What Is A Balanced Scorecard
A balance sheet scorecard is a tool that helps in the performance management strategy; it is a report that is semi-standard structured that has the support of the proven design methods and tools that are automated (Hanne, 2003). The tools aid managers to be able to track how staff members execute their activities within the laid down procedures and conditions and also to monitor the results accruing from these actions. A balanced scorecard is the best known and widely used in the performance management framework as reported in the survey of management tools done by Bain and company, this has been mostly used in Scandinavia and western countries in the early 1990s. It has been replicated in many instances, such as performance prism and outcome-oriented management since 2000 and it is now also common in Asia, Spanish-speaking countries, and the Middle East.
It has characteristics and derivatives that make the presentation of different financial and non-financial implications that each of it is rated against target value in a single report. The report does not come in as a replacement of the old financial or operational reports; it is a very sufficient synopsis that highlights the information that is only very relevant to the people reading it. It therefore the method that provides the most relevant information to be determined through the design process that is used in the selection of the content. It is important to note that the balance scorecard shades light on the mission and vision of the company and so the reference of the two elements in the preparation of a balanced scorecard is needed.
The scorecard as a performance model is very effective as it articulates the enjoinment between the leading inputs, such as, human and physical methods and this provides the emphasis on the value of the management of the components that facilitate the achievement of the strategic priorities of an organization.
Based on the first version of the Balanced Scorecard, it was so assertive that the relevance has to be from the business strategy and it proposed that majorly focused on how to choose measures and targets that are in line with the required activities for the strategy implementation. The strategy proposal was translated to a form that the audience of the Harvard business review could understand that was very relevant to the medium-sized US business. At the initial stages, the designs were emphasized to three categories measurement apart from the financial outputs that were for the customers, learning and growth, and the International Business Process. The early information based on the Balanced Scorecard had a critical focus on the suggestions on options for the best perspectives that may be logical to the groups. The thinking of the modern Balance Scorecards has considerably evolved from the initial proposed ideas and even the modern management performance indicators that include the Balanced Scorecard has significant improvement i.e. are more flexible and therefore can suit a wide variety of the type of organizations and more effectively there has been great evolution on the design methods that allow them to be easily designed and used.
Why Has It Proved Such A Popular Strategic Management Accounting Tool Amongst Listed And Other Large Companies?
The majority of the companies have opted to use the Balanced Scorecard as a strategic management accounting tool due to its tremendous improvement since the mid-1990s. An advanced design system came up in the year mentioned and the design comprised the selected measures based on some strategic objectives that were plotted on a linkage model that was so strategic or strategy map. The modified approach enables the distribution of the strategic objectives across the measurement perspectives that are four to help connect the dots so that visual presentation measures and strategies can form. The strategy has been popular through the development of a strategy map where the managers can select some strategic objectives from each of the perceptions and then come up with a definition of the cause-effect chain from the objectives through a connecting link between them. The strategic performance measures from a Balanced Scorecard emerge from the strategic objectives. The advantage of this type of approach is that greater contextual justification is provided for the chosen measures and generally the managers can work through so easily. This type can be said to signify the 2nd Generation of plans as its introduction was adopted for the Balanced Scorecard as it has been in use since1996 due to its significantly different approach as compared to the originally proposed methods.
There are several issues on the design that still remain with this improved approach to the Balanced Scorecard design but this has not affected it, since, it has proved to be more successful than the one it superseded.
The concept of the Balanced Scorecard has greatly enjoyed significant success since it was introduced. After its inception, it was adopted by 80% of the highly ranged companies in the U.S by 2004 according to the Financial Times that made it the most popular tool in the management for the increased performance. The promotion of the balanced scorecard by the national partnership for Reinventing Government increased its application and popularity in the public sector. The popularity of the Balanced Scorecard can be highly recognized due to its consistency with many company’s common initiatives for the improvement of its performance like continuous improvement, the customer-supplier partnership, and the company’s cross-functional teamwork. The Balanced Scorecard complements other initiatives in the company for improvement by offering the critical l help to the managers so as to understand the complex existing interrelationships in different business areas. When the competitive strategy of a company is linked to its elements, the improvement of the company in one area emerges as an expense of another in a situation pointed out by the Balance Scorecard. In this operation, the managers are able to come up with the informed decisions and tradeoffs that are very necessary to maneuver in the current fast-moving business under a very competitive environment.
