BALANCED SCORECARD

Balanced Scorecard

Balanced Scorecard

Introduction

Balanced scorecard is a management system that enables organizations to translate vision and strategy into action. This system provides feedback on internal business processes and external outcomes to continually improve organizational performance and results. Robert Kaplan and David Norton created the balanced scorecard approach in the early 1990s.

Most traditional management systems focus on the financial performance of an organization (Viven, 2007). According to those who support the balanced scorecard, the financial approach is unbalanced and has major limitations:

Financial data typically reflect an organization's past performance. Therefore, they may not accurately represent the current state of the organization or what is likely to happen to the organization in the future.

It is not uncommon for the current market value of an organization to exceed the market value of its assets. There are financial ratios that reflect the value of a company's assets relative to its market value. The difference between the market value of an organization and the current market value of the organization's assets is often referred to as intangible assets. Traditional financial measures do not cover these intangible assets (Roberts, 2008).

Discussion

The causality claimed in BSC has been much studied, and there is evidence that customer satisfaction, market share, customer loyalty, and profitability correlate. However, causality is not only a solution but also a problem. Loyal customers are not always more profitable than disloyal ones, as noted by (Lipe, 2007), and sometimes no systematic relation between BSC usage and financial performance can be found, as noted by (Davis, 2007).

Information in Four Dimensions

Each of the four dimensions of the BSC responds to an organizational problem. The financial perspective is a financial model of the firm and identifies types of profitability objectives. The customer perspective points out the means for developing customer and marked preferences and identifies dimensions of the product or service that may meet the value proposition of target customers. The process perspective is a value chain involving questions about production, sales, and distribution facilities. Last, the learning and growth perspective is concerned more generally with organizational capabilities such as infrastructure and intangible assets (Banker, 2006).

Strategy Translation

The BSC can be understood as a strategic tool for the firm. It communicates the strategy of the firm by showing what it means and by showing how the four types of information identified in the four perspectives are related in the development of the firm. The BSC translated strategy because it takes central strategic proposition, such as a distinction whether the firm competes on products/technology, production/efficiency, or customer intimacy/orientation, and makes it concrete by adding indicators and targets to it. The strategy is only strong if it can be translated into the BSC, which makes it a mechanism to ensure quality and communicate strategy simultaneously (Viven, 2007). For a strategy to be of quality it has to be formulated so that it translates into all four perspectives, and it has to be formulated so that it can be represented in indicators. The indicators are important because measures are possibly stronger ...