Question

What are the strengths of using a Balanced Scorecard approach? Hint: Discuss the four perspectives of the Balanced Scorecard and why this is better than just looking at the bottom line (financial measures).

Website: http://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard

Answer 1

The Balanced Scorecard strategy (Kaplan & Norton) is a management and measurement system which is used by organizations to clarify their vision and strategy and translate them into action. This is done by measuring results of business performance in four areas namely: financial performance, customer knowledge, internal business processes, and learning and growth.

The strengths of using Balanced Scorecard Strategy (BSC) are as follows:

1. Since BSC is designed to be structured, logical, inclusive, balanced, comprehensive and holistic, it ensures that all areas of the organization are tapped. The vision or goals of the organization are kept at the heart of the strategy. BSC serves as a constant reminder of the organization’s vision and does not allow the management to deviate from the same. Specific and objective measures are used to track performance. Owing to its structure, BSC covers both financial and non-financial performance making the strategy more integrative in comparison to taking just finance as the barometer of performance. Given its structured, compartmentalized and micro-approach, it is also possible to zero in on the ailing areas of the organization using BSC. Working on the same provides scope for improvement in such areas increasing the overall performance of the organization.

2. In BSC, a strategy map is designed to clearly communicate the strategy plan. This map is a visual aid to communicate the strategy plan in a simple and clear manner on a regular basis. By doing so, the employees get a clear idea of what is expected from them and helps the employees identify with the goals of the organization. Thus, objectives of the organization are broken down so that the all levels of the organization can relate to them and cultivate or utilize capacities or skill sets to match what the organization expects of them. Thus, an attempt is made to provide every member of the organization with clear targets to improve overall performance. Further, it keeps the organizations’ goals at centre-stage during performance measurement and reporting phase.

3. Aligning of various levels/divisions of the organization

When BSC is implemented correctly, it allows for smooth coordination in the organization wherein all divisions and departments align themselves towards the common goal by following the common strategy. It is of much importance when structure is required in large companies across multiple divisions/departments. BSC also helps in integrating various corporate programmes.

The strengths of BSC over traditional financial methods of performance management and measurement is that it gives a full picture of company performance across the aforesaid four dimensions. While the company may be doing well financially, it may have issues like customer dissatisfaction, inadequate employee training or obsolete technology- issues which cannot be tapped financially. BSC thus is a potent tool to measure the short, medium, and long term objectives of the organization.