Balance Scorecard

This essay will discuss Balance Scorecard (BSC) can help organisations achieve better results when compared to traditional performance measurement system. It will cover three aspects- One aspect is the weakness of traditional tool; another aspect is that give evidence to show that BSC are more suitable to measure performance. Finally, BSC also has some limitation and need to improvement.

Since 1980s, some researchers have tried to find some other tools which are not relevant of traditional control for company implementing operational strategies. The reason is that traditional system was not sufficient and failure to link performance measurement in the new economic. Meantime, the traditional financial control alone was only focusing on accounting for external reporting, but was missing the factors which are useful for internal decision making such as competence and knowledge, competitors and operational efficiency. To illustrate, by considering financial alone is not sufficient in the service industry, because mangers must more emphasis on training staff rather than financial performance, then can ensure their employees have good relationship with customers.

Atkinson (1997) states that the BSC is significant tool to develop management accounting to compared with the traditional measures. The mean benefit is that BSC simply sets out the four perspectives (graph 1) for developing a coherent set of objectives for business and helps to translate strategy into operational terms. (Kaplan and Norton1996) The four perspectives also have balanced between long term and short term and also balanced the performance measurement which is financial plus consumer and employee satisfaction dimensions, as well as communicate with internal and external stakeholders which can contribute to business strategy. (Gumbus and Lyons 2002). To contrast, traditional system considers finance alone is poor at implementing operational strategies and poor to measure whether are achieving their mission and strategy.

Graph 1;

Source; lecture notes-balance scorecard

http://www.studynet1.herts.ac.uk/crs/06/3

From this graph, The BSC is derived from setting up causal links between NFMs’ performance improvement and improved performance on selected financial objective. Banker (2000) indicated; �there is a strong relationship between improved financial performance and NFMs.’ There is an example shows;

l An insurance company emphasis on customer satisfaction NFMs which is strong relate to future financial performance. The research states in which 15 percent to 20 percent of the customers can generate 100 percent (or more) of the profits. In this case, 40 percent of customers with most profitability can generate 130 percent of annual profits. The company worked harder to ensure their continued loyalty with its most profitable customers.

Source; Robert S. Kaplan (2005) Balanced Scorecard Approach

Furthermore, Gumbus 2003 views that the merits of BSC is focusing employees on their role which aligns their organization to the strategy and also in accomplishing the company mission. And the operational efficiency dimension can help better to measure which needs to be fixed in order to meet their internal and external customer demands. All of the perspectives are equally important and the results are close related to one another. Finally, it can support sufficient information to achieve long time financial successful and increase shareholder value.

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