The design approach has been evolving, hence, its popularity. There was also another evolution in the late 1990s to solve the problem of the 2nd generation design technique that was crude in the plotting of the casual links in the twenty or more medium-term goals of the strategy. In the real practice, it was not able to recognize the idea that influential strategic goals must be encapsulated in the real and current management activity. An additional design was due as there was a need to have an additional instrument that could indicate the vision/destination statement in order to move forward and test the real impact of the goals. The need was also necessary as it was quickly realized that when a destination statement was made at the start of the process design then it could be much easier in selecting the strategic activity and the objectives of the outcome for its response. There could be therefore the selection of measures for tracking the achievement of the objectives. The design methods have continually evolved for the Balanced Scorecards in order to adapt and reflect the existing deficiencies that are in the latest techniques used and the specific needs of the interested communities like the Government Departments and the NGO’s.
The Balanced Scorecard design basically is about how to identify a limited number of fiscal and non-fiscal parameters and then ensuring that the targets are attached to them and therefore this helps to determine if the current performance meets the need and expectations when they are reviewed. The whole idea here is that the managers are alerted especially to those areas that are deviating from the expectations so that they can be offered encouragement to channel their focus and attention to these areas and consequently trigger very sufficient performance within that section of the organization they head. The initial thinking that constituted the Balance Scorecard was to have it focus on the information that is related to having a strategy implemented and surprisingly for some time it has been the boundaries blurring between controlling the activities and especially those necessary to draft a Balance Scorecard and the conventional planning strategically. This can be well understood through the four steps that are essential to propose a Balanced Scorecard as Kaplan & Norton wrote in the late 1990s. They asserted four critical steps as part of the process to design a Balanced Scorecard. The steps are as indicated below.
- Ensuring that the vision is translated into operational goals
- Effective business planning and setting the index
- Making sure that the vision is well communicated and linked to the performance of the individuals
- Getting feedback and then learning from them, and adjusting those strategies accordingly.
The steps as shown are far beyond the easy task that can identify a given quantifiable value of fiscal and non-fiscal measures; they illustrate what is required for whatever needed design process that is used to fit in the bigger thinking on how to integrate the resulting Balance Scorecard with the broader business management process. It can also be referred to as a strategic linkage replica or even the strategic map by the people since it has been illustrated in the books and articles that have referred to the balance Scorecards in the confusion of the elements of the design process and the Balanced Scorecard itself. As far as the Balance Scorecard helps managers to engage their attention on the issues that are strategic and how the implementation of the strategies should be taken, it is of great importance to bear in mind that the Balance Scorecard in itself does not play any role in the strategy formation, they can comfortably be co-existed with the systems of planning strategy and other tools.
The finally the popularity of the Balance scorecard was due to the innovation and the perspective of learning included in the Balanced Scorecard. This was after Kaplan and Norton realized that the current business companies need continual improvements to help them outweigh their competitors in the intensive global business environment and the balanced scorecard gained popularity due to their innovations (Kaplan, 1990).
What Do You Consider To Be The Weaknesses Of The Balanced Scorecard Methodology?
Various sources especially the academic community has issued a lot of criticism concerning the empirical design of the framework which they term as not right especially the Kaplan and Norton that intentionally did not include any citation in their original research on the topic of Balance Scorecard and therefore the balanced Scorecard does not have the citation support and typically it still uses the same object of the 1st generation Balance Scorecard. A Balanced Scorecard is a tool that needs many preparations in terms of even holding a meeting to make the necessary plans for the goals your company can achieve in different areas. The clearly stated objectives are broken down to what is needed, financially to make objectives fruition.
