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The Balanced Scorecard - Essay Example

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The concept of the Balanced Scorecard was introduced in the early 1990s with considerable excitement and promised to change the way performance measurement was conducted and how companies were managed. This study is an investigation into the conception of the Balanced Scorecard…
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Download file to see previous pages Who and how it is being promoted today, how it is being used to link employee performance to organizational strategy, and how successful have the companies been who have adopted the Scorecard as a performance measurement and strategy implementation tool in the long-term. This study will answer these questions.
"What you measure is what you get" is an often-heard phrase, which emphasizes the importance of performance measurement to the success of an organization. Performance measurement can be defined as the quantification of either a process output or the activities that constitute that process. An effective set of performance measures should have the following characteristics: (a) communicate and summarize those critical activities necessary to meet customer requirements, (b) reflect outputs of processes and outcomes (how customers value the outputs), (c) be comprehensive, and (d) provide feedback to the organization (Atkinson, Waterhouse, & Wells, 1997). Selecting the proper performance measures is one of the key challenges facing management (Ittner & Larcker, 1998), yet it is perhaps the most misunderstood and difficult aspect of a management control systems (Atkinson, Waterhouse et al., 1997).
Performance measures can be financial or non-financial. Financial (or traditional) performance measures are dollar value measures produced by the organization's accounting system. Examples of financial measures would include return on investment, return on equity, operating margin, unit cost, or cost variances. Non-financial performance measures are typically derived from outside the accounting system. Examples of non-financial measures include customer satisfaction measures, manufacturing cycle time, new product introductions, R&D productivity, market growth, and market share.
Observers have noted that performance measurement has gained added significance, because organizations are faced with the twin challenges of adapting to new rules of competition and responding to the rapid changes often taking place in the marketplace (Stivers & Joyce, 2000). The factors driving this evolution are the opportunities and formidable challenges of escalating globalization, the increasing transparency of manager actions, the need to develop intangible assets to sustain competitive advantage, the escalating pace of technological change, an increase in competition among firms, and the rise of process change initiatives such as TQM (Malina & Selto, 2001).
The right measures correctly linked to the organization's strategy gives managers and employees the guidance they need to act appropriately (Kaplan & Norton, 1996). This conclusion is echoed by a survey of executives indicating that performance measurement is critical in translating a business strategy into results (Lingle & Schiemann, 1996). Performance measures designed outside of the strategic planning process creates potential for disconnect. The reason performance measurement systems fail to live up to expectations is commonly attributed to this disconnect (Atkinson, Waterhouse et al., 1997).
Traditional accounting-based performance measures, with their one-dimensional focus on financial results, have been criticized as not being up to the task faced by modern organizations. The sense is that financial performa ...Download file to see next pagesRead More
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