Introduction to the balanced scorecard and its benefits

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The balanced scorecard was devised by Kaplan and Norton and is a way of providing senior management with an overview of the company from the perspectives of four different performance measures. Goals are created from the financial perspective, customer perspective, internal business performance perspective, and innovation and learning perspective. (Kaplan and Norton, 1992)

By implementing a balanced scorecard system, many benefits will follow. One such benefit is that management would be better able to monitor the performance measures, as they are all set out clearly on the balance scorecard with each perspective's goals and measures listed. This leads to another benefit, which is that it would allow managers to make better decisions as a result of them being able to visualise the connections between the performance measures. This is beneficial because management would be able to better understand which performance measures are affected by changes in other performance measures. For example setting a goal from the customer perspective would have an implication on goals set from the financial perspective as well as goals set from internal business perspective and the innovation and learning perspective.

Having said this, Ittner and Larcker identified some mistakes companies make when carrying out nonfinancial measurement, which could lead to a poor implementation of the balanced scorecard system. These mistakes include "not linking measurement to strategy, not validating the links, not setting the right performance targets, and measuring incorrectly" (Ittner and Larcker, 2003).

The potential benefits for Euroboard would stem from the ability to set goals from each of the four perspectives and set measures for each goal. By seeing this laid out in the format of a balanced scorecard, management would be provided with a better overview of Euroboard and this would allow them to make better decisions regarding the setting of goals. Consequently, there is the potential to improve the motivation of the shop floor workforce, reduce the absenteeism rate, improve the effort and commitment of the workforce, and increase the annual return closer to the target return all through appropriately setting goals and measures and understanding the connections between the performance measures from different perspectives.

The commercial environment and the balanced scorecard

The cardboard industry is mature with stable or declining volumes and it has been advised that companies should think through their end-game strategies in order to cope with this decline. Customers also emphatically demand that delivery is on time and so if this demand is not met customers may be lost to competing companies who have met this demand or have a better on-time delivery rate. In addition to this, the selling price of cardboard has dramatically reduced as a result of the formation of bulk buyers, who purchase large quantities of cardboard at a low unit cost and sell them onto smaller customers at a higher unit cost, and brokering companies, who offer contracts for cardboard supply on behalf of anonymous customers. Plastic packaging is also becoming a growing proportion of the packaging market and major food producers and retailers are advertising their reduction in packaging, however the recyclable characteristics of cardboard packaging have yet to be taken advantage of in terms of marketing.

Due to the simple but detailed design of the balanced scorecard, goals can be created for the aforementioned problems related to the commercial environment and measures can be stated in order to track and reach these goals. Regarding the customer demand that delivery is on time, a goal can be created under the customer perceptive aspect of the balanced scorecard to become an industry leader for on-time delivery and measures can be stated which show what needs to be changed/improved in order for this goal to be reached. The problem of a dramatic reduction in the selling price of cardboard can be accommodated by creating a goal, from the internal business perspective, for manufacturing excellence in order to reduce costs and thus increase margins. A goal can also be created, from the perspective of innovation and learning, for improved competitiveness and measures of this could include the level of marketing of the advantages of cardboard packaging.

A potential balanced scorecard for Euroboard

Customer Perspective



Ensure all deliveries are on time

On-time delivery as defined by the customer

Become the preferred supplier

Share of purchases of major customers

Ranking by major customers

Financial Perspective



Achieve an after tax return of 17%

Total gross margin

Administration costs etc.

Sales growth

Internal Business Perspective



Optimum manufacturing efficiency

Unit cost


Cycle time

Innovation and Learning Perspective



Reach optimum commitment and effort from workforce

Absenteeism rate

Clocking-on times

Periodic workforce assessment results

With the information provided about the problems facing Euroboard, its main financial goal is to achieve an annual return of 17%. Therefore, this was created as a goal from the financial perspective. The measures stated derive from those variables whose change would affect Euroboard's ability to achieve that return. In order to increase its return to 17%, the company must seek to increase its total gross margin, reduce its administration and other costs, and increase its sales growth. However, doing this alone will not result in the desired achievement of a 17% return because this will inevitably have a negative impact on other aspects of the firm. It is therefore important to look at the firm from other perspectives.

Euroboard must consider what is important to the customer. "How a company is performing from its customers' perspective has become a top priority for management" (Kaplan and Norton, 1992). Therefore, creating goals that meet the customers' demands is essential. The main demand of customers in the cardboard packaging market is that deliveries are on time and so a goal has been created for this. The measure of this goal should be what the customer defines as 'on-time delivery' and not what the company defines it as. After all, the firm is trying to achieve customer satisfaction. As well as this, Euroboard should seek to become the preferred supplier of customers and this can be achieved by looking at its share of the purchases of major customers and its ranking by major customers.

Regarding the perspective of internal business, achieving optimum manufacturing efficiency should be the main goal as this would lead to lower costs which would in turn have a positive impact on the total gross margin and so would bring Euroboard closer to achieving its target return. Measures which should be looked at in order to achieve this goal include the unit cost, yield, and cycle time.

The main problem mentioned from an innovation and learning perspective is the fact that effort and commitment of the workforce is lacking. A goal has therefore been created, from this perspective, of reaching optimum commitment and effort from the workforce. To reach this goal management should seek to reduce the absenteeism rate, reduce the number of late clocking-on times, and perhaps analyse the results of periodic workforce assessments in order to ensure the workforce understand their roles correctly.

As more suggestions are made are more problems are discovered, additional goals can be created to accommodate these and measures assigned to these goals in order to help achieve them.

Implementation of the balanced scorecard

The implementation of the balanced scorecard can be summarised in a ten step process (which is actually fourteen steps):

"1. Clarify the vision

2A. Communicate to the middle managers

2B. Develop business unit scorecards

3A. Eliminate nonstrategic investments

4. Review business unit scorecards

5. Refine the vision

6A. Communicate the balanced scorecard to the entire company

6B. Establish individual performance objectives

7. Update long range plan and budget

8. Conduct monthly and quarterly reviews

9. Conduct annual strategy review

10. Link everyone's performance to the balanced scorecard" (Kaplan and Norton, 2007)

If it is not made clear to members of staff what the vision of the company is then it could lead to problems in the form of members of the workforce and lower level managers interpreting the vision of the company differently and this could mean undesirable and unexpected results.

Communication is one of the areas where implementation could fail, as a successful implementation is so dependent on management of all levels understanding the balanced scorecard and the strategy of the company.

As well as this, it is important to refine the vision of the company as, after the discussion with middle managers and the development of business unit scorecards, there will undoubtedly be amendments that need to be made in order for the vision to be compatible. If the vision is too unrealistic and unachievable, then members of the company may feel this and so give up trying to achieve the standards of the vision.

Reviews are also essential in order to ensure that the vision and the strategy are still understood by management and to improve and correct any aspects which may be unrealistic as a result of a change in the economic climate or the commercial environment. If reviews are not carried out periodically, then there is a risk of the strategy and vision becoming unrealistic, unachievable, and outdated.


Although the balanced scorecard system is popular amongst companies, it is not a thorough flawless system and is disliked by the academic community. As well as this, the balanced scorecard ignores some stakeholders for example the government, environmentalist groups, etc.

Having said this, the balanced scorecard can be largely beneficial for Euroboard if implemented and understood correctly as it can provide management with a perspective of the company that they have perhaps not seen before. Therefore, this cannot be a negative thing as it would lead to more informed decisions being made and encourage management to think about the company from more than just the financial perspective.