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The given essay paper is based on the balance scorecard that is one of the techniques of measuring the performance of an organization from all the perspectives including customer, internal business, learning and financial perspective. This technique is defined as a set of measures that gives manager fast and comprehensive view of the business. As per strategic targets including profit maximization, customer satisfaction and good market share, balance scorecard aids in evaluating performance. In respect to the financial strategy, the balance scorecard includes financial measure perspectives that reflect the results of actions already taken and it complements the financial measures on customer satisfaction (Kaplan & Norton, 2002).
In addition to this, financial perspectives of the balance scorecard mainly comprise the market share and competitive position of the company to enhance amount of revenue and its financial strategy (Balanced Scorecard Basics, 2009). All in all, the given method provides ways for the to improve the outcomes of the internal as well as external business process through which it can possible to improve the strategic performance of a company. In concern to the balance scorecard, the essay is discussing about the way in which balance scorecards can be used to enhance the financial strategy of the business organizations. Besides that, the essay also includes inclusive conclusions with summary table at the end.
Use of Balance scorecard for Financial Strategy
Balance scorecard is a technique of measuring the performance of company accordingly to the strategic targets such as enhance market share, high profitability and so on. This technique is mainly used to keep good coordination in the major business activities as per the long term goals and business strategy. For the effective and efficient movement of a company, balance is highly essential that assists in reaching the fullest potential and also supports high progress with objectives (Kaplan & Norton, 2002). With the balance scorecard, managers can measure performance from the four perspectives in relation to their strategic objectives. All the four key performance measures are directly or indirectly linked with the financial results, because good financial results are attained only with the number of factors including employees' satisfaction, customer satisfaction, efficient process, supplier satisfaction, etc. (Kaplan & Norton, 2002). Due to this, ineffective or poor performance of these perspectives will directly lead to the decrement in the net revenues and profit and lastly effect the financial strategy. A company can use balance scorecards to frame strategic objectives and strategic measures from all the perspectives including financial, customer, internal and learning & growth.
The customer perspective reflects that how important is customer for the business and thus, it is highly important to focuses on the needs and satisfaction of the customers. With this perspective, a company can assess at what level it has power to furnish quality product and services with fastest delivery in order to retain current customers through giving high service satisfaction and attracting more prospective customers (Kaplan & Norton, 2002). Through focusing on the customers' satisfaction, a company can provide pleasurable services to the target customers that will finally retain large number of customers and improve net revenues and profits as an end result. Improved net sales and profits lastly contribute in intensifying the financial strategy.
Furthermore, in respect to the financial strategy, a company can also use balance scorecard to align all the business activities related to customers' such as better service, reasonable price and good quality to the long term objective of profit maximization. With this perspective, a company can assess in what way customers see it, so that it make changes according to the customers' demand that eventually attracts customers better than the competitors and that in turn contributes in raising market share and improve profit capitalization (Kaplan & Norton, 2002).
To set the financial objectives for growth, customer perspective of the balance scorecard is one component with which a company can assess the performance in respect to the customers concern such as quality, timely delivery, and good value for money, etc. By giving better quality products and value for money, a company can improve satisfaction level and sustain long term relationship with the customers that will improve financial strategy. All over, balance scorecard can be used to focus on customers' services that lend in improving profits, which is the major goal of financial strategy.
Financial perspective is another major key performance measure of the balance scorecard with which a company can assess the way in which it should consider its shareholders. To turn up the financial position or financial results, balance scorecard reflects a clear picture as what companies must value to attain high profitability, growth good cash flow, and return on capital employed, in an efficient way. To turn its financial strategy, a company can apply financial perspective to focuses towards financial goals and ultimately towards an organization's long term financial success. In addition to this, a business organization can also use balance scorecard to integrate traditional financial measures that will provide critical and valuable financial information to evaluate if the financial strategy implemented is raising financial picture or not (Lussier & Robert, 2006). Thus, a company can use this perspective to set the goals for high business value and related strategic objectives i.e. optimize net revenues, profits and return on owners' investment.
Moreover, in respect to the financial strategy; balance scorecards can be used to measure the level to which the financial targets are met out effectively and efficiently. With this information, managers can make changes in operations accordingly to earn high value that will lastly contribute in improving profit distribution and investment strategy. A company can apply this performance measurement technique to link the entire goals with financial viability and financial concerns. This supports in knowing the exact financial performance of a company in respect to the changes in net revenues, market share, profit ratio, return on stock investment, operating costs, etc. Based on this financial result, a company apply balance scorecard tool in sustaining a link between the financial strategy and performance that contributes in making changes in financial strategy, so that good profits can be earned and improve profit distribution strategy,
In respect to another framework of financial strategy i.e. investment strategy, a company can use balance scorecard to give direction for improving the financial performance. Besides that, a balanced scorecard can be applied to provide a way through which financial performance can be reinforced. In nutshell, well developed balanced scorecard can be used to furnish information or guide map to the managers that indicates the way through which firms incline to turn up its return on investment (ROI) and make changes in financial strategy through focusing on costs, sales, and investment (Wheelen & Hunger, 2004).
