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To effect the plans of a company, the place of emphasis has regularly been finance where cost of production, selling and distribution, wages and repairs have been stressed. Kaplan, Robert and Anthony (2015) have cited that the focus on finance is not sufficient. Despite the fact that the fiscal strength of the business is necessary, there are additional interconnected aspects that are essential for success. Strategic plans are intended at attaining the organization goals that must take into account the customer satisfaction, quality of product, sales mix together with other drivers engaged towards achievement of business goals. In accordance with this, a tool to tailor for improved processes of an organization competences which would include the term value by recognizing the applicable key drivers namely the consumers, operational and financial plans, innovations etc. is known as balanced scorecard.
The consequence of the extensive attention is to provide room for measurement that would specify the strategies of organization, application and execution which improves the business objectives and yield development in the position. To measure the fiscal viewpoint, variables such as cash flow, growth in sales, market share and return on equity are considered. The perspective of customers is also measured by taking into the account the time taken to satisfy the customer needs, contribution to an organization value creation and quality of goods or services (Keyes 2016). The objective of this study, is to evaluate the use of balanced scorecard as the part of modern day business management accounting techniques. The essay examines the contribution of balanced scorecard in improving the organization profitability as the related issues and challenges involved in using it.
The concept of balanced scorecard is treated as the tool of possible effective performance evaluation tool and it is used in helping the organization in actually implementing their strategy. Policies are better understood as procedures that is precisely planned to attain the goals of the organization. As opinion by scholars, the balanced scorecard is regarded as the framework for strategic performance management which enables the company to achieve and measure the distribution of their plan. (Kenny, Graham, and Michael (2015) further describe the balanced scorecard as the important tool of management accounting that links the strategy with the budget. Budget allows the basis of judgement with which performance is evaluated. As a management accounting tool balanced scorecard is associated with strategic plans to attain the set objectives. This is in agreement with the position of literature findings that focusing on the vitality of strategic plans to improve the operational usage of balanced scorecard in assessing the performance and probably achieving the progressive growth in profitability.
According to the Kliger, (2016) management accountant plays a dynamic role in essentially designing the progress reports on the strategy application of using the scorecard. Authors have defined the balanced scorecard in interpreting the company’s mission and policy into the set of performance processes to assess the short and long term performance. Non-financial pointers such as superiority of product and contentment of customers whereas the monetary pointers of performance are growth and effectiveness.
As stated by (Lin 2015) due to the intense competition, companies gradually want management accountants to be engaged in designing and implementing the strategy. As the operative member of the strategic team, management accountants should know the economic environment of their business, participants and consumers. Arguably studies have equally explained that management accountants should have the wider view of policies and application of scorecard. Management accountants should have the strong understanding of the outside environment of business, internal issues of business particularly issues namely the human resources processes and distribution. This would help the management accountant to work with the administrators so that it can prepare the scorecard which would represent the realities of the business.
The actual use of balanced scorecard was measurement of performance. When using the balanced scorecard to evaluate the performance, company’s emphases on the four performance metrics namely, financial, consumer, internal procedure and growth metrics. By gauging the four metrics, balanced scorecard it helps companies to track the necessary aspects of strategy along with attaining continuous progress in partnership and teamwork (Martello et al. 2016). The balanced score card is regarded as the useful financial metrics that ultimately evaluates the company’s performance. Measuring the financial metrics is termed as significant in ascertaining whether the strategy of the firm is supporting the general mission of a company.
For private and for-profit firms, fiscal metrics emphasises on certain estimated outcome oriented measures. The balanced scorecard measures the perceptions of customers of an organization because customer offer direct profits for sales and their insight of an organization is critical to improve and withstand the sales.
As per the findings of Perkins et al. (2014), several companies are using the balanced scorecard as the management accounting tool. In such establishments, the balanced scorecard turns out to be the base for strategic management system. The use of balanced scorecard offers the managers with the deep insight in every organization and therefore assist them in undertaking informed decision regarding the long and short run objectives of financial as well as operational performance. The balanced scorecard enables the management accountants to transform the strategy into the real performance measurement by aligning policy with the overall organization mission and vision and monitoring the activities of organization to endorse, sustenance and improve the attainment of policy. The balanced scorecard is useful for the strategic managers to organize with the wide variety of organization procedure particularly appraising performance, setting goal, allocating resources and employee learning.
