The Pros And Cons Of The Balance Scorecard Approach

Introduction

After a year-long research with many companies, the biggest proponents of the Balance Scorecard, Robert S. Kaplan and David P. Norton, formulated the Balance Scorecard (BSC) measure which revolutionized the traditional thinking about performance measures. By looking beyond the traditional financial performance measures, the managers were able to better understand the strategy, positioning and performance of their company. The fundamental reason behind getting this broad assessment of the business was the BSC approach focused on predicting future performance of the company rather than just looking at the past performance and results. It enabled the managers track financial results while simultaneously linking short-term actions

This can be ascribed to the fact that it is in alignment with many common performance improvement initiatives undertaken by firms such as customer-vendor partnerships, constant improvement, customer satisfaction, etc. It also complements these initiatives by helping the managers understand the interdependencies among different business units of the firm. It also helps identify the tradeoffs and decisions that need to be made to succeed in today’s highly competitive environment. However, like with any other performance measurement concept, the BSC approach has its set of advantages and disadvantages. In this paper, we dive deeper into the pros and cons of this approach which could help the managers understand the trade-offs, benefits and limitations they need to account for prior to buying in on the BSC

Looking at each of the four aspects of the firm’s performance, the managers can get a balanced view of the company’s performance and also get the complete view as to whether the firm is meeting its goals or not. However, as suggested in the journal, The Balanced Scorecard, Alphabet of the Modern Management, “While it may seem that a company is doing well financially, it may be that customer satisfaction is down, employee training is inadequate, or that the processes are outdated.” (Akbar Javadian Kootanaee, Hamidreza Javadian Kootanaee, Hosein Hoseinian, and Hamid Foladi Talari). BSC helps keeps the right balance of operational and strategic measures on the top management’s radar. It also helps them see the trends and associations among the four perspectives in relation to the firm’s strategy and