Introduction
The essay intends to demonstrate the application of balanced scorecard in the current business environment. Focussing on this point, suitable arguments are provided that brings about debate regarding the suitability of the usage of balanced scorecard in the businesses. While using the balanced scorecard, the need for using non-financial indicators is elaborated along with the attributes that are required in the system of qualitative measurement. Further, the essay emphasises on the integration of the scorecard with that of the goals and objectives of a company. The different elements of balanced scorecard are highlighted in this section. This includes financial perspective including the ratio analysis, cash flow analysis, system of credit control, customer analysis through market share, acquisition and retention. Other elements include the perspective of internal business of the company such as its operations, innovations, post sales service. The last element of this section include the upcoming future perspective of the company that describes about the potential growth and development strategies that could be applicable for the company.
The next section of the essay brings out certain examples in order to support the points made regarding the usage of balanced scorecard. Several evidences and incidents are talked about citing examples from specific companies in support of the arguments provided. The last part of the essay stresses upon a general description of the application of balanced scorecard in the current business environment and the evaluation of the arguments provided in the essay going either in support or against the use of balanced scorecard.
Discussion
A balanced scorecard is tool for strategic planning and management that is widely used by the organisations for multiple purposes (Nørreklit, Kure and Trenca 2018). The balanced scorecard incorporates both financial as well as non-financial measures that can be good indicators for determining the performance of the company in its respective industry or market. Through the use of balanced scorecard, the companies can manage their strategies suitably and communicate their objectives conveniently among all the departments (Nørreklit, Kure and Trenca 2018). The balanced scorecard presents an overall picture of the company to the management in order to take necessary steps towards the future growth and prospect of the organisation.
Current debate over the use of balanced scorecard
A balanced scorecard is variedly used by many organisations in order to formulate a balanced set of measures for their organisations. The two important benefits that can be provided by balanced scorecard are motivation of employees and evaluation of the performance of the organisation. In the traditional days the companies have always looked upon their financial measures in order to judge their performances in the market (Kerai and Saleh 2017). The companies focussed on their short-term goals instead of looking into the long-term future prospect (Da Costa Ferreira 2017). This created an imbalance in the decision making process by the management. This is because financial measures only provide a part of the overall picture of the company to the management.
With the passage of time, the companies have started to look beyond the application of financial indicators in judging their performances. At this point, the implication of balanced scorecard is noteworthy (Da Costa Ferreira 2017). The companies have started realising that balanced scorecard would incorporate other non-financial indicators that would help in providing a balanced view of the company to the management. These non-financial indicators contain customer perspectives, customer experience, internal business and processes, product and service offering of the company and growth and developmental prospects of the company.
The balanced scorecard reflects the position of the company both in terms of financial health and non-financial strategies. The elements which are considered under the non-financial segment are the customer experiences, internal operations and processes and the future prospect of the company (Dudin and Frolova 2015). The customer perspective talks about the choices and opinions of the customers who are interested in buying the products and services of the company. This also determines whether the company is winning new segments of businesses and making customers satisfied with their offered services (Dudin and Frolova 2015). This segment also judges the company based on their position in the market with respect to its competitors. The internal business processes evaluate the effectiveness of running the business of the organisation. It also points out the obstacles that come in between the implementation of the new ideas of the organisation (Hepler et al. 2016). The learning and growth segment of the balanced scorecard looks into the overall corporate culture of the organisation. It also demonstrates the way by which the employees use the latest technologies and innovative ideas developed by the organisation.
However, there could be many points which do not go in favour of balanced scorecard. As the balanced scorecard takes into account the measurement of non-financial indicators, there could be many limitations arising out of them (Hepler et al. 2016). First limitation is the area of measurement that has been suggested by the scorecard. The area is unidirectional and very simplistic without any cause-and-effect relationship between the elements. Second limitation is the incorporation of non-financial measures such as environmental management which is often not linked with the economic success of the firms (Awadallah and Allam 2015). Third limitation is the lack of integration between the top level and the operational level of the firm which might lead to formation of problematic strategies. Another limitation is the lack of time dimension in the usage of balanced scorecard. The company is subjected to change in the business environment but all the changes are not adjusted in the balanced scorecard.