According to the findings of Shen et al. (2016), learning and growth viewpoint is predominantly vital for the strategic management to recognize, enhance the performance of intellectual capital. Increasing the intellectual capital is regarded critical to advance the inventive designs, assembly, distribution and enhancing the market worth of a company further than the value of its physical asset.
In the modern age of small scale organization balanced scorecard is useful in boosting their chances of survival. As per the researchers 68% of the small companies with less than five employees and 48% of workforces fail inside the first five years of commencement (Tjader 2014). The main external resources for the use of balanced scorecard is the rapid changes in the external market environment with deep competition and varying macro-economic circumstances particularly recessions.
According to the argument put forward by Hoque et al. (2014) the use of balanced scorecard can help an organization in avoiding the failures by recognizing the internal and external factors that contributes to the failure of the business. As a matter of fact, the balanced scorecard helps the small firms in measuring and addressing the internal factors of failures and linking them with the internal business process to learn the growth perspective. The managers should have the strong understanding of the external commercial setting, internal business environment and issues particularly the operations of human resources and distributions. This would assist the management accountants in working with the managers in preparing the scorecard that would represent the realities of the business.
The use of balanced scorecard in company’s strategy is completely embraces the business. In the modern age of business balanced scorecard is useful for the management accountants in communicating the strategy of the business by highlighting the stages of cause and effect relationship (Hansen, Erik and Stefan, 2016). Balanced scorecard serves as the motivator for the management accountants to undertake the actions which would result in improving the financial rather than managers emphasising considerably on the innovation and quality as the end. When the financial and non-financial performance measures are effectively linked then the application of strategy is made easy.
Hladchenko (2015) have affirmed that the balanced score card allows the management accountant to screen the performance and administer the strategy. The characteristic benefit of using the scorecard is to promote the casual thinking by spurring the managers to remain dependent on the empirical evidence instead of having faith alone on the testing the validity and strengthening the numerous connections.
The balanced scorecard has been implemented in majority of the industry segments and industry dimensions. This ranges from the engineering to service industries or from large to small administrations and from public to private sector (Gibbons, Robert and Kaplan 2015). Originally, the application of balanced scorecard was more appropriate for the organizations that uses the intangible assets to create the value. Nevertheless, continued the revision of concept to increase its application.
According to the study conducted by Cooper et al. (2017) on the application of balanced scorecard in Foster’s Brewing Group which is now acquired by SABMiller PLC. Foster’s Brewing Group was witnessing the drop in performance. The CEO of the company undertook the decision of adopting the balanced scorecard as the management accounting instrument to obtain and improve the capital by retaining the old markets whereas capturing new market. Investing in the intellectual capital would improve the invention of product and its features in order to sustain the value of brewing firms with its competitive advantage. The use of the balanced scorecard overturned the falling performance by enhancing the market worth of Foster’s Brewing Group.
In another example conducted by Dudin, and Evgenia (2015), it is studied that the use of balanced scorecard in the major public infrastructure project that had multiple shareholders. The project was the expansion of the Heathrow Airport Terminal. The balanced scorecard was applied due to its suppleness allowed project managers to recognize, customize and review the metrics of performance as per the objective of project. By using the balanced scorecard, the company was successful in raising critical issues regarding its application in the business organization.
A varied set of accounting techniques has been introduced since 1990 that also balanced scorecard, economic value added and target costing which is claimed as strategic management accounting tool and value creation (Akkermans et al. 2018). The balanced scorecard has been incorporated in numerous teachings of management accounting and has turned out to be a service that are offered by the professional’s management accounting bodies and several management accounting consulting firms.
The historical account of the balanced scorecard is noteworthy in representing how the things can be different. There is no such thing that is inevitable regarding the future of management accounting innovations. The management accounting innovations can have the future that is different from the suggested assumption of liner extrapolation of the past.
