Coalition for Environmentally Responsible Economies - the Balanced Scorecard - Essay Example

Critical analysis The balanced scorecard is a strategic development and administration system that is used widely in business and industry, government, and nonprofit institutions globally to support business activities to the revelation and strategy of the organization, advance internal and external communications, and examine organization performance aligned with strategic aims. It was introduced by Drs. Robert Kaplan and David Norton as a performance measurement structure that added strategic non-financial performance measures to conventional economic metrics to provide administrators a more unbiased study of managerial recital. The reason why the Balanced Scorecard notion has so extensively accepted by manufacturing and service companies, nonprofit institutions, and government bodies globally since its opening in 1992: First, preceding methods that included non financial measurements use unplanned gathering of such measure, for instance, checklist of measures for manager to follow of and improve than an inclusive system of related measurements. The Balance Scorecard stresses the linkage of measurement to strategy (Kapalan, Norton, 1993) and cause-and effect linkages that explain the theories of the strategy (Kaplan, Norton, 1996b). The close link between the measurement method and strategy raises the role for non-financial measures from a set checklist to a complete system for strategy accomplishment (Kaplan, Norton, 1996a) Second, The Balanced Scorecard mirror the shifting nature of technology and aggressive benefit of the 19th and much of 20th centuries, corporations attained viable benefit from their investment in and running of tangible assets such as inventory, property, plant, and equipment (Chandler, 1990). Financial systems subjugated by tangible asset, fiscal measurements were sufficient to record investments on company’s balance sheets. However, many factors avert valid assessment of intangible possessions on balance sheets: First, the value from intangible assets is not direct. Resources such as knowledge and technology rarely have a direct impact on income and profit. Enhancement in intangible resources affects monetary outcomes through chains of cause-and-effect interaction linking two or three intermediate phases (Huselid, 1995; Becker, Huselid, 1998). For instance, think of relationship in the management profit (Heskett et al., 1994): investments in employee training lead to development in service quality that leads to high customer satisfaction that causes increased loyalty which generates increased revenues and margins. Second, the value from intangible assets depends on administrative background and strategy. This value cannot be separated from the managerial processes that change intangibles into customer and monetary result. The balance sheet is linear, additive model. It accounts each class of asset individually and computes the total by adding up each asset’s recorded value. However, the worth created from investing in individual intangible assets is neither linear nor additive. The balanced scorecard has developed from its early use as an easy performance measurement structure to a full strategic scheduling and management system. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. Triple bottom line (TBL) is not evaluated by the conventional financial bottom line alone, but also based on its social and environmental impact. Importance is not only given to economic, but in addition the two bottom lines: the social and the environmental. In practice this necessitates an organization to measure, report and eventually make decisions based on the impact that its operations have in these two areas. TBL, as it was envisioned by its inventors, as well advocates a set of values that go beyond simple measurement and reporting (Elkington, 2004). John Elkington, who initially coined the term, explains it: The triple bottom line (TBL) centered on firms not just on the financial value they add, but in addition on the ecological and social value they add. At its narrowest, the term ‘triple bottom line’ is used as an outline for measuring and reporting corporate performance aligned with economic, social and environmental parameters. At the same time its broader sense, the term is used to capture the entire set of values, issues and processes that corporations must address so as to minimize any harm causing from their actions and to create economic, social and environmental significance (nef, 2009). This involvements being obvious about the company’s intention and taking into consideration the requirements of all the company’s stakeholders/shareholders, customers, employees, business partners, governments, local communities and the public (Nelson, et al. 2001). As is clear from the above passage, TBL was initially developed to address sustainability in the private sector. The use of the term has since as well spread to the public and third sector. All organizations, irrespective of sector, ought to look for to balance and curb their impact in all three domains. In addition, the attitude of stakeholder involvement is valid across the board (Norman, MacDonald, 2004). Sustainability reporting (Triple-Bottom-Line Reporting) has become an essential part of business performance evaluation. In its 2002 triennial review of corporate revelation, KPMG states that sustainability reports are becoming widespread (KPMG, 2002). Consumers of corporate data are no longer satisfied with financial reports alone. The requirement for extra indicators concerning corporate economic, environmental, and social performance has been driven by stockholder proposal promoted by the Coalition for Environmentally Responsible Economies (CERES, 2004), by stock indices, for example, the Dow Jones Sustainability Indexes (DJSI, 2004a), and by the requirements of ISO 14001 (ISO, 2004). Several corporations are at present measuring, recording, reporting, and using information on financial, social, and environmental performance. The triple-bottom-line reporting tendency has been led by revolutionary firms, for instance, Interface, Inc, Electrolux, and Bristol Meyers Squibb, however, has been accepted by many other corporations as well. A parallel focus on sustainable performance has developed in the investment community, beginning with Socially Responsible Investing (SRI) and moving to include broader sustainability issues. In a recent