beside Balance Score Card there is also the Competitive Assessment Model where it assumes that organizations improve through a process of “rigid individualism” in which employees are ranked and rated against each other, driving performance on a comparative basis. This model sound to be more relevant to companies today in the sense that it enables companies to enhance competitiveness and aids managers in determining the key activities to address in order to improve corporate efficiency and effectiveness based on satisfying stakeholders.( Paul Watson, Dmitry Maslow and Nicholas Chileshe).This proves the point that the models from the West are relevant in the industry today.
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