Business Performance Measurement Using Balanced Scorecard Critical Review Accounting Essay


In a rapid growing economic world, companies' management has always sought for ways and metric to gauge if a company's business performance aligns to its strategy. Performance metric is vital in making management a possible exercise and helps in answering some common questions like what are our goals and how effective is our strategy? As one of the most significant recent innovations in account, the Balanced Scorecard first proposed by Kaplan and Norton in 1992 defines a methodology that can be used by management for goal settings or strategic formulation and performance measurement from financial and non-financial or operational viewpoint. It is also aimed at enhancing organizational performance by allowing companies' main organizational processes to be better managed by managers to improve competitive market position and company performance. The expectations of managers are high, and this explains why academic and managerial interest in this management tool is on the increase. This paper critically examines works or research done by prominent authors on this subject to see the vitality of Balanced Scorecard as a business performance measurement tool in modern economy.

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Literatures on Balanced Scorecard are on the rise as its methodology become popular among top businesses. Gumbus and Lussier (2006) in their work, examined Balanced Scorecard and its features ( ), and why small medium businesses are recommended to use it as a metric for business performance. Their studies came at the time when Balanced Scorecard is not been widely adopted by SME but by the big companies as a performance measurement method. Braam and Nijssen (2008) discuss factors affecting Balanced Scorecard adoption and the two fundamental concepts of Balanced Scorecard usage in recent time: as a performance measurement system (PMS) and as a strategic management system (SMS). [4] carried out researches to investigate if the Balanced Scorecard add values to companies that adopt it and how it does contributes to the performance of an organization. [5] examines a prominent feature of Balanced Scorecard cause and effect relationship and if Balanced Scorecard can link operational metrics with strategy which can be understood and influenced by managers as a valid strategic management tool. [7] took a practical approach in discussing ways that Balanced Scorecard can be used by project managers to measure and improve the operational performance of their team and also clarifies objectives and business strategy. These literature discuses extensively on performance measurement with Balanced Scorecard cutting across various usage and industries as well as further elaborated in the progress of this paper.

Most studies focus on big companies the scarcity of studies relating to Balanced Scorecard been used in SME for business strategy motivated [1] to embark on closing this gap. They used a case study methodology approach on three small business enterprises. Research was conducted through personal interviews with executives at Hyde Park Electronics, Futura Industries, and Southern Gardens Citrus (SGC). [1] examine each of the SME to identify how of their business strategy and performance aligns with the Balanced Scorecard features both in the short terms and long term. Financial metric, as indicated in their study, is sale from new product accounting for high profit of the organization. The Operational Quality was identified to same-day delivery, delivery within five days, and on-time delivery. Customer Satisfaction metric was detected to be indicated by increased sales and increased income that would result from product acceptance and the generation of repeat customers. Learning and Growth metric see the initiation of employee welfare programs such as benefits, profit sharing, training, and employee communication and employee activities.

By the above findings, [1] further cited that about half of the big corporations in recent times has improved performance with the use of Balanced Scorecard as operational and strategic measurement. The case studies involving the SMEs re seen to also benefit from using this management tool.[1] The results of the case studies of Hyde Park Electronics, Futura Industries, and SGC support the prior literature from large companies. The results again indicated that entrepreneurs can too benefit from developing and using a BSC.

The benefit or value gotten from using BSC was investigated by [4], and in their study, two research hypotheses were developed: how much does the Balanced Scorecard create value and secondly, how does the Balanced Scorecard create value? For the first question [4] adopted the use of Activity-Based Cost Management (ABCM) framework, in comparison to BSC effectiveness in finding how organisational goals aligns to people's performance. The second questions saw the use of the Strategy-Focused-Organisation (SFO) to explore the sources of potential value created by BSC. The methodology used was quantitative in nature and an empirical survey and analysis of data collected from EU companies that have used BSC. In their findings, [4] argued that value is indeed been added to companies by the use of BSC. They indicated that the performance of an organization comes mainly from what it does during strategy translation, its consistency in influencing managerial practices, and its role in resources alignment to strategic objectives i.e. from the means to the end.

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The studies of [4] hinted the concept of adopting BSC for PMS as well as SMS. Thus, [2], in their research differentiate these rising concepts of Balanced Scorecard (performance measurement system (PMS) and strategic management system (SMS)), and factors affecting their adoptions by companies as shown the study done by [2]. Hypotheses were developed to guide and develop their methodology which involves quantitative approach. Data collection was done by questionnaires sent to 40 Dutch firms gotten from database of companies which had responded to a benchmark survey for best practices in management control and performance measurement in the four areas/domains of interest of the Balanced Scorecard. [2] indicated in their findings that the adoption of both types of Balanced Scorecard benefits from top management involvement. Results also show that using Balanced Scorecard as PMS will benefit from the support of the organisation's finance department. They also cited that Balanced Scorecard as PMS emphasis on an inclusive measurements of both financial and non-financial values which gives valuable picture of the company's position in the market.