To improve the financial strategy, balance scorecard can be applied to align financial concern with these phases. Likewise, in growth phase, balance scorecards indicates the way through which managers can focus towards revenue growth mix i.e. improving sales growth and capturing large market share. This will increase profitability and ultimately enhance investment strategy. Overall, financial perspective of balance scorecards can be used to measure and manage the financial performance in various business phases, so that all the financial strategic goals can be easily attained.
In the business, a company can use this tool for making a financial metric with which financial results or progress can be measured in against long terms financial goals that lastly support in hitting strategies initiatives and enhance financial strategy. In the same concern, it can be also used to give clear accountability for financial results with developing financial metrics such as sales, operating income, receivable outstanding and so on. To improve financial strategy, a business can use this technique in finding out the gap in standard and actual targets and then; this information is used for improving and making corrections in financial strategy. With the balance scorecards, a company can track performance of various financial objectives with strategic measures such as net margin, cash expenses vs. industry, cash flow, ROCE, etc. that aid in improving financial strategy accordingly (Lussier & Robert, 2006).
Internal business perspectives indicate the progress of the business and also reflect the level at which products and services fulfill customer demands. Mainly, this perspective of the balance scorecard helps the managers in knowing the degree of wellness to which the business is growing. A company can use this perspective for designing the metric with which daily progress of the business unit can be measured out and also provide good feedback through comparing the results of internal activities with external outcomes (Balanced Scorecard Basics, 2009). This will support in improving the financial strategy according to the strategic outcomes.
In addition to this, internal business perspective supports managers in getting information about the critical internal operations with which business can easily satisfy the needs of the customers at utmost satisfaction. In concern to the financial strategy enhancement, a company can use balance scorecard whether the internal operations are linked with customers' satisfaction because high customer satisfaction and better value for money aids in keeping long term relationship that lastly improves net sales and profitability. Internal process of a firm is directly linked with consumer profitability and operational efficiency/Excellency and thus, a company uses this perspective as a base to formulate strategic objective that would support in fulfilling the customers expectations (Kaplan & Norton, 2002). A company can use this model for finding gap and communicating the way with which internal processes including quality, employee skill, productivity, etc. will be improved for enhancing financial strategy.
The last perspective of balance scorecards i.e. innovation and learning supports in assessing whether there is need for continuous improvement to meet out the strategic objectives i.e. competencies and skill. In relation to the financial strategy, balance scorecard can be applied for measuring the level at which continuous improvement will be made into major components of the financial strategy i.e. profit distribution and investment strategy. Through focusing on innovation and learning, a company can be able to raise operational efficiency and consumers' value that lastly support in acquiring good market share in new markets as well as turn up net revenues. This will improve profits and make a chance for enhancing profit distribution and investment capability (Pineno & Fall, 2004). Altogether, learning and growth perspective of balance scorecards can be applied for changing the work pattern accordingly to the market trend, so that internal process will be improved and thereby enhance financial strategy as it add more profits and increase efficiency.
Based on the above discussion, it is concluded that balance scorecard is one of effective techniques of performance measurement that provides comprehensive view of the financial performance and results. Through using this technique, business can not only assess performance from the financial viewpoint, but also focuses towards the customers, internal business and lastly innovation & learning perspective.
A company can use this technique for tracking the gap in between actual and standards results that will lastly lead in making changes in the strategy for good results such as large market share, improve profitability and high customer satisfaction. In respect to the customer perspective, it is concluded that a company can use this perspective to measure whether the customers are satisfied with product quality, time delivery and costs because if they are not satisfied, in case they move to other provider that in turn decline the sales and affect financial strategy of profit maximization. Thus, to sustain financial viability, balance scorecard is used for measuring customer profitability via satisfaction.
Further, financial perspective of the balance scorecards can be applied for linking financial goals with end goals. With this information, a company can guide its managers through which they can manage costs for profit maximization. On the whole, it is concluded that to enhance the financial strategy, balance scorecards can be used as road map that provides direction to the managers in meeting out also strategies objective of all the major perspectives.