Balanced Scorecard Measurement - Essay Example

Introduction This paper provides a study of balanced scorecard measure and the significant of its measures in achieving the goals set by an organization. The most important of the company's activities lies in driving maximum level of customer satisfaction through enhanced performance on the part of the company and its people. This objective cannot be achieved unless the company sets specific performance goals and the specific measures to evaluate the level of performance towards the achievement of these goals. As customer satisfaction is the main driver of the organization's profit target, it is of critical importance for the company to enhance its performance level to achieve its goals. Balanced Scorecard- An Overview The Balanced Scorecard is one of the contemporary performance measure systems that the managers engage to gain operational performance insights from various departments of the organization. The Balance Scorecard embraces almost all the facets of an organization and renders more valuable information to managers concerning various critical organizational decisions. Dilanthi et al. propound that, "BSC is a management framework that measures the economic and operating performance of an organization [and] is intended to link short-term operational control to the long-term vision and strategy of the business" (183). Hence, the balanced scorecard basically provides a management tool to gauge the organizational performance by means of a unique approach. The most eminent feature of balanced scorecard measure is that rather than focusing on a single aspect, it encompasses all the major elements that have a significant impact upon of the organization's performance. Bryant, Jones and Widener (2004, p108) illustrate this point as that, "firms implement a BSC by selecting both financial and non-financial measures across four hierarchical perspectives: learning and growth, internal business processes, customer, and financial". Hence, the BSC measure rests on evaluating the performance of a firm on four distinct perspectives. Although the performance is also gauged in terms of financial perspective but it is not done exclusively. It is combined with other significant angles viz., learning and growth, customer, and internal business process etc. Dilanthi et al. suggest that, "non-financial measures, such as customer retention, employee turnover, and number of new products developed these measures serve as predictors of future financial performance" (183). It implies that even the non-financial measures in BSC contribute to the future financial success of the company. This consideration and emphasis on non-financial elements in performance measurement also happens to be one of the major criticisms of the traditional performance measures, which led to the development of BSC measure. Yeniyurt assets that, "one major criticism to traditional metrics is that they do not consider non financial performance measures such as customer satisfaction, process efficiency and rate of innovation" (135). The Business Scorecard measures guides the organization in critical decision-making concerning employee management through learning and growth, unveiling of new products and services through internal business processes, estimating performance targets for the enhancement of customer experience and finally the financial perspective encompassing the financial position of an organization i.e., profits, losses and various costs (Bryant, Jones and Widener). Self identifies that in BSC, "we not only decide what measures are important; we also state unequivocally what constitutes success for each measurement. each year we can literally see how well we have done." (101-102). It means that in balanced scorecard measure, an organization defines its performance measures and sets goals on the performance level to be achieved on each particular measure. This makes a company analyze its performance at the end of the year against the targets established and targets achieved so that it can realize the elements that need to be focused for future success. Customer Perspective Metrics The customer perspective is the most eminent element of the BSC measures. It enables an organization to concentrate on the customers' perception regarding the company and its products or services that can be helpful in making other crucial decisions such as new product launch, customer service, and other aspects of marketing. Dilanthi et al. suggests that the customer perspective "captures the ability of the organization to provide quality goods and services, the effectiveness of their delivery, and overall customer service and satisfaction" (183). The customer perspective encompasses a company's strength to distinguish itself and its products from the competitors and build strong customer ties so as to win their life long trust and confidence. Kettunen and Kantola illuminate that, "the customer perspective includes two objectives, namely regional development and customer satisfaction. These objectives can be achieved as a result of the innovation, support and learning processes described in the internal processes" (266-267). The consideration for what customers actually want requires the company to remain in touch with customer needs and wants. A company will only be able to provide needed products to the customers once it realizes the changing needs of its customers. After having identified the needs and changing patterns of consumer demand, the company comes in a position to satiate these needs in much better way than done by its competitors. The company can indulge itself on providing innovative products to its customers that are able to build the firm's long-term customer value proposition. The innovative path to the solution of customer needs leads the company to enhance its operating efficiency in terms of providing valuable products and services to its customers. The company analyzes the impact of price, quality, and other elements on the customer perception regarding the company's products. This is the way the company can strive to achieve maximum level of customer satisfaction, which happens to be the most important of all the activities undertaken by the company, as without satisfying customer needs or problems, the company can never achieve its financial targets. Kettunen and Kantola maintains that, "when applying the balanced scorecard it is evident that measuring is not just reporting past events, but also planning for the future with the help of measures" (266). The evaluation of target achievement is as significant as the setting of these targets altogether. There exist several measures that a company can utilize in order to gauge its performance in driving customer satisfaction leading to the successful achievement of its profit target goals. The company can evaluate its position against competitors on customer perspective on several grounds. The rate of customer retention in the company is the best indicator of its customer-focused performance. If the company is able to keep the customers keep coming back to its products and services, it reflects its success in the implementation of performance measures and then reaching the performance goals. Apart from customer retention, the acquisition of new customers is also equally essential for the company's long-term goals. Therefore, the company can also measure the performance level from the customer angle in its ability to cherish its existing customers and attract new customers towards its products and services, which is not possible without the achievement of the goal of customer satisfaction. This is quite well reflected in the company's share in the market as against the competitors. The more the company achieves its performance targets and goals, the more it can observe the success of performance measures under the balanced scorecard. Conclusion This paper presents a study on the balanced scorecard measures and their significance in achieving the organizational goals. Among the four perspectives of BSC, the customer perspective is the most important objective to be achieved by the company, as it is the main driver for all the other targets including profit. The success of a company's customer perspective measure lies in identifying and setting the goals to be met with respect to the targeted performance, effectuating measures to evaluate the firm performance towards the achievement of goals and finally meeting the goals already set by providing enhanced value to the customer. Hence, the four perspectives based balanced scorecard measures a company's performance in various dimensions crucial for its success. Works Cited: Bryant, Lisa, Jones, Denise, and Sally Widener, "Managing Value Creation within the Firm: An Examination of Multiple Performance Measures", Journal Of Management Accounting Research, 2004, 16: 107-131 Dilanthi, Amaratunga, Baldry, David and Marjan Sarshar, "Process Improvement Through Performance Measurement: The Balanced Scorecard Methodology", Work Study, 2001, 50(5): 179-188 Kettunen, Juha and Kantola, Ismo, "Management Information System Based On The Balanced Scorecard", Campus-Wide Information Systems, 2005, 22(5): 263-274 Self, James, "Metrics And Management: Applying The Results Of The Balanced Scorecard", Performance Measurement and Metrics, 2004, 5(3): 101-105 Yeniyurt, Sengun, "A Literature Review And Integrative Performance Measurement Framework For Multinational Companies", Marketing Intelligence And Planning, 2003, 21(3): 134-142 Read More