The Balanced Scorecard - Essay Example

? Suggested in order instructions Introduction The Balanced Scorecard is a management system which uses strategic planning methods to evaluate the performance of the organization against the strategic objectives and goals of the organization. The Balanced scorecard is used in organizations with an objective to streamline the strategies and vision of the organization with the activities followed in the business processes. A number of management tools and techniques are used by the management to strategically manage and fulfil the organizational objectives. These are the performance prism, total quality management, value based management and the balanced score card method of which the balanced scorecard technique is the most popularly used management system used in order to improve the performance of the organization. Discussion Though the balanced scorecard system was originally developed by Kaplan and Norton to be implemented as a technique for performance management and evaluation, the technique is now used extensively by the organizations as a framework for implementation of new strategies in the business by the identification and deployment of the value drivers in the business with an aim to create strategic advantage. The Balanced Scorecard is a management framework comprising of the performance measurement system as well the process of meeting the key strategic objectives for the business (Campbell, 2008). But there are several deficiencies associated with the original Balanced Scorecard framework as designed by Kaplan and Norton (Kaplan and Norton, 1996). These may be recognized as: The framework does not have a sufficiently codified mechanism to enable the organization to take decision regarding the inclusion and sustainability considerations in the design of the scorecard. Also, the balanced scorecard framework seems to lack the appropriate processes to evaluate risks that are beyond the client related risks. Other drawbacks of the balanced scorecard technique include the dependence of the scorecard on the performance and control features that do not originate from within the organization, the lack of rationality in the original framework of the scorecard model and the validity of the identified objectives based on which the cause and effect mappings are formed (Banker and Chang, 2004). Also, the balanced scorecard technique does not take into account the effects of external competitive forces and the new technological necessities which are critical in deciding the performance of the organization and play a major role in deciding the risks and future strategies associated with the business. These shortcomings of the balanced scorecard framework can be addressed by including a wider array of people like social and environmental managers effectively in every critical step of the design and implementation of the balanced scorecard and considering the explicit social and environmental risk factors in the different perspectives involved in the building of the scorecard framework (Hoque, 2012). To effectively address the strategic issues created by both the external and internal factors affecting the performance of the organization, a number of techniques should be included in the balanced scorecard building and implementation processes (Merl, 2007). These may include encouraging the collaboration levels between the operations management unit, financial controllers, marketing management and the social or environmental management within the business, integrating a number of innovative strategic indicators into the balanced scorecard which are related to the social and environmental concerns and result in more value creation by the use of these activities and lastly, the identification of the critical strategic concerns related to the operations of the environmental and social wings of the organization. These strategies can be implemented by the use of mapping models and cause and effect diagrams (Kaplan and Norton, 2008). The balanced scorecard is often unsuccessful in meeting its objectives when there are key changes made in the leadership and management teams within the organization. After a change in the management structure, it is critical for the new management to adapt and support the use of the already implemented balanced scorecard and the basic principles followed by the management tool. Following the change in the management system, it is important to ensure a continued attention of the management to the strategic concerns and activities identified by the balanced scorecard technique (Person, 2010). The transitional issues are faced in the implementation of the balanced scorecard when there are major changes made in the organization like mergers, acquisitions and other forms of collaborations. Mergers and acquisitions bring about major structural changes in the organization which are generally large scale changes brought about by the requirement of meeting the financial problems. But the balanced scorecard tool cannot be used as a fast solution to meet the financial difficulties (Banker, Chang and Pizzini, 2004). The successful implementation of a balanced scorecard requires a long time period to create significant improvements in the financial results. The short term implementation of balanced scorecard has the shortcoming of being an unsustainable strategy until and unless the strategy is extensively evaluated and effective measures are designed for its proper implementation and deployment in the business (Moller, 2009). The balanced scorecard may also face critical shortcoming related to its designing processes. There may a basic design failure regarding the lack of clarity in identifying the key performance drivers and measurement indicators (Niven, 2010). Though in general it is observed that the financial strategies and measurements are more critical than the non-financial weightage of the organization, it should be noted that the aspects of all the stakeholders including the users and service delivery partners should be considered and assessed to create a sustainable strategic alignment plan in the business. This process of alignment is critical for an organization in which the importance of non-financial stakeholders is high, the business follows a value based management process and the maximization of the value of the shareholders is an important target for the business (Nair, 2004). The underlying methodology required to design such a scorecard is to start by establishing the priorities of strategy need, measure the performance and impact of the internal processes and create key metrics to assess the performances and results (PricewaterhouseCoopers, 2012). Conclusion The balanced scorecard design should be done by effective assessment of the major changes in the internal and external factors that affect the organization. To address the strategic issues involved with the transitional processes within the organization and the key changes in the external environment of the organization, the management should evaluate the impacts of these factors on the targets, measures and objectives of the existing balanced scorecard. In order to create an effective scorecard that demonstrates minimal strategic oversight gaps, the identification and creation of appropriate metrics for measuring the processes and results are majorly important. References Banker, R. D., Chang, H. & Pizzini, M. (2004). The Balanced Scorecard: Judgmental Effects of Performance Measures Linked to Strategy. The Accounting Review. Vol.79 (1), p.49-60. Banker, R.D. & Chang, H. (2004). A balanced scorecard analysis of performance metrics. European Journal of Operational Research. Vol. 15 (2), p. 423–436. Campbell, D. (2008). Testing Strategy with Multiple Performance Measures: Evidence from a Balanced Scorecard. Journal of Accounting Research. Vol. 4(2), p.31-36. Crawford, D. (2008). The Balanced Scorecard and Corporate Social Responsibility: Aligning Values for Profit. Stamford: Cengage learning. Hoque, Z. (2012). Celebrating 20 years of the Balanced Scorecard: relevance lost or relevance gained and sustained? Retrieved from http://www.uow.edu.au/content/groups/public/@web/@commerce/documents/doc/uow124719.pdf. Kaplan, R.S. & Norton, D. P. (1996). The Balanced Scorecard: translating Strategy into Action. Boston: Harvard Business Press. Kaplan, R.S. & Norton, D. P. (2008). Developing the Strategy: Vision, Value Gaps and Analysis. Retrieved from http://www.exed.hbs.edu/assets/Documents/developing-strategy.pdf. Merl, A. (2007). Analysis of the Balanced Scorecard as a strategic controlling instrument. Stamford: Cengage learning. Moller, A. (2009). 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