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Balanced Scorecard - Essay Example

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Balanced Scorecard Approach: A Critical Review
Balanced Scorecard is a strategic performance management tool, which is mainly used by managers to regulate strategy execution activities and subsequent monitoring processes. …
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Download file to see previous pages Although the first Balanced Scorecard was designed by Art Schneiderman in 1970, the concept of Balanced Scorecard was extensively developed and widely popularized by Robert S. Kaplan and David P. Norton. According to them, a Balanced Scorecard “defines the set of near-term objectives and activities, the drivers that will differentiate a company from its competitors and create long-term customer and shareholder value, the outcomes.” (Kaplan & Norton, 2001, p.76). The most fascinating feature of a Balanced Scorecard is that a set of financial and non-financial tools are presented in a single succinct report by comparing each tool to a ‘target’ value. This strategic performance management tool was developed with intent to replace traditional operational reports and to present a concise summary that includes the most relevant information. The first versions of Balanced Scorecard held the view that its relevance was greatly related to corporate strategy and the proposed design methods. As noted by Kaplan & Norton (2001), during the initial stages, it was believed that this tool would most fit the needs and requirements of mid-sized firms and hence the model was mainly employed to measure aspects like customer, internal business processes, and learning and growth (pp.76-77). This tool was periodically modified and it became popular across the globe by the end of the 20th century. However, modern management experts argue that this model is not sufficient enough to manage complex strategy implementation processes. This paper will critically analyze the potential limitations of the approach while comparing it with the emerging approaches to organizational strategy. Limitations of the Balanced Scorecard approach It is identified that the Balanced Scorecard model of Kaplan and Norton is not really effective. In the modern complex business environment, setting right objectives and following them properly is extremely essential to ensure the sustainable development of any organization. In order to follow the objectives properly, it is absolutely vital to monitor every action with a more strategy focused measurement system. Today’s scholars opine that the Balanced Scorecard model is not so optimal and strategy focused; and therefore, this system cannot ensure a sustainable business environment. In the view of Rillo (2004), one of the most noticeable limitations of the Balanced Scorecard model is that it could not effectively connect cause and effect relations time-wise. The author continues that an important strength “that the Balanced Scorecard is claimed to possess is the strong causal interrelations between the different elements that are mapped using the core strategy of an organization as a source as the financial measures have been considered merely a reflection of past activities already taken place” (Rillo, 2004). Critics argue that this model is not supported by the Hume criterion for cause and effect relationship, which states that one activity leads another in time and there exists a causal connection between these two activities. Furthermore, it seems that this concept does not give necessary emphasis on time factor, which is vital to ensure the success of a strategy execution process. Likewise, Kaplan and Norton (2001) tell that strategic objectives must be categorized into budgetary measures so as to be pursued on predetermined basis (pp.294-296). As per this view, different objectives cannot be monitored until predetermined intervals and the measurement method is capable of providing relevant information for analysis. Many of the modern theorists do not know whether or not there exists a causal interrelation between customer, internal business processes, and learning and growth in ...Download file to see next pagesRead More
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