Management accountant managers may encounter problems while implementing the balanced scorecard. With higher rates of application failure and huge amount of variations in both the interpretation and practice of the balanced scorecard, it reflects a serious limitation in the concept and practice (Busco, Cristiano, and Paolo 2015). At the theoretical level, scholars have criticized balanced scorecard for the untruthfulness of the concept that it is a management of Analog devices which was earlier developed by the engineering and manufacturing firms. In its criticism academics, theorizes that balanced scorecard is better suited for the engineering firms and less for other types of industry particularly the service industry. For example, the internal process might not be relevant for a consulting firm’s still the balanced scorecard proclaims that all the four performance metrics are noteworthy.
Valmohammadi, Changiz and Mohsen (2015) have expressed their disagreement that practitioner-oriented literature propositions that balanced scorecard enhances the strategy responsiveness, communications and attainments. Although not sceptical of the affirmative results, researchers link them with the other factors namely the increased amount of attention to the strategy that influences the balanced scorecard instead of balanced scorecard itself. Conversing regarding the case of negative effect of removal of balanced scorecard on sales, gross profit and net profit, arguably it is noticed that application of balanced scorecard is time consuming for the employees and consumed the time which they would have used to carry out the assigned responsibilities.
The balanced scorecard is viewed as the methodology of strategy design instead of performance measurement procedure. The reason for this is that the performance measurement process should be more than balanced and linked with cause-effect strategy (Zheng 2018). A performance measurement methodology must help the management accountants in designing and applying the use of performance measures to identify the crucial strategies which initially appeared immeasurable.
As stated by Kenny, Graham and Michael (2015) in spite of the wide use of balanced scorecard, the tool has been beneficial in improving the performance of the organization and attaining strategy however the academics have been sceptical regarding the relationship between the BSC and the outcomes of the business. A leading criticism asserts the widespread by Akkermans et al. (2018) explains that wider use of balanced scorecard does not reflect the tool is beneficial for organizations. The inflexibility of the balanced scorecard ultimately limits its application.
Hoque (2014) criticizes balanced scorecard for its lack of theoretical stability which presents interpretive space to the company to apply the balanced scorecard as per their business purposes and needs. Thus, for firms that are functioning in the highly dynamic environments needs regular changes or modifications to the strategies and establishing performance with the obligations turns out to be difficult and challenging.
(Keyes (2016) have criticized that balanced scorecard develops and defines the performance measures. It is criticized that balanced scorecard transforms the strategy into the tangible performance measures by arguing that balanced scorecard does not adequately defines key performance indicators. Perkins et al. (2014) observed rigidity in the concepts of balanced scorecard as the management accounting tool. Balanced scorecard enables a company to transform the strategy in the tangible performance measures however it limits the performance to rigidity. Furthermore, there is a danger where a management accountant may neglect the success indicators and only take interest in their desired measures. In order to implement the actual cause and effective thinking, structures should be removed. Open exploration and analysis of how the performance of a company can actually effect the entire organization as a whole should be examined.
Inside two decades of inception of balanced scorecard, the use of balanced scorecard has become widespread across all the industrial sectors. This ranges from the manufacturing to service sectors including the public and private projects as well. The most common use of balanced scorecard in the modern day of business management accounting is strategic management and performance measurement. The advantage of using balanced scorecard includes overcoming the inadequacies of the traditional based management accounting tools, providing holistic outlook of performance and offering a deeper insight into the business operations.
In spite of the extensive use and benefits, balanced scorecard also has serious limitations both in terms of concept and practice. The evidences included that large number organizations that have applied the concept of balanced scorecard have experienced failures in attaining the desired objectives or have faced serious problems while applying the concept. In actual practice, balanced scorecard emphasis on resources to attain its goals resulting under-use of a firm’s potential to go beyond the target. The limitations obstruct the efficiency of balanced scorecard and contributes to some company’s desires of abandoning the use of balanced scorecard entirely.
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