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From the beginning, it is very important to understand why its necessary to measure any organizations performance is vital and fundamental. An organization that operates without a performance measurement system is like as airplane flying without scope, or a CEO operating without a strategic plan.
The purpose of measuring the performance is not determined by how a business is performing but it's also to allow it to make better performance.
Historical View of Balance Scorecard
David Norton and Robert Kaplan have introduced the Balance Scorecard in 1992 - Harvard Business Review article Ë¡. The article was based on a 1990 Nolan; Norton multi-company research project that studded performance measurement in companies whose intangible assets plays a central role in value creation. (Nolan Norton Institute, 1991).
David Norton and Robert Kaplan believed that measurement was as fundamental to managers as it was for scientists. If companies were to improve the management of their intangible assets, they had to integrate the measurement of intangible assets into their management system.
After publication of the 1992 HBR article, several companies rapidly adopted the Balanced Scorecard have given David Norton and Robert Kaplan deeper and broader insights into its power and potential. During the next 15 years, as it was adopted by thousands of private, public, and nonprofit enterprises around the world, David N.and R.Kaplan have extended and broadened the concept into a management tool for describing, communicating and implementing strategy.
It was in 1992 that Robert Kaplan and David Norton presented the Balanced Scorecard as an article in a Harvard University business magazine entitled Harvard Business Review. Based solely on the research of performance measurement and connecting it to creating value, the once said article became popular as more companies and organization immediately understand the power and usefulness of the said strategy which will be coined later.
Balance scorecard, BSC.
As defined by Kaplan and Norton (1996) "The Balance Scorecard translates as organization's mission and strategic into a comprehensive set of performance measures that provided the frame work for a strategic measurement and management system"
The balance scorecard "BSC" is the most widely applied performance management system today. Through using of a variety of perspective, the BSC captures both foremost and lagging performance measures, thus providing a more "balanced" view of company performance. Leading indicators include measures, such as customer satisfaction, new product development and onetime delivery, employee competency development.
The Balance Scorecard performance management systems have been widely adopted globally, because it enables the organization to align all levels of staff around a single strategy so that it can be executed more successfully.
The strategic management system measures the organizational performance in four balanced perspectives as below:
Financial: summarizes the readily measureable economics consequences of the action already taken.
Customer: contains measures that identify the customer and market segment in which the business unit will compete and the measures of the business unit's performance in these targeted segments.
Internal Business Process: measures the critical internal processes in which the organization must excel.
Learning and growth: it measures the infrastructure that the organization must build to create long term growth and improvement.
As seen above in (Figure 2) as drown from article written by .David Norton.
The article explained the needs for balancing the number of measures in all four perspectives, with greater emphasis on process measure, because the process measures in all four perspectives is the primary domain through which organizational strategy is implemented.
After eight years from introducing the BSC, Kaplan and Norton have published an article entitled, Having Trouble with Strategy, Then Map It!
The article introduced the concept of a Strategy Map. Strategy Map enables the organization to clarify their strategy and assist organization with creating their BSC framework and measures. (See the below illustration of Strategy Map Concept)
The Importance of the Study
By studying the BCS, we will be able to understand the importance of the Balance Scorecard and how it can be used as measurement system tools in the organization. While considering how it functions and how each perspective is communicating with each other inside the organization, so I t can achieve the organization objectives in better way.
By examining the importance of balance scorecard in typical organization
The purpose of the study
There is still a lot of confusion about the Balance Scorecard concept. Through this study we are looking to make small contribution to make better understanding of the balance scorecard as measurement system tools, describing how those tools are linked together in order to execute over all organization's objectives.
In the study we will use the secondary data since it's cheaper and easier to collect. The gathered data gives us a picture of the subject and the other theories and researcher together. The theories and concepts where all collected from books, either written by Kaplan and Norton, the creators of balance scorecard or by people who have been studied and made their research and have drown their own conclusions in the journals. And through the literature research we tried to avoid sources that are non scientific character.
Organizations have adapted the BSC to their particular external and internal circumstances. Both commercial and not for- profit organizations have successfully used the BSC framework.
Since 1992, Drs. Kaplan and Norton have studied the success of various applications of the BSC in different types of organizations. Companies have used as few as four measures and as many as several hundred measures when designing a BSC performance measurement system. Based on this researchá¶¾, it has been found that a BSC framework using about 20-25 measures is the usual recommended best practice. Smaller organizations might use fewer measures, but it is generally not advisable to go beyond a total of 25 measures for any single organization, holding company, or conglomerate group of holding companies.
As seen above in (Figure 2) as drown from article written by .David Norton.
The article explained the needs for balancing the number of measures in all four perspectives, with greater emphasis on process measure.
Example of using BSC in hospitals - Swedish
One of the studies shows that 65% of Swedish emergency hospitals use the BSC. The use of the BSC was motivated by a need to make strategy clear and to obtain a more comprehensive view of organizational performance.
BSC is used mainly for measurements connected to the organizations' strategy and to create goal congruence. Performance monitoring is only of secondary importance, even though emergency hospitals with more than five years' experience with the BSC tend to use it for that purpose. The BSC is almost never used in the hospitals' reward systems.
Originality/value of paper - Few studies have surveyed the importance of BSC in healthcare organizations. By pointing out the importance of BSC in Swedish healthcare, this paper calls for similar studies in other healthcare contexts.
The balance scorecard is strategic performance management framework that enables organizations to measure and manage at the same time the delivery of their strategy.