Effectiveness And Efficiency Of Balanced Scorecard Commerce Essay

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In the beginning we need to understand what is balanced scorecard?

The Balanced Scorecard measures organizational performance across four different but linked perspectives that are derived from the organization's vision, strategy, and objectives:

Financial. How is success measured by our shareholders?

Customer. How do we create value for our customers?

Process. At which processes must we excel to satisfy our customers and share­holders?

Learning and growth. What employee capabilities, information systems, and organizational capabilities do we need to continually improve our processes and customer relationships?

As well as The Balanced Scorecard measures organizational performance tool has considered not only the financial results to be important but also those factors which actually drive an organization towards future successes as mentioned earlier. The tool has given stress on the other areas which are required to 'balance' the financial perspective in order to get a total view about the organizational performance and improve the same. The framework tries to bring a balance and linkage between the Financial and the Non-Financial indicators, Tangible and the Intangible measures, Internal and the External aspects and Leading and the Lagging indicator.

Balanced Scorecard as Complementary Tool for Management Accounting. Historically, accounting has been the one and only language of business, the prime mechanism for communicating the results of business operations. Although financial measurement matters, it today alone does not give sufficient guiding and evaluating grounds for organization's success.

Now. We need to know Defining Critical Success Factors and Measures Four perspectives:

Financial Perspective - How do we look at shareholders?

The financial perspective differs from that of the traditional private sector. Private sector financial objectives generally represent clear long-range targets for profit-seeking organizations, operating in a purely commercial environment. Financial considerations for public organizations have an enabling or a constraining role, but will rarely be the primary objective for business systems. Success for public organizations should be measured by how effectively and efficiently they meet the needs of their constituencies. Therefore, in the government, the financial perspective emphasizes cost efficiency, i.e., the ability to deliver maximum value to the customer.

The financial perspective measurement selection pool to identify first the organization's stage, which would mainly be one of the three:

"Rapid growth" organizations - are at the early stages of their life cycle.

"Sustain" organizations - organizations that still attract investment and reinvestment, but are required to earn excellent returns on their invested capital.

Harvest" organizations - have reached a mature phase of their life cycle, where the company wants to harvest the investments made in the earlier to stages.

The financial objectives for businesses in each of these three stages are quite different. Financial objectives in the growth stage will emphasize sales growth; sales in new markets and to new customers; sales from new products and services; maintaining adequate spending levels for product and process development, systems, employee capabilities; and establishment of new marketing, sales, and distribution channels. Financial objectives in the sustain stage will emphasize traditional financial measurements, such as return on capital employed, operating income, and gross margin.

Investment projects for businesses in the sustain category will be evaluated by standard, discounted cash flow, capital budgeting analyses. Some companies will employ newer financial metrics, such as economic value added and shareholder value. These metrics all represent the classic financial objective---earn excellent returns on the capital provided to the business.

The financial objectives for the harvest businesses will stress cash flow. Any investments must have immediate and certain cash paybacks. The goal is not to maximize return on investment, which may encourage managers to seek additional investment funds based on future return projections. Virtually no spending will be done for research or development or on expanding capabilities, because of the short time remaining in the economic life of business units in their "harvest" phase.

Some of the objectives together with a measurement measures




Cash flow


Increase in market share


Return on equity

Cost leadership

Unit Cost

Customer Perspective - How should we appear to our customers?

The customer perspective addresses the question of how the firm is viewed by its customers and how well the firm is serving its targeted customers in order to meet the financial objectives. Generally, customers view the firm in terms of time, quality, performance, and cost. Most customer objectives fall into one of those four categories.

The customer perspective typically includes several generic measures of the successful outcomes from a well-formulated and implemented strategy. The generic outcome measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments. While these measures may appear to be generic across all types of organizations, they should be customized to the targeted customer groups from whom the business unit expects its greatest growth and profitability to be derived.

Market and Account Share: it especially for targeted customer segments reveals how well a company is penetrating a desired market.

Customer Retention

Clearly, a desirable way for maintaining or increasing market share in targeted customer segments is to retain existing customers in those segments.

Customer Acquisition

Companies seeking to grow their business will generally have an objective to increase their customer base in targeted segments. The customer acquisition measure tracks, in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business. Customer acquisition could be measured by either the number of new customers or the total sales to new customers in these segments.

Customer Satisfaction

Both customer retention and customer acquisition are driven from meeting customers' needs. Customer satisfaction measures provide feedback on how well the company is doing.

Customer Profitability

Activity-based cost (ABC) systems permit companies to measure individual and aggregate customer profitability. Companies should want more than satisfied and happy customers; they should want profitable customers. A financial measure, such as customer profitability, can help keep customer-focused organizations from becoming customer-obsessed.

. The value proposition is the key concept for understanding the drivers of the core measurements of satisfaction, acquisition, retention, and market and account share. For example, customers could value short lead times and on-time delivery. They could value a constant stream of innovative products and services. Or they could value a supplier able to anticipate their needs and capable of developing new products and approaches to satisfy those emerging needs.



