Question

What is a balanced scorecard? Does every company need to utilize a balanced scorecard? Why or why not?

Answer 1

The balanced scorecard is a method which depicts business performance into four categories namely financial, customer, Internal business and learning and growth. The four categories acknowledge the interest of shareholders, customers and employees taking into account of both long-term and short-term goals. In short it covers all the interest of stakeholders.

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

1. Financial Perspective: Financial performance measures indicate whether the company’s strategy implementation and execution are contributing to its revenue and earnings. Corporate strategy and strategic initiatives are examined from the financial perspective to see feasibility of these initiatives of being met .
2. Customer Perspective: 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.
3. Internal Business Perspective: 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.
4. Learning and Growth Perspective: 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

It depends on the companys need to utilise balance scorecard. Why - The responsibility to devise and implement a Balanced Scorecard should be that of the managers working with the business. Since every company is different, it shall need to work out for itself the various financial and non – financial measures, which need to be focused upon for its own development.

Why Not The following are some reasons why Balanced Scorecards sometimes fail to provide for the desired result managers mistakenly think that since they already use non – financial measures, they already have a Balanced Scorecard and Senior executives misguidedly delegate the responsibility of the Scorecard implementation to middle level managers.