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Business management is becoming a critical factor in the success of any business. Supportive frameworks towards this must be laid down. The Balanced Scorecard is one such framework that has now been adopted and is being used in the strategic planning of business today.
Nature of Balanced Scorecard
If there be any thing that organizations are streamlining today, then that is their strategy. Strategy however may not be as easy to come up with as most executives will intimate. Those corporate that have a strategy are increasingly finding a need to establish measurable constituents of these strategies.
The balanced scorecard a concept by Robert Kaplan and David Norton has proved the most effective strategic concept of our time. The concept is about modeling a template which can be used as a measure of the objectives resultant from the perspectives supported by the balanced scorecard concept.
The nature of the balanced scorecard is attempts to identify four typical perspectives in today's business world. The perspectives are identified as financial, customer, internal process and learning and growth process.
The financial perspective relates to the financial objectives and obligations of the organization. Managers in this case will be assessing the company's financial success. They are also concerned with the shareholder value.
A typical question asked under this perspective would be how do the shareholders view us?
Operational goals which are internal to an organization are an important consideration. The internal processes perspective covers these goals and outlines the main processes adopted to meet the customer objectives. A typical question asked under this perspective would be what should we excel in?
The customer perspective is all about meeting the customer objectives which include their satisfaction, product attributes, market share goals and service attributes.
How do customers see us? (Kaplan & Norton 1992, p.174)
Future determinants of the company's success such as human, information and organizational capital, organizational culture, skills, training and leadership are among those aspects considered in the learning and growth perspective.
Under this perspective suggest the question "can we continue to improve and create value?" (Kaplan & Norton 1992, p.174)
While employing the balanced scorecard approach managers are avoiding information overload that would otherwise be detrimental to the company's performance.
Balanced scorecard will guard against sub optimization (Kaplan & Norton 1992, p.174)
The bottom line may not just be to achieve an objective. "Even the best objective can be achieved badly." (Kaplan & Norton 1992, p.174)
While trying to reduce time to market, for example, companies may adopt a number of ways. They can improve the management of their new products. They may also release products that are different from existing products.
Processing costs can be cut by reducing setup times and increasing the batch sizes needed during processing.
Many companies today have a focus that is customer oriented and they aim at making this their number one in their mission statement.
Therefore the customer's perspective of the organization is very important. In trying to understand this, the company needs to ask itself a number of questions relating to the customer perspective.
Among the main customer concerns are things such as time, service, cost, quality and performance (Kaplan & Norton 1992, p.175)
Considering the customer perspective therefore, companies need to engage the balanced scorecard framework in this perspective. By doing this they can articulate goals related to time, quality, service and performance translating them into specific measures.
When the customer's evaluation of the company is derived, the company must redefine itself based on this evaluation.
Other measures can be employed and in their interplay address the customer perspective in the BSC leading to improved ranking.
Use of processes such as outsourced competitive rankings, where customers give their opinion as concerns competitiveness and product and service delivery time, decision can be made to improve this ranking of the company.
Customer perspective is directly related to internal processes perspective. The customer perspective affects the internal processing which must align themselves to the meting the customer expectation.
The internal measures for the balanced scorecard should stem from the business processes that have the greatest impact on customer satisfaction - factors that affect cycle time, quality, employee skills, and productivity, for example.(Kaplan & Norton 1992, p.176)
While adopting the balanced scorecard framework one can note that there is a cause and effect logic.
The learning and growth perspective stresses on developing the right approaches and competencies. These have a direct bearing on the internal business or process perspective directly concerned with delivering the desired quality of business processes.
Similarly the internal business / process perspective which may be improved by adopting high quality business processing as expected by the customer will affect the customer perspective within the BSC framework.
The delivery of the customer objectives will directly affect the company's standing and therefore its financial perspective.
Financial measures which have for a long time been the traditional approach reserve corporate profitability have been criticized because of well-documented inadequacies.
"Their backward-looking focus and their inability to reflect contemporary value-creating actions." (Kaplan & Norton 1992, p.180)
Shareholder value analysis (SVA) is used in an attempt to make financial analysis forecasts. But SVA still is based on cash flow rather than on the activities and processes that drive cash flow such as those supported on the BSC framework. Therefore because the terms of competition have changed traditional financial measures which are still the mainstay of some companies do not improve employee motivation, customer satisfaction, cycle time, and quality.
