An Analysis of Balanced Scorecard Essay Sample
1. Introduction
One of the biggest challenges in organizational direction is mensurating public presentation comprehensively. every bit good as implementing and put to deathing organizational scheme efficaciously. The origin of Balanced Scorecard ( BSC ) dramatically contributes to turn to these issues. as it provides a utile public presentation measuring attack. and most significantly. a strategic direction and control system. Therefore the BSC was widely adopted in pattern and treated as one of the most valuable inventions in twentieth century ( Bible et Al. 2006 ) . The intent of this study is to research the purposes of BSC set out to accomplish. so measuring the extent to which BSC has achieved its ends. In extra. this study focuses on look intoing the ground why BSC has widely adopted through out the universe and achieved such a high grade of acclamation.
2. The purposes of Balanced Scorecard
2. 1 A Performance measuring tool
The balanced scorecard was created by Robert S. Kaplan and David P. Norton in 1992. and their initial purpose is to supply a new public presentation measuring tool to mensurate the public presentation of administrations comprehensively ( Kaplan and Norton. 1992 ) . Since 1980s. Executives began to gain that traditional public presentation systems are non capable plenty to get by with the new concern environment. which intangible assets. such as client and supplier relationships. and invention in production. play a important function in making value for a company ( Norreklit and Mitchell. 2007 ) . The innovation of BSC overcomes the defects of traditional public presentation measuring attack by urging companies to mensurate public presentation in four positions – fiscal. client. internal concern procedure and acquisition and growing.
In this manner. the BSC is designed to assist directors maintain balance in three facets when they measure public presentation ( Gautreau and Kleiner. 2001 ) . First. maintaining balance on lagging and prima indexs. Fiscal steps are dawdling indexs which can merely connote what has happened in the organisation but supply small aid in foretelling future public presentation ( Ittner and Larcker. 1998 ) . Integrating taking indexs such as client. invention and operation into public presentation measuring. directors are forced to concentrate on drivers of future public presentation. Second. maintaining balance on short-run and long-run aims. Fiscal steps are short-run public presentation steps. However. short-run good fiscal public presentation. such as cutting down staff preparation fees. may negatively impact long-run development. Third. maintaining balance on external and internal public presentation. The BSC non merely concentrates on internal concern procedure and employers. but besides attaches great importance on external public presentation. such as client satisfaction. Therefore. the BSC makes important parts on mensurating organisational public presentation comprehensively.
2. 2 A Strategic Management system
Another debatable country in direction is the execution of scheme as in bulk of companies. schemes do non work every bit good as they are designed to accomplish – directing a company’s day-to-day actions ( Speckbacker et al. 2003 ) . The BSC contributes to turn to this job since Kaplan and Norton developed BSC into a strategic direction system for implementing organisational scheme efficaciously.
The BSC intends to heighten scheme communicating by clear uping organisational scheme by interpreting it into specific strategic aims and steps in four Scorecard positions ( Kaplan and Norton. 1996 ) . The interlingual rendition overcomes one of the major barriers in put to deathing scheme by clear uping the equivocal strategic statements. such as supplying best service. fulfilling clients. Therefore. all employees have the consensus on what the scheme really intend. and most significantly. they have a clear way on how to act to accomplish the declared scheme. Furthermore. all the enterprises. such as resources allotment. budgeting. every bit good as employees’ attempts tend to be aligned to the communicating processes.
The BSC aid directors to obtain feedback to oversee the execution of the scheme. every bit good as bettering it ( Kaplan and Norton. 1996 ) . Using BSC. directors will have provender back on both fiscal marks and other Scorecard steps. Based on the consequences of those public presentation steps. executives can automatically cognize whether the company is in the procedure of implementing the scheme and whether the hypotheses made in scheme is appropriate. Additional. feedback on BSC would be a signal forcing executives make some cardinal alterations in scheme.
3. The strengths and restrictions of BSC in accomplishing its purposes In footings of mensurating public presentation. BSC has both strengths and restrictions. By mensurating public presentation in four positions. including fiscal. client. merchandise invention. and infrastructures in a company. different sections. such as planing. production. and client service. within an organisation are acquiring connected. Simultaneously. specific steps are defined in every position. Therefore. the whole company is forced to concentrate on critical factors which would better public presentation ( Ritter. 2003 ) . However. a company may non acquire a comprehensive image about its public presentation since superior directors are likely to disregard the alone steps designed by subordinates ( Lipe and Salterio. 2000 ) . Every subordinate in an organisation has its ain scheme. so they normally design their ain steps in BSC. Therefore. some steps they set are alone in order to reflect the specific scheme. However. when superior directors evaluate the local concern units. they tend to disregard the alone steps. alternatively of paying great attending on steps which are common among all the subordinates. Hence the map of BSC as a public presentation step tool is non maximized because of the underestimating of alone steps which reflect the peculiar characters of the local concern units.
