Balanced Scorecard Concerning the Company's Financial Strategy - Essay Example

Balanced Scorecard in Relation to the Company’s Financial Strategy Name Institution Date Introduction A balanced scorecard refers to a strategic planning and management system which is used comprehensively to align business undertakings to the visions and strategies laid. It is mainly used by business entities, the government and non governmental organizations worldwide. With the help of a balanced scorecard, mostly focusing on short term measures a firm can easily succeed in improving its financial strategy, in addition to improving financial management. The scorecard helps the company to measure its financial position hence determines what set forth from the statements of the score card. It is a very vital performance statement that is used to evaluate important functions in the company (Hannerbarger, 2007). According to Kaplan and Norton (2000), a balanced scorecard improves the financial capability of the company and this signifies the beginning point of internal control. Strategies are laid and they become effectual when they are communicated and implemented in the whole organization. The balance scorecard is precisely concerned with choosing procedures and targets. The ranges of designed ways proposed in the balance scorecard are supposedly used to assist in the recognition of the measures and targets. It helps in expanding the business aims further than the summary fiscal measures. Corporate company executive can measure the company ability and create value for the existing and future clients and how they can enhance interior abilities. The executive venture into people’s systems and establish measures necessary to enhance future financial performance of the company. Financial aims can be different significantly at every stage of the company’s operational cycle (Maisel, 1998). The balanced card outlines stages to evaluate the financial position of the business. Maisel (1998) notes that if the company is at growth stage, that is, the early stages of operation, the company will have to capitalize on the potentiality of growth of its products and services, they will have to commit significant resources to expand and enhance new goods and services construct and develop manufacturing facilities. If the company increases the volume of production in addition to prices, it will also increase the earning per share which will increase the overall company’s income. This will enable the company deliver positive results to the shareholders. The balanced scorecard will provide measures that will show if the strategy of the company will have any effect on the company’s cash flow, growth of sales and the earnings per share (Kaplan & Norton 2000). The balanced scorecard gives the company a chance to reinvent financial business partners. The companies transform the finance so that they are more effective in putting their products and services at a higher competition compared to the rest of the companies providing the same service or product. The Company is challenged to reduce its cost but go on to meet the responsibilities it provides in the market. Maisel (1998), in his journal points out that we are currently living in a recession times and therefore companies should be prepared to come out while strong. Prosperous firms are restructuring their business plans to succeed in post-recessionary times. Therefore balanced scorecards help the firms to set objectives that are implemented hence boosting the operational decisions of the company (Maisel, 1998). Silverman (2007) suggests that, what is measured is always done. This implies that if the results are not measured success cannot be told. Or may be I would suggest to add on Silverman suggestion that, you will not realize any failure if you have not measured it and you would not know where to improve. The company sets objectives in the balanced scorecard which acts as a guideline in its operations. It determines the difference between the real and projected performance hence the company determines its financial effectiveness in its operations. Abernethy & Malina (2006), argue that good financial measures will give a way to tell whether the strategy is effective and working properly. Also the measure will focus on the staff attention on the matters that affect business success; such matters will include employee’s motivation to work so that they deliver quality services or products to customers. Measurements will see to it that accomplishments are met and that not just mere work is done. Judging company’s operations by financial procedures encourage companies to pay attention to short term results of the company and evade taking tasks that would result in value over the long run company financial position. Therefore the balanced scorecard will protect the company against making investment decisions that could pose a risk to the survival of the company. This will ensure that the past operations of the company are keenly analyzed rather than future financial projections. (Allan 2009) argues that managers ought to focus on operational advancements and let the financial performance to grow on its own. Kaplan & Norton (2000) also argue that financial controls are very vital for the company operations and that managers have to know if the financial improvement are shown in the bottom line, the company will have to reassess its operations if improvements of the operations are not reflected. The company will try to achieve its objective by trying to adjust its customer relating so as to win their loyalty. By winning the customers loyalty the company will maintain a higher profit margin hence improving the growth of the company. In trying to maintain its customers the company will deliver high quality products in the market at a relatively lower price than that offered by the company’s competitors. The company can also give discount and after sales services to their clients. Sales growth defines the rate at which the sales per share increases based on the evaluation carried out in the balanced score card. It is evaluated on four business cycles of the company and is viewed to be the best gauge of how fast the business of the company is growing. The measure will then be used to determine the