New products

% of sales from newer products

Customer relationship

% of retained customers

Responsive supply

On time Delivery

Internal Business Processes Perspective - What must we excel at?

Internal Business Processes: This perspective focuses on the internal business results that lead to financial success and satisfied customers. To meet organizational objectives and customers' expectations, organizations must identify the key business processes at which they must excel. Key processes are monitored to ensure that outcomes will be satisfactory. Internal business processes are the mechanisms through which performance expectations are achieved.

The internal business process perspective reveals two fundamental differences between traditional and the Balanced Scorecard approaches to performance measurement. Traditional approaches attempt to monitor and improve existing business processes. The second departure of the Balanced Scorecard approach is to incorporate innovation processes into the internal business process perspective.

Traditional performance measurement systems focus on the processes of delivering today's products and services to today's customers. They attempt to control and improve existing operations - the short wave of value creation. But the drivers of long-term financial success may require the organization to create entirely new products and services that will meet the emerging needs of current and future customers. The innovation process-the long-wave of value creations, for many companies, a more powerful driver of future financial performance than the short-term operating cycle.

Some of the objectives together with a measurement measures



Manufacturing excellence

Cycle time per unit

Safety incidence index

Number of accidents

Increase design productivity

Engineering efficiency

Reduce Product launch delays

Actual launch date vs. Plan

4-Learning and Growth Perspective - Can we continue to improve and create value?

Learning and Growth: This perspective looks at the ability of employees, the quality of information systems, and the effects of organizational alignment in supporting accomplishment of organizational goals. Processes will only succeed if adequately skilled and motivated employees, supplied with accurate and timely information, are driving them. This perspective takes on increased importance in organizations, like those of the PEA members that are undergoing radical change. In order to meet changing requirements and customer expectations, employees may be asked to take on dramatically new responsibilities, and may require skills, capabilities, technologies, and organizational designs that were not available before.

Organizational learning and growth come from three principal sources: people, systems, and organizational procedures. The financial, customer, and internal business process objectives on the Balanced Scorecard will typically reveal large gaps between existing capabilities of people, systems, and procedures and what will be required to achieve targets for breakthrough performance. To close these gaps, businesses will have to invest in re-skilling employees, enhancing information technology and systems, and aligning organizational procedures and routines.



Technology leadership

Time to develop newer products

Manufacturing learning

Time to new process maturity

Product focus

% of products representing 80% of sales

The Four Perspectives: Cause and Effect Relationship

The four perspectives as mentioned above are highly interlinked. There is a logical connection between them. The explanation is as follows: If an organization focuses on the learning and the growth aspect, it is definitely going to lead to better business processes. This in turn would be followed by increased customer value by producing better products which ultimately gives rise to improved financial performance.

The Balanced Scorecard Model


Following steps are to be taken so as to utilize the Balanced Scorecard as a strategic management tool:

The major objectives are to be set for each of the perspectives.

Measures of performance are required to be identified under each of the Objectives which would help the organization to realize the goals set under each of the perspectives.

The next important step is the setting of specific targets around each of the identified key areas which would act as a benchmark for performance appraisal.

The appropriate strategies and the action plans that are to be taken in the various activities should be decided so that it is clear as to how the organization has decided to pursue the pre-decided goals. Because of this reason, the Balanced Scorecard is often referred to

To succeed financially, how should we appear to our shareholders?FinancialObjectivesMeasuresTargetsInitiatives

To achieve our vision, how should we appear to our customers?CustomerObjectivesMeasuresTargetsInitiatives

To satisfy our shareholders and customers, what business processes must we excel at?Internal Business ProcessObjectivesMeasuresTargetsInitiatives

To achieve our vision, how will we sustain our ability to change and improve?Learning and GrowthObjectivesMeasuresTargetsInitiatives

Vision and Strategy

as a blueprint of the company strategies.

Figure - The Main Framework of Balanced Scorecard

Balanced Scorecard as a Measurement Tool

The Balanced Scorecard provides managers with the thorough instrumentation they need to navigate to future competitive success. Today, organizations are competing in complex environments so that an accurate understanding of their goals and the methods for attaining those goals is vital. The Balanced Scorecard translates an organizations' mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system. The Balanced Scorecard enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth.

Finally, it has to be mentioned that the Balanced Scorecard is not just a measurement system, but comprises a whole new way of looking at business. During the implementation of a Balanced Scorecard, it requires so many improvement efforts throughout the organization that it might be called a whole new management system.

Balanced Scorecard as a Strategic Management System

The Balanced Scorecard emphasizes that financial and non-financial measures must be part of the information system for employees at all levels of the organization. Front-line employees must understand the financial consequences of their decisions and actions; senior executives must understand the drivers of long-term financial success.

The Balanced Scorecard should translate a business unit's mission and strategy into tangible objectives and measures. The measures represent a balance between external measures for shareholders and customers, and internal measures of critical business processes, innovation, and learning and growth. The measures are balanced between outcome measures-the results from past efforts-and the measures that drive future performance.