One of the aims of BSC is to pass on scheme from top directors to take down degree employees. therefore deriving consensus on employees’ end to accomplish the scheme. However. the effectivity of the communicating procedure can non be guaranteed. On one manus. it is inevitable that steps in BSC can non reflect the organizational scheme accurately ( Ittner and Larker. 2003 ) . Sometimes the steps do non incorporate all the strategic aims. while in some instances steps may spread out to other countries where the scheme does non really program. On the other manus. it is unsure that lower degree employees would understand the significance of scheme in the same manner the higher degrees express to them. The significance of an look may be different to people with different cultural and educational background Norreklit ( 2000 ) . Consequently. the effectivity of BSC as a tool to communicating scheme depends on the extent to which the steps reflect strategic aims accurately. every bit good as the lower degrees comprehensive the scheme suitably.
The BSC contributes to pull off and command scheme since one of the most typical characters of BSC – the cause-and-effect relationship. reveals both the result steps and public presentation drivers in scheme. This causal relationship is of peculiar involvements in implementing and bettering scheme since directors are able to do operational determinations and anticipations of results based on it. Therefore. the hypothesis in scheme can be tested. every bit good as dependable feedback on execution scheme can be received. Nevertheless. the cause-and-effect relationship is to a great extent criticised. As Norreklit ( 2000 ) states that the clip slowdown exists between an attempt and its consequence. The length of clip assorted sorts of effects become expressed is assorted. For the ground that a great many of factors may act upon the result. it is hard for directors to indentify when the fiscal consequence of an action really happens and what sort of consequence it is. Additional. the causes of good fiscal public presentation are non indistinguishable in different companies. For illustration. high degree of client satisfaction will non necessary consequence in fiscal success. In a word. the cause-and-effect relationship in BSC is less likely to be applied efficaciously in pattern. As a consequence. the accomplishment of BSC as a strategic direction and control system is criticised.
4. The grounds to back up balanced scorecard as a successful invention Although the BSC has received many critical arguments. it has a high acceptance rate through out the universe. Some empirical grounds indicates that companies can deduce considerable benefits from utilizing BSC. and the chief benefits are bettering organizational public presentation and maximising stockholder return.
Harmonizing to the research conducted by Geuser et Al ( 2009 ) . by roll uping informations from 76 companies utilizing BSC. the acceptance of the BSC within an organisation has a positive consequence on organisational public presentation. Among the 76 concern units. the bulk of them reported that the facets of public presentation measured in BSC have been improved dramatically. such as gross revenues and selling. human resources and client services.
The effectivity of BSC in bettering fiscal public presentation can be demonstrated in the research conducted by Davis and Albright ( 2004 ) . The study involves a banking administration with 14 subdivisions and 375 employees. After analyzing the alterations in fiscal public presentation between subdivisions that adopted BSC and concern units that do non utilize BSC. the research reveals that BSC subdivisions outperform their opposite numbers in fiscal positions ( Table 1 ) . Additional. Davis and Albright ( 2004 ) province that this consequence is supported by the indistinguishable researches conducted in fabrication and hotel industries as good. Overall. the BSC is helpful to better the operational public presentation of an administration. Table 1 ( Davis and Albright. 2004 )
The research conducted by Crabtree and Debusk ( 2008 ) indicates that BSC can positively impact the stock market public presentation of an administration. The research investigated 57 houses utilizing BSC and 107 companies did non follow during 1993 to 2003. Harmonizing the information collected. BSC companies outperform houses in the same industry do non accommodate BSC dramatically in maximising stockholder returns as BSC companies exceed their opposite numbers in facets of market value of equity. book-to-market and net assets ( Table 2 ) . Table 2 ( Crabtree and Debusk. 2008 )
Based on the experience of a big sum of houses following BSC. the grounds why they derive benefits by utilizing BSC are two effectual ways the houses adopt it. First. the BSC aid companies to associate scheme to budgeting procedure. Financial and non-financial resources will be allocated based on the rule of accomplishing strategic aims after implementing BSC. Second. the BSC enables administrations to depute liberty to their subordinates. As growing in competition. the issues a company needs to turn to are turning complex. Therefore an administration is less likely to success with determinations doing entirely trust on highest degrees ( Anthony and Govindarajan. 2006 ) . BSC execution can better organizational public presentation by authorising concern units to put their ain specific scheme and public presentation steps.
5. Decision
From what has been discussed above. it can be concluded that BSC is deserving to being treated as one of the 75 most influential thoughts of the twentieth century ( Bible et Al. 2006 p18 ) . A great many of empirical grounds underpins the effectivity of BSC as a public presentation measuring tool and a strategic direction and control system since BSC contributes to bettering organisational public presentation in four positions which has been measured. every bit good as maximising stockholder returns. Although the BSC is criticised by its barriers to execution. such as ignorant directors may undervalue the alone steps set by subordinates. the organizational scheme may non pass on efficaciously from top degrees to lower degree of employees. and directors are less likely to place the accurate cause-and-effect relationship in BSC. if directors can take advantage of BSC in a manner that is most suited for the civilization and conditions of an administration. BSC will work and convey considerable benefits to the administration finally.
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