Advantages Of Balanced Scorecard Accounting Essay

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Kaplan and Norton introduced balance score card in 1990s as a basis to provide a structure for various measures of organisational performance. Since introduction it has gained a high degree of fame as one of the most widely used innovations in management accounting (Lawrie, 2004) .It's a tool that translates a company's mission, goals and strategies into performance measures for each strategic area.

The scorecard translates vision and strategy into four quadrants. From the beginning these quadrants reflected the following perspectives and implications of the strategy:

The key to the popularity of the scorecard lies in its flexibility and adaptability whether for commercial organisations, governed by profits, public sector operations governed by service delivery, or not-for-profit organisations driven by commitment to a particular cause, a scorecard that improves performance. (Liz Murby, 2005)


Using balanced scorecard the managers can manage the performance of the company effectively. Firstly, it gives company a full view of performance management by providing four perspectives including financial as well as customer perspectives, internal business process and learning and growth. It represents how it affects to monitor company's performance in every aspect such as improving return to shareholders, satisfying customer needs, developing new products and training staffs, etc. (Langfield-Smith, 2012)

The BSC is an integrated set of financial and non-financial measures. It is an integral part of an organization's strategy execution process that emphasizes communicating strategy to the members and providing feedback to help attain objectives. (Mendoza, 2001)

Secondly, conventional method of evaluating performance management based on financial measures which provide general information related to company's operation and give recommendations for improving it immediately and effectively only in the short term. On the other hand, using balanced scorecard helps managers get information for making decision in the short and long term. Specifically, company can recognize any problems related to performance management such as low profit, out of date software, and inexperienced staffs, etc., then they can improve them effectively. (Langfield-Smith, 2012)

Finally, it supports managers obtain the best outcomes in comparison with company's objectives or strategies in their planning which are translated by using balanced scorecard. It helps managers control their goals in each aspect properly by referring to the causes as well as the consequences of these issues happening in the company.


Apart from advantages, there are also some disadvantages that managers can face when applying it in monitoring company's management. First, it takes more time to get benefits from using balanced scorecard. Specifically, managers set goals for making profit so they need to make proper strategies related to financial perspective, customer service or training which requires time and efforts in the long term. In comparison with using financial performance measures which only contain numbers, rates or percentages, managers rely on these to evaluate company's activities.

Secondly, it is not easy to evaluate performance measurement accurately because some sectors cannot be measured by exact number or divide them into specific things to measure. As a result, it can be manipulated easily or can be fraud based on estimates related to allocate work in process.

Finally, some measures in using balanced scorecard are not useful and suitable for some companies which are different sectors in the competitive industry. It leads to reduce profitability, affect the capacity of reaching objectives of the company. Therefore, managers have to consider many measures which can be applicable to their company successfully.


According to a survey by Bain Co, approximate 50% of fortune companies in USA and 40% in Europe use balanced scorecard as a tool in performance management. (Gumbus, 2002) Specifically, Philips Electronics is considered as a good example for applying balanced scorecard to align company's objectives and employee's performances which bring more profits to company. Company used balanced scorecard which set up many specific strategies in their business. It implemented by measuring their markets, customers and operations.

Philips Electronics relied on four perspectives of balanced scorecard to get their objectives in the future. They are including competence, processes, customers and financial. Philips Company mainly focused on employees so they divided into more levels throughout the organization including operational targets, organisational layers and business unit level.

At the business unit level, critical success factors were developed for each perspectives of the card. Management pay attention to develop high technology, training skills for employees. Besides, they improve their products with high quality to satisfy what customers want. A value map can be used for analysing customer survey data, and then it can reflect the capacity of consuming their product in comparison with the competitive ones. In addition, financial measures also are required to evaluate the effective operations in between the expected targets with actual performances. There are some examples of indicators at the business unit level include:

The way Philips Electronics applied balanced scorecard to monitor and manage its performance effectively and usefully. Specifically, Philips Medical Systems North America (PMSNA) which used balanced scorecard as an alignment tool to focus on their strategies so they got $1 billion by the year 2001. Besides, it brings benefits for the company by creating for action planning including transferring data automatically from internal reporting system to online balanced scorecard report. As a result, managers can access new results immediately.

By using balanced scorecard supports managers monitor employees' performances through creating traffic-light reporting to get notifications such as green colour informs employees reach target, yellow colour shows in-line performance and red light indicates that employees get under standard required so employees can understand and adapt their activities which are suitable with their company's goals effectively.

Finally, Philips Electronics applied balanced scorecard into their performance usefully by creating communication system where employees can share their experiences or skills related to problem solving to others. Basically, it helps employees enhance their knowledge and more motivations to work efficiently.

Apart from the success of applying balanced scorecard in their company, there are few limited issues which should be improved in monitoring performance measurement. First of all, selecting any software for transferring data to balanced scorecard system should be careful and accurate so company can avoid facing many problems such as lost data or virus attacked, etc. Secondly, the right of accessing important information of employees should be recognized by different functions or responsibilities of each department. The sensitive of information should be controlled effectively because these are good advantages for competitors in competitive industry. Finally, some criteria cannot be affected directly in performance management. Specifically, it is difficult to evaluate employees' performance in getting objectives of company expected. Managers need to recommend some specific criteria related to employees when they accomplish their duties in the required time.


Almost all companies rely on financial ratios which reflect their activities happened in the past. It is difficult to connect the targets of the company with the departments .It only adapts the company's short term objectives in the industrial age where they focused on consequences, not for causes. Therefore company introduced the use of balance score card which monitors the performance which still maintains financial measures. However, it support managers set proper objectives to create future value through focusing on customers' satisfaction, suppliers, employees, technology, etc.