Balanced Scorecard as a Tool of Performance Measurement - Research Paper Example

The tool bases the performance on four perspectives that include the financial perspective, customer perspective, internal business processes perspective and the learning and growth perspective thus offering a balanced view of the entire organizational performance (Meyer, 2002). The paper will discuss the history of the balanced scorecard as a tool of performance measurement and management and outlines the detailed four perspectives of measuring the performance of the organization. The paper will also outline some benefits that are offered by the balanced scorecard as a tool for process improvement and performance measurement.
The history of balanced scorecard
The balanced scorecard was developed by Robert Kaplan and David Norton in 1995 and considers four perspectives of organizational performance that include the financial perspective, the customer perspective, the internal business process and finally learning and growth perspective (Niven, 2005). According to Kaplan and Norton, the tool translates the organizational mission and strategy into a set of performance measures that will determine the short-term and long-term organizational progress in executing the mission and strategy of the company (Niven, 2005). In this case, the tool is useful since it clarifies the vision and strategy and links the strategic objectives with the measures, and further enhances the strategic feedback on the attainment of the corporate objectives.
Application of the balanced scorecard
The balanced scorecard translates the strategy into measurable targets that are based on four perspectives of organizational performance.
Financial perspective
The financial perspective measures the economic performance of the actions taken by the firm such as the increase in revenues, the increase in profitability, the decline in operational costs, and the decline in bad debts (Meyer, 2002). The short-term financial measures can include an increase in the number of sales units while the long-term financial measures will include an increase in overall profitability and a reduction in operating costs.
Customer perspective
The customer perspective is geared at identifying the market segments and ensuring higher customer satisfaction and retention. High customer satisfaction will lead to higher customer loyalty and retention thus reducing marketing costs and increasing business revenues (Niven, 2005). The customer measures of performance include the number of customer complaints, the number of new users, the overall customer satisfaction and retention levels, surveys on customer loyalty, and several repeat purchases.
Internal business process perspective
The internal business processes are the critical operations that will enable the organization to satisfy the changing customer needs. The internal processes are geared at ensuring efficiency and process improvement rates are determined by the number of employee errors in the process, the reduction in costs after implementation of the processes, and the general attitudes of employees towards the new processes (Niven, 2005). Effective business processes will streamline operations and reduce the time taken to serve customers and ensure new product development (Meyer, 2002).
Learning and growth perspective
The learning and growth perspective determines the degree of learning, innovation, and process improvement thus contributing to highly skilled human talent and high-quality products. This perspective will focus on the knowledge, skills, and attitudes of employees toward the changing business environment and technological improvement in the company (Niven, 2005). The perspective must ensure highly satisfied employees through offering training and career growth opportunities and facilitating innovation in the company (Meyer, 2002). The objective is to ensure high employee retention, high job performance, and reduce hiring costs.

Benefits of the balanced scorecard as a tool for performance measurement
Meyer (2002) asserts that the balanced scorecard offers several benefits as a tool of performance management since it articulates the business vision and strategy in all aspects of performance management and considers both financial and non-financial metrics of performance. The tool translates organizational strategic objectives into operational plans and quantifiable measures. Accordingly, the balanced scorecard is useful in communicating the business objectives and goals to the employees (Niven, 2005).
Summary and conclusion
The balanced scorecard is useful in process improvement and performance measurement since it translates the overall strategic objectives of the organization into operational measures that are both short-term and long-term. The tool combines both quantitative and qualitative information thus measuring the efficiency and effectiveness of the company in attaining its mission and goals. The four perspectives offer a balanced view of the organization since the improvement in learning and growth activities will lead to higher employee productivity that will enhance customer satisfaction and improve the financial performance of the company. Read More