Question

Using research tools please identify companies that actually use the Balanced Scorecard. Now choose three (3); How is the Balanced Scorecard presented in the annual reports of the company? What does Balanced Scorecard reporting suggest about the management of the company, and the responsibility the company feels for its stakeholders? Please place your answers to the above questions on the module 6 discussion forum. The recommended word count is 300 - 400 words. You may like to use images and diagrams. You are also welcome to include factors that may not be explicitly stated but which you believe fit within the context of the subject and are worthy of inclusion.

Answer 1

The balanced scorecard is a method which displays organisation’s performance into four dimensions namely financial, customer, internal and innovation. The four dimensions acknowledge the interest of shareholders, customers and employees taking into account of both long-term and short-term goals.

Kaplan and Norton classified performance measures into four business ‘perspectives’:

(i) The financial perspective

(ii) The customer perspective

(iii) The internal business perspective

(iv) The learning and growth perspective

(i) Financial Perspective: “How Do We Look To Shareholders?” In this step manager of a division or a unit, links its business objectives to the corporate strategy of the company as a whole.Financial performance measures indicate whether the company’s strategy implementation and execution are contributing to its revenue and earnings. To identify key performance measures in this perspective, managers, during strategic planning ask “How do

we look to shareholders?”

Corporate strategy and strategic initiatives are examined from the financial perspective to see feasibility of these initiatives of being met. The financial objectives chosen at the onset of the balanced scorecard implementation should serve two purposes:

1. To provide definite performance that was expected at the time of strategies selection.

2. To provide a focus for objectives and appropriate measures in each of the other three perspectives.

(ii) Customer Perspective: “How Do Customer View Us?” In this stage, companies identify customers and market segments in which they compete and also the means by which they provide value to these customers and markets. Managers identify the lead indicators which make a particular business unit or product different from that of others. Lead indicator may vary from customer to customer or market segment. If for example, a customer values on-time delivery then on-time delivery becomes a lead indicator. Examples of lead indicators may include any number of customer considerations, including:

• On-time delivery

• On-site service

After sales support

• Defects per order

• Cost of the product

• Free shipments etc.

By delivering quality as per the customer demand and need, business units can improve outcome measures such as customer satisfaction, retention, acquisition and loyalty.

(iii) Internal Business Perspective: “At What Must We Excel?” In this stage companies

identify processes and activities which are necessary to achieve the objectives as identified at financial perspectives and customer perspective stage.These objectives may be achieved by reassessing the value chain and making necessary changes to the existing operating activities. If maintaining net earnings is the financial objective of a company and after sales service can increase customer retention, then internal business perspective needs to improve after sales services to satisfy customer requirements to maintainnet earnings. This objective may be achieved by providing for example toll free customer help lines, setting up service centresin all major cities.

(iv) Learning and Growth Perspective: “How Do We Continue To Improve And Create Value?” In the learning and growth perspective, Companies determine the activities and infrastructure that the company must build to create long term growth, which are necessary to achieve the objectives set in the previous three perspectives. Organisational learning and growth comes from three principle sources:

• People i.e. employee capabilities

• Systems i.e. information system capabilities and

• Organisational procedures i.e. motivation, empowerment and alignment.

Since, the balanced scorecard is intended to improve long-term performance, managers may invest in resources needed in the short-run but this should not affect business unit’s performance.

The ultimate result of using the Balanced Scorecard approach should be an improved longtermfinancial performance. Since the scorecard gives equal importance to the relevant non –financial measures, it should discourage the short termism that leads to cuts in spending on newproduct development, human resource development etc which are ultimately detrimental forthe future prospects of the company.

The responsibility to devise and implement a Balanced Scorecard should be that of themanagersworking with the business. Since every company is different, it shall need to work out for itselfthe various financial and non – financial measures, which need to be focused upon for its owndevelopment. Since the Balanced Scorecard is recommended as a management tool usedboth for internal and external reporting purposes, it is again the

The following figure summarises the ideas of a Balanced Scorecard:

Financial

Internal business process

Learning and growth

Customer perspective

The above perspectives will be moving in a cycle.

And each of the above has objectives,measures,targets and initiatives respectively.

The following are some reasons why Balanced Scorecards sometimes fail to provide for thedesired results;

• Managers mistakenly think that since they already use non – financial measures, theyalready have a Balanced Scorecard.

• Senior executives misguidedly delegate the responsibility of the Scorecard implementationto middle level managers.

• Company’s try to copy measures and strategies used by the best companies rather thandeveloping their own measures suited for the environment under which they function.

• There are times when Balanced Scorecards are thought to be meant for reporting purposesonly. This notion does not allow a Business to use the Scorecard to manage Business ina new and more effective way.

It may be noted that the above-mentioned difficulties refer to the internal use of the Scorecard,unless it is used internally successfully, it should not be used as a basis for external reporting.