study (Dowell, et al. 2000) firms that implemented a strict global environmental standard rather than a less stringent standard had an elevated market value. Society’s augmented outlook of corporations and the business world’s reaction make obvious the requirement for all business majors, and particularly accounting majors, to be conversant concerning sustainability reporting. This comprise knowing the structures and methods for recording sustainability performance, the internal accounting and reports for managing that performance, and external reports to applicable stakeholders. Integrating this topic into the curriculum addresses the suggestions of the Accounting Education Change Commission (1998) and the CPA Vision Project (AICPA, 2004a). CPAs are in tune with the general reality of the business environment (AICPA, 2004b). To accomplish this goal, accounting/business curriculum should be modernized with content on sustainability reporting. (Grinnell, Hunt, 2000) established that separate lessons on environmental accounting required a considerable investment in time by the faculty. A course in principles of managerial accounting seems to be a fitting place to commence sustainability accounting since students in this course have as a rule done a course in principles of financial accounting (Vann, White, 2004). The balanced scorecard is at the present being useful to university planning (Liston, 1999) and (Stewart, et al. 2000-01) demonstrate in the cases of Curtin University of Technology and Ohio State University. Liston points out that most measures presently used in a University lag indicators, or measures of production or past performance. It is required to expand measures that are futuristic and measure the success of strategy. The Strategy Map is one of the vital improvements of the Balanced Scorecard over the years as the model was first devised. This considered as a general outline for explaining and realizing strategy (Kaplan, Norton, 2001a). It almost underpins the scorecards, identifying the vital basics and their linkage for an organization’s strategy. Every scorecard must offer linkages to each component and the overall linkage to the operation, values and strategic direction of the ‘corporate’ scorecard (Kaplan, Norton, 1996). The unique differentiation obtainable by the Balanced Scorecard from conventional performance measurements methods is the procedure of getting objectives and measures for the internal business processes. This permit an appraisal of incorporated business processes before each business unit endeavoring to advance its own performance maybe without regard to the units it interrelate with to deliver the service or products to the customer. It is significance to remark at this point that the Ministry of Education in New Zealand has already endorsed a Balanced Scorecard approach for a performance management evaluation for checking risk in the tertiary sector. The Tertiary Education Advisory Commission in New Zealand have suggested to Government that a tertiary education scorecard be progressed and tailored as a means of measuring the performance of the tertiary system in accomplishing the national strategic objectives and tertiary education precedence (TEAC, 2001). Even as the Balanced Scorecard has showed a successful measure of non-financial performance through the customer, internal procedure and education and growth outlook, it fall short to give sufficient thought to environmental measures which is the essential to the sustainable campus strategy. Balanced Scorecard and Triple Bottom Line strategy place a sturdy stress on the requirements and outlook of stakeholders as an indicator of success. Performance measures that consider stakeholders are of meticulous significance in a tertiary institution since there is accountability to a broad range of stakeholders - students, staff, government, industry and local communities. The Triple Bottom Line offers a spotlight on social and environmental responsibility in the broadest sense whereas the Balanced Scorecard measures performance in linking to customers or shareholders. This focus on social conscientiousness through the Triple Bottom Line strategy would hence allow to start evaluating and counting the overall involvement to society, a substantial part of importance as an institution. There are features of the operation which openly assist the community through projects and joint venture involving faculties and schools and the community or business organizations. Running resources in an environmentally responsive way is a major job and it will be vital in measuring how the institution is moving towards attaining the goals. To efficiently measure performance along the environmental aspect serious thought needs to be given to integrate various features of the Triple Bottom Line approach. The Balanced Scorecard doesn’t contain the environmental element. The Triple Bottom Line notion includes global economic influences into its viewpoint. This is of meticulous importance to several tertiary institutions at present. It is obvious that with the shrinking government dollar invested in tertiary education at present that other sources of income are being sought. In New Zealand the Government has set an objective to grow the export education market from its present state of 0.708% of GDP to 2% by 2011. The Balanced Scorecard would facilitate to measure the performance in this area, Triple Bottom Line permit to consider it in the global context. It is obvious that all three features, the social, the environmental and the economic is vital for a sustainable campus however a significant outcome will as well be balancing all three bottom lines (Fulljames, Wheller, ND). References Accounting Education Change Commission (1998). The Future Viability of AAA Members Programs, Report of the Changing Environment Committee, American Accounting Association, July 15, 1998. AICPA (2004a). CPA Vision Project: 2011 and Beyond. American Institute of Certified Public Accountants (AICPA). Retrived on 20 August 2009 from: http://www.cpavision.org. AICPA (2004b). Top Fives - Values, Services, Competencies, and Issues for the Future. American Institute of Certified Public Accountants (AICPA). Retrived on 20 August 2009 from: http://www.cpavision.org/vision.htm. Becker, B, & Huselid, M. (1998) High performance work systems and firm performance: A synthesis of research and managerial implications. 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