You are on page 1of 6

What is a Balanced Scorecard?

The Balanced Scorecard is a strategic planning and management system used to align business activities
to the vision and strategy of the organization by monitoring performance against strategic goals.
Balanced Scorecard Concept Was first published in 1992 by Kaplan and Norton, a book followed in
1996. Traditional performance measurements that only focus on external accounting data are obsolete.
The approach is to provide 'balance' to the financial perspective.
The structure of balance score card is to think about organization holistically.
Financial prospective What we must do to create sustainable economic value?
Customer prospective What do our customers require from us and how are we doing
according to those requirements (What value we create to customer)
Internal To satisfy our customers what must be our level of productivity, efficiency and
quality? (What internal value required)
People What skills or capability we should have internally to drive our customer and financial
prospective.


Why Use a Balanced Scorecard?
Improve organizational performance by measuring what matters
Increase focus on strategy and results
Align organization strategy with workers on a day-to-day basis
Focus on the drivers key to future performance Improve communication of the organizations
Vision and
Strategy Prioritize Projects / Initiatives
Balance scorecard is divided into two sections:
Balance of strategy into four varaibles and Scorecard is measuring or monitoring the strategic plans


Disadvantages:

Does Not Provide Recommendations
Balanced scorecard gives you an extensive overview of the company. It will give you facts about your
company's execution and performance. But it will not give you recommendations on how to amend
strategies and policies to overcome discrepancies. Therefore, for attainment of a complete analysis of a
company's performance, a more magnanimous strategy will be required.

Resistance from Employees
Resistance towards balanced scorecard can be from either a top management officer or even from other
officers. This is because a few of them might take the implementation of this system as an indicator that
their performances are not appreciated. It could also be taken as an additional burden of administrative
work. Therefore, it is very important that the implementation of this method in a company should be
announced to everyone effectively.

Not Fully Efficient
Balanced scorecard system proves to be completely efficient if integrated with an accounting system.
However, if you are relying on balanced scorecard method for complete evaluation of your company's
performance, it will not be completely efficient.

Takes Time
It takes time to adapt to balanced scorecard strategic system. So this will require a lot of motivation
from the management to be able to successfully complete the process.

High Implementation Costs
The initial cost of the implementation of the balanced scorecard could be high. Considering you would
have already some automation to create a database of the financial transactions, to implement
balanced scorecard you will have to give in additional funds and also spend some time and money in
training your employees about the metrics of the tool.

Can Show Low Profit
Balanced scorecard system will require a high initial cost and time spent. This will make your balance
sheet depict that your company is not making profit and that implementing the balanced scorecard
system is a waste of money.
Read more at Buzzle: http://www.buzzle.com/articles/understanding-the-disadvantages-of-a-balanced-
scorecard.html

Advantages:



Strategic map:
Since strategies, and the actions required to successfully implement them, often contain an
overwhelming amount of information, Kaplan and Norton have developed a tool, known as a strategy
map5,6, to help communicate these large, complex quantities of information in simple, easily
understood ways.
Strategy maps make visually explicit a companys strategy together with its associated objectives and
measures, and the causal linkages between them.
Organising objectives in each of the four quadrants of the balanced scorecard, and mapping the
strategic relationships among them, serves as a way to evaluate objectives to make sure they are
consistent and useful in delivering the strategy. The strategy map is also an excellent way to
communicate to different parts of the organisation how they fit into the overall strategy. It helps to
cascade the balanced scorecard throughout the company because it can be created at different levels of
an organisation, and each levels map can be viewed for alignment with the overall strategy map.

Example:


Conclusion:
The Balanced Scorecard is therefore a very important strategic management tool which helps an
organization to not only measure the performance but also decide the strategies which are needed to
be adopted so that the long-term goals are achieved. Thus, in other words, the application of this tool
ensures the consistency of vision and action which is the first step towards the development of a
successful organization. Also, its proper implementation can ensure the development of competencies
within an organization which will help it to develop a competitive advantage without which it cannot
expect to outperform its rivals.












BS Vs TQM

The BSC and TQM are similar tools, which use to integrate the performance management and control
systems, both
tools have similar aspects such as focusing on communication, reducing the cost, and emphasizing the
importance of
organizations to manage the system and not the people, and both tools need to be supported by the top
management in
the organization.
With regard to the history, TQM is older than BSC. According to Mika, Harni, Kulmala (Without publishing
date)
the basis of TQM as Japanese born philosophy was created in the 1960, Whereas, BSC was created by
Kaplan and
Norton in the 1992.
Both TQM and BSC aim to improve the performance of an organization. However, the major difference
between
the BSC and TQM is the emphasis of each of tools. The BSC more emphasizes on financial objects.
According to
Schwartz and Jay (2010) that Kaplan and Norton stress that financial object, represents the long-term
goals of an
organization. They added that BSC uses traditional financial objects relating to profitability, asset returns,
and revenue
enhancements, whereas, TQM does not diminish the importance of financial solvency but focuses more
on the system
of the organization, the concept of empowering people, and employees involvement. As a result, when
BSC focuses on
whole organization, TQM focuses more on internal processes. According to
(www.BalancedScorecard.org) the biggest
difference between BSC and TQM that, BSC takes a holistic (organizational-wide) view of performance,
where TQM
tends to emphasize improvements to internal business processes. However, BSC can support the
adoption of TQM.
Zahirul (2003), concluded that TQM does not consider employees in its search for continuous
improvement, but the
BSC does. Therefore, by adopting a BSC a firm that has adopted TQM may overcome this oversight
which should
increase employee satisfaction and subsequently organizational performance. (p 563)