growth rate of the company’s stock. This is one step the company will use as an incentive to the shareholders. For the business to grow the shareholders have to gain confidence with their equity in the company. A higher earning per share on the common stock will mean that the company is performing well hence a good relationship between the company and the shareholders (Maisel, 1998). According to Chandler (2010), the company will also find out the business processes it will use in order to minimize cost and maximize profits so as to satisfy its customers and the shareholders. The costs can be minimized if the company operations are efficient in that wastages of resources are minimized; the company employs highly skilled workers so as productivity level per worker is high. The company can also employ highly effective technology to produce high volume of products that are effective and would be compete favorably on the market. The effective business processes include; effectiveness, efficiency, compliance to policies and internal control. Effectiveness in the company involve the extent at which the company’s outputs anticipated from the operations of the company are being realized at all, therefore basic sufficiency of the process can be measured and outlined in the annual financial statements. For instance think of procurement of raw materials of the company-one of the vital responsibilities is the sub processes follow up of the supplier to ensure prompt deliveries of the raw materials. The process would be ineffective if it does not give precise and appropriate acquisition order status for accountability by the purchase department staff accountable for follow up (Chandler, 2010). Assuming it has been seen that the mean time taken to make and send out a purchase order following receipt of an indent from the final user is so high, causing delayed deliveries to the customer consequential complaints from the customer. The process that involves changing the final user intent into a purchase order is effectual because the order is prepared, but the efficiency is quite low because it has taken a lot of time and more costs of the company in terms of the salaries of the workers incurred by the company (Cullen, 2008). Allan (2009) argues that in an event where tones of materials are frequently ordered and used, rates are set with chosen, consistent, permitted vendors for a given time period, normally a year Lets assume that the contrite rate does not contain price appreciation clause. This protects the company from unexpected price rising during the business period. The contract details are stored in the company’s data system. When materials are ordered by the company, Purchase ordered is prepared defining the rates finalized in the contract. An internal control therefore exists to maintain the rates of purchase throughout the year. Assuming it is found that the rate on purchase order of the existing rate contract is altered to another value, and the order of supply sent to the vendor. This will posse a serious danger in the internal control, an alteration to a higher value renders the company to a financial liability (Silverman, 2007). Compliance the existing statutes and policies is also a process of the company that will ensure proper management. There are events when payments advanced to company consultants or service providers should be made legally after removing the tax at source and the value of the amount are put in state treasury accounts in the bank at a specified time. If the company does not give tax deductions or does not deposit the amount on the given date then this is a compliance issue that could concern legal matters (Richard, 2003). The company will also determine ways of maintaining its ability to change. The ability to sustain that increment in profits margins imply that the company rate of returns on new stock will increase proportionately. That is the value of stock invested; fixed stock or current assets should have a rate of return that is higher than the rate at which the stock is reinvested. Cullen (2008) says that the management has to asses the financial statements to recognize and put into practice sustainable planned improvements of the company. The balanced scorecard will be an important tool to the company while it trying to maintain the existing performance or rather improves upon the existing performance (Linden, 2006). Conclusion In conclusion the balanced scorecard will give a framework of the company financial plans. It will describe to the company the financial objectives of which the company carries out in its operational process to execute the results so as to achieve a sustained financial growth. The growth in finance basically is determined by the company’s relation to its customers, in that the customers have to remain loyal to the company’s products and services so as to keep the same volume of sales, relations to its shareholders, operational processes and the ability of the company to maintain its change so as to keep the profit margin rate proportionally with capital investments. Improved production quality and production of new goods and services as the strategy will benefit the company if the actions are transmitted into better sales and improved market share reduced company expenses and higher asset turnover. References Allan, B.A. (2009). Balanced score card. A Tool for Management, 46 (2), 67-73. Richard. H.C. (2003). A Practical Guidance to the Use of a Scorecard. Management strategies, 123(5), 200-210. Cullen, A. (2008). Translating Strategy into Action. Business Review, 12(2), 10-15. Chandler, W. G. (2010). Implementing the balance scorecard in 4 month. Chartered accountants journal, 35(12), 18-20. Linden, D. (2006).Implementing The Balance Score Card, New York: University Press Maisel, S. (1998). Performance Measurement. Journal of Cost Magement.14 (4), 46-53. Silverman, D. (2007).strategy and structure: measures that drive performance. (3ed.) retrieved from http//www.businessmanagement.com/ Abernethy, H. S., & Malina W.C. (2006).The theory of the growth of the firm. Retrieved from Hannerbarger, B. M. (2007) Balanced Scorecard Strategy. New York: oxford press. Kaplan S. & Norton D. P. (2000).The strategy focused organization, New York: HBS Press. Read More