The Balanced Scorecard is more than a new measurement system. Innovative companies use the scorecard as the central, organizing framework for their management processes

The real power of the Balanced Scorecard, however, occurs when it is transformed from a measurement system to a management system.

The four main steps in building up a strategy using the Balanced Scorecard are:

clarifying and translating vision and strategy

communicating and linking strategic objectives and measures

planning, setting targets, and aligning strategic initiatives

Enhancing strategic feedback and learning.

Clarifying and Translating the Vision and Strategy

Clarifying the vision

Gaining concensus

Communication and Linking

Communicating and educating

Setting goals

Linking rewards to performance measures

Planning and Target Setting

Setting targets

Aligning strategic initiatives

Allocating resources

Establishing milestones

Strategic feedback and learning

Articulating the shared vision

Supplying strategic feedback

Facilitating strategy review and learning

Balanced Scorecard

Figure - Balanced Scorecard as a Strategic Framework for Action


The development of strategic objectives and measures across the four Balanced Scorecard perspectives should follow a logical progression. First, identify the long-run financial objectives, the ultimate destination for the strategy. Then, in the cus­tomer perspective, select the targeted customers for the new strategy and the objectives for the value proposition offered to attract, retain, and grow the business with the customers. In the process perspective, select objectives that create and deliver the customer value proposition and also improve productivity and effi­ciency, key drivers of several financial measures. Finally, identify the employee skills, information needs, and company culture and alignment that would drive improvement in the critical processes. Companies represent these linkages with a picture called a strategy map, which illustrates the causal relationships among the objectives in the four Balanced Scorecard perspectives. Companies generally start their Balanced Scorecard projects by building a strategy map that contains the word statements of their strategic objectives in the four perspectives and the link­ages among them.

A general template for constructing strategy maps is shown herewith. At first, this diagram may seem intimidating, but they will work sequentially through the four Balanced Scorecard perspectives starting with financial at the top and conclud­ing with the learning and growth objectives that are the foundation for any strategy. After describing how to choose objectives for the four perspectives, we provide a specific example of how Metro Bank, the company featured in the chapter-opening vignette, built its strategy map and Balanced Scorecard.

Advantages of Using the Balanced Scorecard

This tool is being used by several organizations throughout the world because of certain advantages this scorecard has been able to deliver which are cited below:

It translates vision and strategy into action.

It defines the strategic linkages to integrate performance across organizations.

It communicates the objectives and measures to a business unit.

It aligns the strategic initiatives in order to attain the long-term goals.

It aligns everyone within an organization so that all employees understand how they support the strategy.

It provides a basis for compensation for performance.

The scorecard provides a feedback to the senior management if the strategy is working.


Balanced Scorecard is a strategy driven metering system that traditional financial measures can be described as living, but also current and potential value of a company (future) approach, namely your customers, suppliers say, employees, processes, technology and innovation.

By its nature, a) financial, b) the internal business processes, c) learning and development, and d) clients, especially in the balanced scorecard approach is nothing new, the fourfold division. Internal processes have been the target of many quality management systems. By trends in the development of learning and knowledge management analysis. Clients also a variety of statistical and non statistical surveys are subject to.

The main objective of the Balanced Scorecard is an integrated system with a balanced approach that is derived from an organization's strategic objectives would allow the measure is to bring these different perspectives.

The best treatment for a balanced scorecard addresses questions can be considered as:

A strategic vision and long-term goals for short-term strategy to add ;

1- advanced guidance and strategic management in light of several important route to success;

2-Effective performance measurement;

3-Day-to-day strategic review of operations management in the light

Balanced Scorecard is a strategy driven metering system that traditional financial measures can be described as living, but also current and potential value of a company (future) approach, namely your customers, suppliers say, employees, processes, technology and innovation.

The goal of a balanced scorecard to show that good at handling questions about treatment can be considered as:

• at all levels of an organization with the organization's overall strategy to identify key performance indicators help to align;

• Strategic vision and long-term goals for short-term strategy linking;

• Managing strategic management in the light path of various advanced and critical success;

• Day-to-day strategic review of operations management in the light.

Balanced Scorecard is a management tool at the end helps executives their most central question: what strategy to implement, especially when the solution requires a complete overhaul. It does provide organizations, often for the first time a clear picture of the future and for a path to get there by. In two cases, are analyzed in this report, DFAS and USPS, we use the Balanced Scorecard and organizational performance improvement resulting from the fact that dramatic improvements in performance are part of the process based on the saw. We saw that a dedicated staff attitude and performance excellence that performance goals are designed and implemented, and implemented in a manner that leads to improvements in the organization their commitment to sustainable prevention. It takes leadership to realize this is a focused approach, and that attention to the quality of results to date should continue to hold. Balanced Scorecard is no magic bullet, but the quality of an approach that may lead to a sustainable culture.

The successful implementation of the scorecard depends on the knowledge of the employees about the advantages of having it installed. The implementation is possible only with the support for the system from all the employees involved in the actual functioning of the business.

To be useful the scorecard must incorporate all the strategies of all the divisions of the business and it must not be biased to any particular division. In most cases the involvement from all active divisions is absent, thereby making it ineffective.