Question

What are some of the strengths and limitations of the financial perspective of a balanced scorecard and business process perspective of a balanced scorecard?

I am looking for the strengths and limitations of the scorecard's perspectives not the strengths and weaknesses of the balanced scorecard itself.

Thanks for your help.

Answer 1

Financial perspective of a Balanced scorecard :

Financial performance measures indicate whether the company's strategy, implementation, and execution are contributing to bottom-line improvement. Financial perspective shed light on how do we look to shareholders. Typical financial goals have to do with profitability, growth and shareholder value. Financial goals are stated as to survive, to succeed and to prosper. Survival was measured by cash flow, success by quarterly sales growth and operating income by division, and prosperity by increased market share by segment and return on equity.

Strengths :

Shareholder value analysis (SVA) forecasts future cash flows and discounts them back to a rough estimate of current value,is an attempt to make financial analysis more forward looking.

A well designed financial control system can actually enhance rather than inhibit an organization's total quality management program.

Periodic financial statements helps improved quality, response time, productivity which will benefit the company when they are translated into improved sales and market share, reduced operating expenses, or higher asset turnover.

Limitations :

Shareholder value analysis still is based on can flow rather than on the activities and processes that drive cash flow.

Financial measures are criticized because of their well documented inadequacies, their backward looking focus, and their inability to reflect contemporary value-creating actions.

The linkage between improved operating performance and financial success is actually quite tenuous and uncertain.

Business process perspective of a Balanced scorecard:

Business process perspective focus on measures of what the company must do internally to meet its customer expectations. Excellent customer performance derives from processes, decisions, and actions occuring throughout an organization. The internal measures for the Balanced scorecard should stem from the business processes that have the greatest impact on customer satisfaction- factors that affect cycle time, quality, employee skills, and productivity.

Strengths:

The strength is to identify and measure the company's core competencies, the critical technologies needed to ensure continued market leadership.

The four internal business goals such as cycle time, quality, productivity and cost measures links the top management's judgement about key internal processes and competencies and the employees at lower levels in the Organization have clear targets for actions, decisions, and improvement activities that will contribute to the company's overall mission.

Limitations in business process perspective:

Information system plays an invaluable role in helping managers to take measures. Absence of such an operational information system is athe greatest limitation.

Scorecard information is not timely. Reports are generally a week behind the company's routine management meetings, and the measures have yet to be linked to measures for managers and employees at lower levels of the Organization.