Link between scorecard and company’s objectives and strategy
The modern approaches in the preparation of balanced scorecard discusses about the hierarchy that is shown by its perspectives. It develops from the idea that the four perspectives are built upon one another and one of them gets developed from another one (Quesado, Aibar Guzmán and Lima Rodrigues 2018). One of the important ways of applying the balanced scorecard is to intertwine the strategic objectives of the organisation with that of the elements of the scorecard. The strategic objectives of the organisation should be based on certain attributes (Quesado, Aibar Guzmán and Lima Rodrigues 2018). The objectives should not come with a deadline and they should go endlessly throughout the business. The objectives should be actionable and measurable.
Putting the strategic objectives and the elements of the scorecard together, a big picture can be created that would determine the overall strategies of the organisation in different financial and non-financial areas (Kostyukova et al. 2017). The different objectives and strategies that can be incorporated into the financial segment can be reduction of costs and enhancement of the profit figure at the same time. The company could also look out for increasing its revenue in the targeted markets. The financial perspective could also focus on measures which are significant to the shareholders (Kostyukova et al. 2017). These measures include projection of the return-on-capital-employed, cash flow statement analysis, projection of profitability and backlog of sales.
The customer perspective can include improvement of customer experience and usage of customised products and services for the customers. Another objective of this segment can be increasing awareness for being a leader in the industry (Hladchenko 2015). The company could segment its customers based on their priorities. Likewise, the customers could be grouped into Tier I, Tier II, Tier III and so on. The company should add high-value to the top prioritised customers and the extent of value proposition must decline while going down the hierarchy (Hladchenko 2015). The company should prepare a price index based on its competitive position which would be applied as and when required.
Similarly, the strategies that are required to be laid down under the internal business processes include improvement of the internal efficiency of the organisations. The company can also increase its merger and acquisition activities as well as its knowledge sharing processes. Another important component of this segment is the improvement in the products and services which are offered to the customers (Muda et al. 2018, January). Through this segment the company should be able to strategize a success rate for itself. The company should be able to identify its core competencies and should work upon developing them in order to strengthen its position in the market (Muda et al. 2018, January). The company should be able to improve its resource productivity along with reducing its costs at the same time. The company should also reduce its response time that is required for performing any activity related to the business.
The last element of the balanced scorecard defines the learning and growth phase of the organisation. This element is also referred to as the innovation and learning element of the organisation (Akkermans and Van Oorschot 2018). The company takes care of its performance in three different areas such as financial customer and internal operation. This is required for predicting the future prospect of the organisation. The company also detects different areas for improvement in order to work upon them (Akkermans and Van Oorschot 2018). The strategies and objectives relevant in this phase would include enhancement of the expertise of the employees, optimisation of technology as well as human capital and improvement of the leadership strategies which were previously put into action by the organisation.
Balance scorecard varies from one organisation to another based on their chosen measures of performance that are linked to the scorecard. The proponents of the balanced scorecard state that the organisation should develop measures abiding by its strategies which would contribute to the enhancement of the organisational performance (Cooper, Ezzamel and Qu 2017). Organisations should adopt the balanced scorecard for the purpose of translating their missions and strategies into objectives and performance measures. It would help the managers in measuring and managing the different strategic areas and communicate these strategies to all the internal people throughout the organisation (Cooper, Ezzamel and Qu 2017). These would also help the managers in identifying the key success factors of their organisation. These success factors could also be measured and assessed properly through the use of this balanced scorecard.
Examples used to effectively illustrate the use of balanced scorecard
One of the significant examples which can be stated in relation to the implementation of balanced scorecard can be the example of a library of a private university (Al-Hosaini and Sofian 2015). The different elements linked with the strategic objectives as shown in the balanced scorecard of this university are stated as follows.
- Customer perspective – The objectives and measures stated in this field are customer satisfaction in supporting teaching, learning and other needs, enhancement of the communication and collaboration carried out with the academic staff and the students.
- Internal Business – The objectives and targets seen in this segment are achievement of continuous improvement in services, facilities and other resources of the library, improvement in the development of a new product or a service (Jones 2016).