Another weakness is that the Balance Scorecard cannot provide valid results or a view that is unified with very clear recommendations but it is easily a list of metrics. It, therefore, requires a well-trained individual to carefully interpret the metrics otherwise it may become difficult to use in the accounting toolbox. As the Balance Scorecard offers an overall business growth and development views in the four areas, the areas do not draw the whole picture and so the information on the scorecard is not sufficient. Therefore, this calls for a bigger strategy of the Balanced Scorecard for the company’s growth that may include meticulous accounting methods that may be successfully implemented (Kells, 1990).
There are some empirical studies that link the way the Balance Scorecard works to the improvement of the financial performance or the better decision making of companies but there is some work that has been undertaken in these areas. That being the case, it has been very difficult in the usage of the broadcast survey due to the broader variations on how to define the true meaning or identity of a Balance Scorecard. This proves difficult to take part in a survey especially when working on the comparisons. These single organizations always suffer when doing a case study as they lack a common issue related to any organizational change.
Some Balance Scorecard exposes the company to the metrics that are not useful or applicable to their possible target or need. This calls for the acquisition of the Balanced Scorecards that can make the information that is being tracked to suit the need of the company otherwise the metrics will be very meaningless. The Balanced Scorecard can be created from so many elements and after the creation of the Balanced Scorecard, the business can grow tremendously over a very short period of time that may at some point require changing the Scorecard. The Balanced Scorecard upkeep can be also managed by some existing software programs but this must be carefully done for if the wrong one is chosen then the ability of the company to evaluate the employees is badly setback. Consequently, if the company is not able to work swiftly in good time to change the Balance Scorecard then it can be absolutely wrong solution for your business.
The implementation of a Balanced Scorecard system can be extremely expensive in terms of the time of the training and other extra coins for the consultant services needed from competent consultants during the process. In order to establish the cost for acquiring a balanced Scorecard plan, you must have taken the total number of employees that are training in the new system and then multiply the hours of the training by the amount of their wage, include the cost of a facilitator of the plan, the expected cost the software, the software license expenses, the maintenance labor cost and then the testing and the installation of the software cost. There may also be in addition the software and the training maintenance cost that can easily add up. This needs a well-established and versed company to comply with these expenses otherwise it can jeopardize some key operations of the company (Kaplan &Norton, 1996).
Balance Scorecard being different from other existing strategic management and the analysis of the methods like the SWOT analysis, benchmarking, pest analysis, and porter 5F analysis; it does not have any consideration to any of the important groups that are not directly linked to the business but only the shareholders and clients and again there is no attention that is paid to the competitor's daily activities. According to Kaplan and Norton’s discussion, they argue that any organization has to engage in the use of the double loop learning so that the balanced Scorecard is established in the first place but under the consideration of the very first changing external environment that it is definitely not enough (Grove, Mock & Ehrenreich, 1997). It is very definite to say that in many cases it is critical that there should be more frequent scanning of the external environment since the measurement of the external environment can be quite complicated.
In the case of the public sector organizations for example the important measures to the voters or a given interest group may be given consideration by the already given methodology by Kaplan and Norton where the fifth additional perspective is included in the balance Scorecard framework. Other scholars Neely & Adams (2002) argue out that the difficult problem/weakness of the Balanced Scorecard is that it does not have various important groups of interest in its structure that can be the suppliers, the neighbors that are close, and the cooperation partners. He recommends the use of a performance prism methodology instead of the Balanced Scorecard in order to add the new interest groups to this framework. Simon et al, strongly recommend that it can very worthwhile to go the extra mile to add some specific features to each balance Scorecard where a given task force or an individual will be working in an organization. The person should be directly responsible for the gathering of information concerning the opportunities that exist externally and the threats.
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