BALANCED SCORECARD AND STAKEHOLDERS

Balanced Scorecard and Stakeholders

Balanced Scorecard and Stakeholders

Introduction

For generations, many businesses have measured organizational success based on a narrow set of financial performance measures, such as operating and net profit, return on investment, and earnings per share of stock. Financial performance measures are valuable in that they capture the economic consequences of business decisions; however, they tend to be “lagging” indicators of performance that report the financial effects of operational business decisions weeks or months after the decisions have been implemented.

Organizational managers and employees typically manage their work in terms of physical flows and other nonfinancial resources. For example, sales managers focus on market size, sales volume, share of wallet, customer satisfaction, and similar measures. Production managers concentrate on production capacity, throughput time, quality, and productivity metrics. Human resource managers are responsible for hiring appropriately skilled personnel, maintaining a safe and legal workplace, and organizational development outcomes (Crowther, 2004, 25).

Managers and employees throughout the organization make decisions and use resources that eventually impact the financial outcomes of the firm; to do so effectively, they need performance feedback that links the outcomes of their decisions to the strategic and financial goals of the firm. This feedback is most useful when it is a “leading” performance indicator, or one that is closely related to the work being performed.

Key Point Summaries Balance Scorecard

The benefits that can be obtained from a Balanced Scorecard depend on what it is used for, how well it is designed, and how it is applied. There are many organisations using Balanced Scorecard, in many different formats, however, in this FAQ we focus on two distinctly different applications: operational control and strategic management. The two applications require substantially different design and development processes, and provide different benefits to a management team. There have been many attempts to quantify the benefits of the implementation of a Balanced Scorecard but there is little empirical evidence - in part because collecting such evidence is hard. We summarise the prospective benefits of well-designed and implemented Balanced Scorecards of each type.

Analyse Why BSC does not Explicitly Incorporate other Stakeholders?

Implementation of the balanced scorecard (BSC) in public sector organizations is more likely to succeed if the organizations already possess clear conceptions of vision, strategy and outcomes. This is a paradox, as the BSC holds the promise of providing apt techniques for supporting organizations in the strategy developing process. The public sector is characterized as complex environments facing a variety of stakeholders with different, multiple and often vague objectives. The balanced scorecard is particularly useful in emphasizing multiple factors when developing and implementing strategy. However, the BSC has been criticized for having a too narrow stakeholder focus. We show that stakeholder theory contains elements that are particularly suited for solving the complexity challenges of public sector managers. Hence, we argue that stakeholder theory can complement the BSC by providing a more explicit stakeholder focus and that this will enhance the strategy development aspects of the ...