However, performance metric indicators cut across the fundamental features of BSC itself, as such [5] in their study analysed the key assumptions of BSC and the relationships among the four areas of measurement suggested (the financial, customer, internal-business-process and learning and growth perspectives) and its effect on strategy and performance of an organization. Research question to guide their study was also raised: is there a causal relationship between the areas of measurement suggested? The methodology that was used is analytic because, as argued, increases precision and clarity level in understanding the BSC concept and model. Past and present literatures were widely analysed. [5] one fundamental findings indicated that companies' do not need to consider priori business strategy before designing a coherent set of performance measurements arguing that the design of performance indicators can work as a catalyst for strategy formulation.

The formulation of strategy entails the development of projects to transform them into operational objectives. This is further discussed by [6] in their study. They used the BSC methodology in their study to develop, test, and apply a strategic measurement system, specifically for projects. The approach adopted was a comparison and survey of two projects monitored by the authors and undertaken by project team. Their result indicated that BSC plays significant role in improving project management effectiveness. They also argue or indicated that balanced performance measurement is an important technique for establishing on-strategy project delivery

The above studies further give more insight on the concept of BSC as a performance measurement tool that is best used in stimulating thinking of relative measures in the critical success factors of any business. Thus, organisational performance sees an increase when, as the main tool, BSC is used to translate the strategy of the firm. In this regard, BSC contributes positively [4][6]. However, the adoption of BSC in an organization depends heavily on the level of top management and product-market dynamics as well as the finance department. If a company is in a competitive market, customer satisfaction and financial values are of utmost importance to top management and finance department. These performance metrics influence the formulation of strategy and hence the adoption of BSC especially as performance measurement system [2]. However, the support of top management and the employees' implication do not appear to be requirement conditions to make the successful development of a BSC [4]. The influence of BSC on departmental units and internal organisations within the firm can be detected in project teams. The BSC clarify and improves strategic measure and connections thereby improving internal performance in traditional deliverables. It is importance to note that there does not exist one BSC that matches all organisations but BSC development is team-based [1][6]. Furthermore, as indicated by [6], companies' operational objectives in projects become a management success as internal departments are exposed to range of strategic-performance indictor which clarifies and monitors project vision and goals.[4]

Studies indicated that despite the wide adoption of BSC in recent times, the methodology is not free from flaws. Kaplan and Norton describe the relationship among the feature of BSC as causal (cause and effect), i.e. one metric leading to another, and a dependency relationship. This however, an issue as for instance, the satisfaction of customers does not essentially yield good financial results hence the relationship is a logical and not causal one as it is inherit in the BSC concept. This portends that the assumptions made by BSC maybe invalid leading to the anticipation of performance indicators which are faulty, resulting in sub-optimal performance [5]

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The reviewed studies are not without limitations as hinted by the authors. The research by [1] is marked with a limitation in case study approach as there does not exist any study on BSC been used by small business at the time of the study. Furthermore, the plausibility of findings did not protect against the research limitations in the study done by [2]. The generalizability of the findings was edged by a limitation in the sample size, the respondents' primarily financial background, and the use of cross sectional data to investigate the level of adoption of both BSC types simultaneously. [4] also highlighted that assessing or measuring the performance of an organization is a hard science. Again, in their study, sample firms didn't have uniform implementation of the BSC concept. One limitation of this paper is that it is analytic which is based on exploring studies and researches relating to BSC. Relying on these sources can, however, not be deem insightful as an empirical study.

Further research is necessary and should be expanded on almost all business service sectors on how BSC is used to align businesses to capital budgeting processing. Larger sample size should be used as well as additional factors, for instance consideration of institutional motivations for BSC adoption. The influence of BSC on the internal relationship between departments and project teams should also be researched.


The balanced scorecard is a tool which methodically expands the measurement zones traditionally involved in accounting. Its fundamental goal is to reduce the issues associated with the use of financial measures for control purposes by inserting non-financial measurements in a strategic control framework [5]. The connection between business strategy and objectives using BSC creates an understanding of performance measurement and metric that guides the coordinated and careful action of managers. Studies analysed in this paper show that the BSC creates and adds value to organizations that adopt it and promotes more dependable communication effective enough for management decision-making. Thus while the adopting of BSC is on the rise by more businesses, this paper analytically shows the positive contribution of BSC to the performance of an organisation with an increasing body of proof.

[1] Gumbus, Andra. & Lussier, Robert N. (2006). Entrepreneurs Use a Balanced Scorecard to Translate Strategy into Performance Measures. Journal of Small Business Management, 44(3): 407-425.

[5] Nørreklit, H. (2000), "The Balance on the Balanced Scorecard-A Critical Analysis of Some of its Assumptions", Management Accounting Research, 11 (1) pp. 65-88.