"In their view, financial performance is the result of operational actions, and financial success should be the logical consequence of doing the fundamentals well." (Kaplan & Norton 1992, p.180)
Companies should stop their over reliance on financial measures. When these companies turn their focus to making improvements in their operations, the financial aspects will realign themselves
Its suffice to note that traditional measurement systems spring from the finance function; these traditional measurement systems have a control bias.
These systems specify the particular actions that their employees need to take. They also measure to see if employees took those actions. In that way, the traditional measurement systems control behavior. (Abernathy 1997, p.58)
The balanced scorecard approach is well suited to the model of organization being adapted by many companies.
"The scorecard puts strategy and vision, not control, at the center. It establishes goals but assumes that people will adopt whatever behaviors and take whatever actions are necessary to arrive at those goals" (Kaplan & Norton 2006, p.106)
The general assumption for effective BSC implementation is that effective communication systems must be in place. Therefore effective feedback must be established for BSC to be effective.
Some corporate entities may have imperfect feedback systems that may be resulting from other factors within the organization. The implementation of the BSC framework in such a situation may be hampered. Organizations lacking proper feedback mechanisms may not involve all the employees and therefore will not be well suited to employ the BSC framework.
This framework may not be viable in times of organizational change because BSC is meant to maintain critical feedback processes and monitor the as well.
For instance the company's shift to a new customer market may undermine customer service.
The aspect of risk is conspicuously absent in the BSC making it vulnerable approach especially in environments where risk is highly pronounced.
Intended versus Emergent strategies: Balance Scorecard
Every corporate entity has to compete for leadership in the market place. Therefore the management must come up with a plan to shape this process. This plan is normally defined as the strategy.
Most of the time the plan is about an intended approach though because the business world is highly volatile this intended plan may not be followed to the letter.
Intended strategy is a plan or action that is perceived most suitable. It's a course of action that is assumed to be the most favourable to achieve the corporate goals.
Conceptually strategy is pre planned and only materializes after sessions of brainstorming.
Its nothing but a deliberate conscious set of guidelines that determines decisions into the future (Mintzberg 1978, p.935)
Real life scenarios are however deviant from what is normally thought out by managers.
Strategies are therefore looked at based on the following facts, those that were intended and get realized which are called realized strategies; those that were intended but due to a number of factors and unrealistic expectation , they were unrealized and those strategies that were never intended but were realized, these are called emergent strategies.(Mintzberg 1978, p.945)
The balance scorecard framework avoids the traditional measurement systems.
In putting strategy and vision and not control at the centre of these systems, the balanced scorecard establishes goals that assume that people will adopt whatever behaviours and take actions are necessary to arrive at these goals. (Kaplan & Norton 2006, p.106)
Therefore the BSC effectively caters for the intended strategies and the emergent ones as well because it effectively covers the dynamic aspects of the business.
It's most evident nowadays most corporate entities will not adopt one specific strategy but will adopt a mix of the two intended and emergent.
The flexibility of the balance scorecard framework is such that it will incorporate intended and emergent strategies.
However one major shortcoming with the balance scorecard framework approach is its ineffectiveness in handling risk. There is therefore the need for the company to have a sound risk management strategy in place that effectively maps onto the balanced scorecard framework.
In conclusion the idea of the Balanced Scorecard in its simplistic form proves extremely powerful while it is implemented well. In using the key ideas of the Balance scorecard which are to; create a unique corporate strategy and envision it; align the corporate entity and its processes versus the objectives identified in their strategy; design key performance indicators that are identifiable with the company and make use these performance bench markers to facilitate learning thereby improving decision making. Ultimately the balanced scorecard framework will lead to better performance.
Abernathy, W. 1997. Balanced scorecards make teamwork a reality. The Journal for Quality and Participation (November/December): 58-59.
Kaplan, R. S. and D. P. Norton. 2006. How to implement new strategy without disrupting your organization. Harvard Business Review (March): 100-109.