In this article, Kaplan and Norton (2007) discuss a strategic approach towards strategic management that they call the balanced scorecard. According to the authors, many companies neglect the problem of relations between short-term actions of the company and its long-term strategy, which adversely influences business and the enterprise (Kaplan & Norton, 2007). Unlike other approaches, the balanced scorecard does not rely on short-term financial measures; instead, it provides four processes of the managing strategy: translating the vision, communicating and linking, business planning, and feedback and learning. The first process focuses on making the company’s vision more clear and practical so that the enterprise’s employees can understand what actions will align with the company’s goal. It is crucial to clarify the meaning of the vision and provide specific actions related to employees, customers, or products. Only when the company’s executives agree on the necessary actions, translation of the vision becomes possible (Kaplan & Norton, 2007).
It is difficult to align the company’s strategy with employees’ duties and actions when a detailed plan and communication are lacking. Therefore, communicating and educating, setting goals, and linking rewards to performance measures are the essential parts of the balanced scorecard. Communicating the long-term strategy upwards and downwards is essential (Kaplan & Norton, 2007).
Another problem is the non-existent relationship between the budget and the company’s strategy. The balanced scorecard helps companies integrate their strategies and business processes and see if the budget can support strategic planning (Kaplan & Norton, 2007). Thus, the financial budget is linked to the strategic goals of the company; managers need to focus on the most critical issues linked to strategic success (Kaplan & Norton, 2007). Setting the long-term goals, allocating the resources, and establishing milestones are the processes of business planning.
However, no matter how well thought and detailed the previous processes are, they have to function in a rapidly changing world. Therefore, assessment and feedback are necessary to understand how the balanced scorecard is working and what needs to be changed. Strategic feedback will test the hypothesis of business planning and collect opinions. Furthermore, it will also provide information about cause-and-effect relationships between strategies and processes. Without feedback and strategic learning, and development and adjustment are impossible.
Critical Analysis
I believe that in many ways, this article supports the findings of previous materials; strategic management is impossible if there is no clear plan and preparation, if communication is lacking, and feedback is ignored, or the company does not know how to learn from its mistakes. It is a valuable lesson because many companies still rely on vague missions and visions and separate their budget and resources from their strategic goals. The article points out that a company is in many ways a living organism where all relations and mechanisms are interconnected and should not be ignored. In my opinion, it is a reasonable approach, because neglect of the cause-and-effect relationships might result in a catastrophe.
However, as the authors themselves point out, the balanced scorecard system can be expensive and time-consuming (Kaplan & Norton, 2007). All the processes will require attention and investment, and gathering feedback will last from months to years (Kaplan & Norton, 2007). Therefore, it is possible to assume that not all companies will be able to afford this approach, especially newer or smaller ones.
It also seems that the balanced scorecard pays more attention to strategies and communication, and very little to financial issues and details. Aligning budget and strategy is important, but the approach does not provide any additional strategies that could be used in financial management and planning.
Nevertheless, the balanced scorecard has the potential to bring success to a company if it is implemented with other strategic models or thoroughly designed and reviewed.
Main Takeaways
The scorecard can show managers how the company’s strategy can be updated and aligned with other areas, how the executives and managers can communicate the strategic mission throughout the company, how strategic objectives are linked to “long-term targets and annual budgets” (Kaplan & Norton, 2007, p. 161). Using this approach, one can evaluate the company’s actions and its influence on the strategy and mission. Furthermore, one can also see whether the company’s employees are ready to attend additional training and courses related to this strategy. Employees’ disinterest in the new approach can help managers identify the existing issues in the company and evaluate how they influence their overall functionality.
Although the balanced scorecard is more suitable for companies that have enough time and resources to implement it, smaller companies can also try to engage this strategy if they can. Many companies underestimate the importance of clear vision and long-term objectives; for a smaller company, this can be especially crucial and positively influence its competitiveness in the market. Furthermore, establishing milestones can also help determine what course the company wants to set and what goals it would like to achieve during its first two, three, or five years in the market. Thus, the balanced scorecard is an efficient strategic system if implemented carefully and correctly.