Question

Although the balanced scorecard is very useful in the implementation of strategy for an organisation, managers should be cautious on the pitfalls when impleting the scorecard.

Explain any four (4) pitfalls.

Answer 1

Balanced scorecard is used to evaluate the performance of various business functions and helps in improving the performance of an organisations. It takes into consideretion four aspects- Learning & growth, Financial data, Customer perspectives, and Business processes.

Pitfalls managers should be cautious of when implementing the scorecard:

Engaging employees in the development of the scorecard

Employees have good understanding of business operations and their input would help in developing a realistic scorecard. Employees may feel dissatisfied with the performance metrics included in the scorecard and show unwillingness to improve their performance. Employees should not feel that the performance metrics are unachievable and lose motivation to achieve it.

Conveying the importance of scorecard to employees

Employees may feel that they are being overly controlled and monitored by the management and therefore it is important that they know the purpose of implementing the scorecard and how it would help the organisation improve its performance. They should also be assured that scorecard will not put their jobs at risk or punished for not achieving the performance standards set in the scorecard so that they don't feel overly pressured which may adversely impact their performance.

Flexible scorecard

The performance metrics should not be too strict and should allow for some changes. It is not practical to develop a perfect scorecard at a time when things are changing rapidly. It is important that the management understands the purpose of the scorecard and not just blindly follow the scorecard. They should be open to changes in the scorecard whenever required. Also, support of top management is crucial to permit the management to make the necessary changes.

Misunderstanding of Scorecard

Proper understanding of scorecard is necessary as improving one business function may affect other business functions adversely. The ultimate goal is to improve the performance of the whole firm and not a singly business function. Also, scorecard should be followed from a long term perspective so that the management does not just focus on achieving the the short term performance metrics which may adversely impact the organisation in the long term.