Question

By visiting an article or using a published article, find a description of the implementation of a balanced scorecard.
Discuss the following in detail:

Discuss the elements (objectives, measures, and targets) of the balanced scorecard.

Discuss the purpose of each balanced scorecard element.

Evaluate the balanced scorecard by discussing whether you agree that the choice of balanced scorecard performance measures is complete and consistent with the organization’s plan and stakeholder set

Answer 1

A balanced scorecard is a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes. Balanced scorecards are used to measure and provide feedback to organizations. Data collection is crucial to providing quantitative results as managers and executives gather and interpret the information and use it to make better decisions for the organization.

Understanding Balanced Scorecards

Accounting academic Dr. Robert Kaplan and business executive and theorist Dr. David Norton first introduced the balanced scorecard. The Harvard Business Review first published it in the 1992 article "The Balanced Scorecard—Measures That Drive Performance." Both Kaplan and Norton took previous metric performance measures and adapted them to include nonfinancial information.

Characteristics of the Balanced Scorecard Model

Information is collected and analyzed from four aspects of a business:

Learning and growth are analyzed through the investigation of training and knowledge resources. This first leg handles how well information is captured and how effectively employees use the information to convert it to a competitive advantage over the industry.

Business processes are evaluated by investigating how well products are manufactured. Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or waste.

Customer perspectives are collected to gauge customer satisfaction with quality, price, and availability of products or services. Customers provide feedback about their satisfaction with current products.

Financial data, such as sales, expenditures, and income are used to understand financial performance. These financial metrics may include dollar amounts, financial ratios, budget variances, or income targets.

These four legs encompass the vision and strategy of an organization and require active management to analyze the data collected. The balanced scorecard is thus often referred to as a management tool rather than a measurement tool.

To ensure long-term flexibility and survival, an organization needs to prepare for the future. The balanced scorecard managing system “maps an organization's strategic objectives into performance metrics in four perspectives: financial, internal processes, customers and learning and growth,” reports NetMBA. It offers an approach to deciding where your small business is heading, what you need to get there, and what you need to measure and control to achieve your goals.

Benefits

According to Advance Performance Institute, “organizations that use a balanced scorecard approach tend to outperform organizations without a formal approach to strategic performance management.” Balanced scorecard methods offers better strategic planning, improved strategy communication and execution, and better management information. Companies using a balanced scoreboard, or BSC, produce better performance reports, and better align their organizational processes with strategic goals.

Perspectives

Each BSC perspective has its own objectives. The customer perspective covers customer satisfaction, market share goals, and the attributes of products and services. The internal process perspective outlines the processes necessary to deliver on customer objectives as well as internal operational goals. The financial perspective allows managers to track shareholder value as well as financial success and the financial objectives of the organization. The “intangible drivers of future success, such as human capital, organizational capital and informational capital” belong under the learning and growth perspective, reports API.

Strategy Mapping

“Strategy maps are communication tools used to tell a story of how value is created for the organization,” says Balanced Scorecard Institute. They use a cause and effect chain to show the logical connections between strategic objectives. Objectives in the learning and growth perspective are on the bottom row, next is the internal process perspective, followed by the customer and financial perspectives in the top two rows. Generally, improving performance in a given row leads to improved performance in the rows above.

Measures

After you determine your organization's objectives, you need to identify measures to determine if you are on track to reach each objective. These measures are key performance indicators, or KPIs. Focus is important, so make sure to pick only one to three KPIs for each objective that are the best indicators of achievement for that particular goal.

Examples

Assume that your small business wants to become the largest maker of widgets in the country. One of the company's main strategies to accomplish this is to increase turnover. From a financial perspective, you want an increase turnover by 17 percent compared with last year, defining the financial objectives. Customers provide that turnover, so they need to receive their deliveries on time, which is the customer objective. The internal process objectives answer the question: What has to be done to ensure customers receive their orders on time? Finally, your innovation objectives include whatever infrastructure changes are required to accomplish your strategy; for instance, install new production machinery or rearranging office space for team building.