Concept of Balanced Scorecard

Solution Preview

Organizations face many challenges and pressures to respond quickly to unexpected rapid changes to every aspect of business processes, including the economy, marketplace, and technology. The Balanced Scorecard is one of many performance management measurement tools that have become very popular in recent years in order to improve the performance of the organization. This essay will evaluate the Balanced Scorecard as a measurement tool by looking at the potential advantages and disadvantages that can arise from using it. This essay will also evaluate whether it is a valuable tool for cost and management accounting.

The balance scorecard first came to prominence in the early 1990's. This system of performance management measurement was developed by Dr Robert Kaplan and Dr David Norton of the Harvard Business School. It focuses on four main perspectives as described by Kippenberger (1996), these are: i. The Customer, ii. The Internal, iii. Innovation and Learning and iv. Financial

As opposed to most previous measurement tools, the balanced scorecard didn't just focus on the financial perspective. The balanced scorecard aims to have a balance over the four areas rather than one area being much more focused upon "The BSC (Balanced Scorecard) divides the business environment into four key business areas" (Hepworth 1998)

II. Balanced score card overview
Balance scorecard seeks to measure a business from the following perspectives:
* Financial perspective - measures reflecting financial performance, for example number of debtors, cash flow, profit margin or return on investment.
* Customer perspective - measures having a direct impact on customers, for example time taken to process a phone call, results of customer surveys, number of complaints or competitive rankings, market share.
* Business process perspective - measures reflecting the performance of key business processes, for example the time spent prospecting, number of units that required rework or process cost, cost of manufacturing, supply chain management.
* Learning and growth perspective - measures describing the companies learning curve, for example number of employee suggestions, employee retention or total hours spent on staff training.

The Balanced Scorecard tends to focus more on critical performance indicators and missing out what can be considered less important indicators (Kippenberger 1996).
It is important that businesses implementing the balanced scorecard do not completely move away from financially driven targets or revenue may decrease dramatically, Neale & McElroy (2004) back up this point "The trick is to settle on a set of critical metrics which influence the financial results". They also argue that for the balanced scorecard to operate successfully there could be clear linkages between success drivers, e.g. Business growth and the achievement of financial goals. Only when there is a successful balance has the balanced scorecard been implemented properly.

Balancedscorecard.biz explains "it is most often the new and "missing measures" and their interplay with other indicators that drive the value emanating from a Balanced Scorecard. Many of the measures needed to tell the story of the strategy may already be present, but in the vast majority of cases they must be supplemented with new and innovative metrics to ensure the execution of strategy" this suggests that if new metrics are brought in to replace the "missing measures" then there should be no problems with implementing it. From the evidence it appears that the balanced scorecard covers nearly all of the important measurements and metrics and that with proper implementation there should be no required measures or metrics missing.
The balanced scorecard helps take the sole focus of organisations being high ...