- Innovation and learning – The objectives include recruitment, motivation and development of highest quality of library staff and provide suitable information regarding the training and development of the academic staff and other students (Jones 2016).
- Financial Perspective – The objectives prepared for this segment include optimal allocation of library resources that would cut-off costs at the maximum possible extent.
Another example can be stated regarding the implementation of balanced scorecard. The chosen company in this context is Rockwater, which is a subsidiary of Brown and Root. The different elements of balanced scorecard as used by the company for linking its strategies can be discussed as follows.
- Customer satisfaction – The company has suitably segregated two groups of customers based on their priorities. The top level customers are placed in Tier I and high-value relationship has been maintained with them (Mehralian et al.2017). The next level customers are placed in Tier II and suitable price indices are prepared in order to retain them.
- Financial Measures – The company follows five important financial measures based on its strategic objectives. The basic measures such as return on capital employed, cash flow analysis and reliability on financial projections are taken into consideration (Pollanen and Xi 2018). The company in addition follows two more financial measures such as profitability and backlog of sales.
- Internal Processes – The executives of Rockwater develop internal measures to define the life cycle of its important projects (Park, Lee and Chae 2017). Starting from the initial stage of launch to the completion of the project, all the measures were jotted down under the balanced scorecard.
- Innovation and Improvement – Rockwater improved its product and service innovation in order to create new sources of revenue and market expansion. The important operational measures that have been improved are safety and rework (Park, Lee and Chae 2017). The management motivated the employees so that there is a supportive climate created from the employees that would automatically aid to the operational improvements.
Including the above two examples there can be other evidences of companies who have successfully implemented the balanced scorecard. Some of the other examples include Apple Company in the Technology sector, Volkswagen in the Automotive sectors, Citibank in the banking sector, FMC corporation in the manufacturing sector, Philips Electronics in the Electronic sector and Thomson Reuters in the financial sector.
Evaluation of the use of balanced scorecard
The balanced scorecard was designed to be a performance management framework that contain non-financial measures along with the traditional financial metrics. The managers and executives, thus, can get a balanced view regarding the performance of the organisation and adopt suitable strategies for moving forward. Balanced scorecard is widely used by both profit-based as well as non-profit based organisations in order to define their strategic priorities and design suitable measures for monitoring those priorities (Augusti Juan et al. 2019). In recent days, it has been seen that organisation are getting deviated from the traditional approaches of balanced scorecard and developing better versions of the scorecard which would fit into their organisational needs. Balanced scorecard also points out the success factors and the core competencies of an organisation with the help of which it can grow and survive in the market (Augusti Juan et al. 2019). From the examples of Rockwater and the library of Private University, it is clear that balanced scorecard has evidently helped them in developing better strategies for the success of their organisations.
However, there could be some limitations to the usage of balanced scorecard. Some of the organisations find it difficult to prepare a balanced scorecard due to certain issues which are embedded in the organisations (Nippak et al. 2016). The metrics visible in the scorecard might be poorly defined and might not get understood by all the internal people of the organisation. In the collection and reporting process, there might be lack of efficient data which would be required for preparing the balanced scorecard. Another issue could lack of a proper improvement methodology as defined by the organisation in its balanced scorecard (Nippak et al 2016). Due to all these reasons, some organisations might fail to improvise the balanced scorecard in a proper way and it might lead to further complications. However, it is seen that balanced scorecard is still widely used in most of the organisations for the development of their future strategies.
Conclusion
From the above essay, it can be concluded that preparation of a balanced scorecard is a very popular method as used by most of the organisations. In this context, the current debate on the use of balanced scorecard is talked about in this essay. The effectiveness observed in going over beyond financial measures to the qualitative measures is also discussed. Different arguments are provided that illustrated points going either in favour or in against of the balanced scorecard. Further the report discussed about the linkage of the company’s objectives with that of the elements of the balanced scorecard. Suitable examples in relation to certain companies are provided in order to demonstrate the effectiveness of balanced scorecard in their operations. The four perspectives of the balanced scorecard are linked with different strategies of the organisations. Finally, a general evaluation is made regarding the use of balanced scorecard in the organisation of recent days which described both positive and negative points of using a balanced scorecard.
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