Balance Scorecard

Balance Scorecard

Introduction

Many researchers and authors are of the viewpoint that sole measurement of financial elements of an organization are not enough to guide and drive the organization in the right direction and both financial and non financial measure are required so that the strategic action of the organization and direction may also be aligned with the planned strategic position. balance scorecard has been found to be one such tool which supposedly measure both financial and non financial aspects of the organization and it is assumed that the non financial measure are the actual driving force behind the financial position or measure of any organization. Balance scorecard is being used by many organizations for predicting the future position of the company by using the non financial measures. It has been also mentioned that in older days organizations relied solely on the financial position of the company to evaluate and analyze its strength and competitive position. The biggest setback with the usage of financial measures was that it was based on the basis of companies past performance and did not predict anything about company's future. But addition of analysis of non financial measures helped in predicting the financial measure or position of the organization thus developing a cause and effect relationship. These reports aim at the critical analysis of this assumption whether there exists a cause and effect relationship for real or are it just an assumption that has nothing to do with real life application of balance scorecard.

Discussion

The strength of balance scorecard is basically based upon the assumption that it claims to have strong causal relationship between different non financial elements that are utilized in mapping of the core strategic position of organization by providing and predicting for financial measures. The elements are the non financial measures or enablers that prove for a cause and effect relationship with financial measures and organization must pay attention to them in order to guide the organization in the correct potential path. Kaplan and Norton have defined strategy as a collection of hypotheses with regards to cause and effect relationship in balance scorecard (BSC). The advocate for the presence of outcome measures that are helpful in identification of performance measures that are actually linked by cause and effect relationship. The main reason for linking the outcome measures with that of performance measure is the fact that sole usage of financial measures for analyzing organization performance was considered insufficient and received lot of criticism as they were historic in nature and said a lot of things with regards to how company did in the past but said nothing about how it should be acting in the future. One of the major issues with the usage of financial measures was the fact that accounting did not say anything with regards to the intangible assists of the organization that included HR, reputation or good will, bad will. Usage of financial measure was highly favored by organization that pursued short term financial results and it even encourage ...