Balanced Scorecardfour Perspectives To Implementing Success

Balanced Scorecardfour Perspectives To Implementing Success

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In the business world, tangible success and prosperity are measured by dollars. Each quarter, a company generates reports, which determine financial status based on past performance: Are we “in the red,” or “in the black?” Entrepreneur Magazine lists “Find a need and fill it” as rule number one in successful business—and that’s exactly what Robert Kaplan and David Norton of the Harvard Business School set out to do in the mid-1990s. Kaplan and Norton were able to identify that one of the management problems of business up to that time was that it was based solely on financial measures. While this had been successful in the past, modern business requires more comprehensive measures: Though financial measures are obviously still necessary, they are limited in that they can only show what has happened in the past and cannot show where a business is headed in the future.
To provide a management system that was better at dealing with today's business pace and to provide business managers with the information they need to make better decisions, Kaplan and Norton developed the Balanced Scorecard—a management system that is a way to settle and achieve the goals and objectives for an organization. (Balanced Scorecard Institute, 2008.) The concept has quickly become recognized as an important managerial tool with the potential to increasingly improve organizational performance and has been adopted in some form by a wide variety of businesses and corporations worldwide. In an article for Ivey Business Journal, Hendricks, Menor and Wiedman state that over the past decade, the Balanced Scorecard has become a widely advocated management tool and has become largely synonymous with “best practices.” (2004.)
In simple terms, the Balanced Scorecard method is a management system that allows an organization to set, track and achieve its entire key strategies and objectives. After its business strategies are developed, they are tracked utilizing a framework to manage and create value from four different perspectives:
1. The Financial Perspective supports the strategy for growth, profitability and risk for the owner or shareholder. This is an organization’s financial requirements and performance. Some of the concerns encompassed in this perspective are:
 Corporate Goals and strategy: What do we want to accomplish and how can we make that happen?
 Market Share: What is our percentage?
 Revenue Growth and Profit Ratio: Can we do better than we’ve done in previous quarters?
 Return On Capital Employed (ROCE): What is our profit, based on our initial investment?

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2. The Customer Perspective tracks a customer’s satisfaction with that organization and its performance in what it delivers—whether it be products or services. Some issues here include:
 Customer Satisfaction: Do our customers like what we do?
 Customer Retention and Loyalty: How can we keep or existing customer-base? How can we ensure they stay with us?
 New Customer Acquisition: What can we do to reach a greater number of people?

3. The Internal Perspective charts the necessary operation required to maintain a deliver those products or services to the customers. Some key elements of consideration are:
 Motivated Workforce: Are our employees ready to give their all to bring the best possible product to our customers?
 Streamline Processes and Efficiency: Are we as good as we think we are? How can we be more effective?
 Improvements in Technology: How can we grow with the times? Is our equipment and/or software up to date—are we as current as possible?
4. The Innovation and Learning Perspective focuses on how well an organization trains its employees, and how it gains knowledge—as well as how it, in turn uses that knowledge to maintain a competitive edge. Questions here include:
 New product development: Can we continue to improve and create value?
 Continuous Improvement and Technological Advancement: In which areas must the organization improve? What should it be doing to make this happen?
 Human Resources Development: Is our staff what it should be? Are there ways we can tweak it to make everyone more efficient and effective?
The four perspectives have to ideally be measured, analyzed and improved upon together continuously—in order for a business to thrive. To ignore any of them would result in an imbalance, rather like sitting in a chair with a broken leg: Sooner or later, the entire thing will collapse. (Hendricks et al, 2004.)
The Balanced Scorecard clearly does not force a business to choose between financial and operational measures: By employing all four perspectives equally, it provides not only a snapshot of overall performance that focuses attention to the things that are critical for success, but also aligns all levels of work in day-to-day tasks and success factors—as well as effectively organizing and communicating its strategies to employees and shareholders. (University of Missouri, 2001.)
An organization that adopts the Balanced Scorecard method not only has to measure these critical perspectives, but also set strategies, goals and tactics to ensure that they happen. To do this, a business must make sure that its strategies and tactics exist on a single thread that ties together in a way that makes sense. This is essential in the success of the implementation of the Balanced Scorecard.
The Balanced Scorecard method must be tailored to a specific organization’s needs—and the ability to customize can be thought of as both an advantage and a hindrance—yet, there is no one template for the implementation of the method. (Balanced Scorecard Institute, 2008.) Applying another successful firm's Balanced Scorecard development process as a guideline may be helpful, but it also increases the risk of overlooking the company's own competitive position. Therefore, it is key that each firm put forth the effort to identify the measures that are appropriate for its own strategy and competitive position. (Hendricks et al., 2004.)
The process of implementing this method is not difficult and can usually be done in three meetings: Session one usually aids the client in mapping out the company’s individual needs. Session two identifies specific measurement categories. The third and final session serves to help the client determine which specific measures are most critical to the business. A fourth meeting is sometimes scheduled to check a client’s progress because—although not a difficult process—an organization will have more than a bit of work to do getting used to a new way of doing things.
Implementation of a Balanced Scorecard will also entail some associated cost: This varies from one organization to another and is based on the amount of data that a company is already collecting. Companies that capture little or no data may have added costs developing the new infrastructure and executing new software, but these costs pale in comparison to the ultimate power that the new measurements and information that the Balanced Scorecard will provide. (University of Missouri, 2001.)
One of the things that drew me to the Balanced Scorecard method as a topic for this paper was its ability to organize and communicate strategy in a clear and concise manner. It is true that there have been some initial reports of error and lag time in the recording of data and there are those who say that the heads of an organization spend too much time in the collection and analysis of data and too little time making actual decisions. Sometimes the costs of such a procedure may well outweigh improvements in organizational performance. Hence, it is quite necessary to plan to substantially cut down the number of measures existing in organizations that are outside the scope of the Balanced Scorecard.
But there is still the inherent adaptability of the Balanced Scorecard itself. It is, in fact, always evolving to meet the needs of both major corporations and start-ups alike. It is that adaptability that allows for this method to have been adopted in some form throughout Fortune 500 companies and worldwide. The potential for more and more companies to utilize a Balanced Scorecard method is likely to increase in the years to come, as managers look for tools that will facilitate improvement in both internal and external organizational performance. To this end, it remains an effective and powerful strategic management tool. Yes, it is important to be aware of the possibility of issues and problems that may occur, but all in all, the benefits rely on successful implementation and proper usage for long-term success.




1. Author Unknown. “Balanced Scorecard: The Four Perspectives.” http://tutor2u.net/business/strategy/balanced-scorecard-perspectives.html
2. Author Unknown. “What is The Balanced Scorecard?” The Balanced Scorecard University. www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx
3. Author Unknown. “The Balanced Scorecard: An Introduction” The University of Missouri, December 2004.
http://www.missouribusiness.net/consulting/docs/introduction_balanced_scorecard.pdf
4. Hendricks, K., Menor, L., Wiedman, C. “The Balanced Scorecard: to adopt or not to adopt? Ivey Business School Management Series, 2004. http://www.iveybusinessjournal.com/view_article.asp?intArticle_ID=527
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