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Balanced Scorecard Developments Report

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Updated: Apr 23rd, 2022

This paper reviews developments in the balanced scorecard (BSC) since its inception in the year 1992. The BSC has become one of the most popular performance measurement tools and mechanisms for executing business strategies among senior executives and managers globally.

The BSC was developed by Kaplan & Norton to solve the industry-wide challenge of performance measurement. It incorporated four diverse elements to create overall performance tool. These were mainly financial measures, operational measures, internal processes and innovations.

These perspectives focused on areas that an organisation could improve, create value on, excel at and shareholders and customers’ views.

Although the original BSC was widely accepted, it was never perfect. Its measures, for instance, could not accommodate all measures as demonstrated by Rexam Custom Europe in 1996. In addition, Kaplan and Norton had stated that vision and strategy was the core of the BSC.

However, it was difficult to relate the measures with overall strategy of a company. Hence, results from the BSC were always segregated.

In 1996, Kaplan and Norton showed that the BSC introduced four management processes that enhanced the relations to long-term strategic objectives with short-term actions. Between 1996 and 2000, Kaplan and Norton started to address some challenges identified in the existing model.

The initial stage involved explaining the vision to assist executives to create agreement and comprehend institutional vision, strategy and corporate goals. Consequently, they could communicate such long-term strategic goals to all employees.

Employees could see their individual performance and contributions against their organisational strategies. Second, the business planning strived to establish milestone and targets and then it aimed to align strategic incentives with targets.

Lastly, managers could monitor and evaluate employee performance through feedback and learning perspectives of the BSC.

In 2000, Kaplan and Norton released an article that showed a clear link between strategy and perspectives based on mapping. Through mapping, the strategy map linked various items of organisational BSC into a cause-and-effect relationship to show preferred outcomes alongside their drivers.

Given the constant improvements, the BSC has become easier to implement and is equally astute. Mapping, for instance, ensures creation of logical links to demonstrate relations between measures.

For instance, employee training affects customer satisfaction, which in turn improves customer loyalty and increases the overall financial performance.

Although notable improvements have been noted, the BSC has continued to be rigid with regard to design. On this note, Kaplan and Norton had clarified that organisations have unique attributes and thus could follow their own methods to create BSC.

Currently, the four elements of the BSC are widely used, but with greater flexibility and slight changes in names. Some organisations, for instance, refer to ‘Internal Business’ as ‘Internal Process’. In addition, the issue of shareholders has raised new questions as public sector organisations have started to adopt the BSC.

A study conducted in 1996 in three companies in Europe showed marked variations in designs of the BSC. It is imperative to note that these developments show changes in the BSC as a simple, detached performance measurement tool to a superior model for critical managerial processes, which account for the entire firm.

Earlier implementation challenges have been addressed while allowing users to have flexibility in their designs.

Some researchers have categorised the BSC modernisation into three distinct generations. The first generation of the BSC was noted during its inception in 1992 and subsequent implementation. The second generation included articles and books that focused on addressing challenges noted during the implementation of the BSC.

The final generation aimed to refine and improve upon the second generation with additional new components to enhance functionality and strategic importance.

The BSC has realised some notable developments by the year 2000. For instance, it has been widely adopted in both not-for-profit and public sector organisations. Meanwhile, the BSC has also improved in terms of design, specifically the destination statement.

Destination statements appeal to executives to review consequences of strategic objectives on a firm. Another significant development was marked when BSC moved away from its four strict perspective elements to accommodate new organisations from not-for-profit and public sectors.

These organisations require careful choices of headings for different categories because they do not focus on financial results or shareholders’ returns. Instead, they require headings such as ‘activity’ and ‘outcome’ objectives that relate to relevant perspectives to account for other perspectives.

Activity perspectives substituted learning and growth and internal process perspectives, whereas outcome perspective substituted financial and customer perspectives.

The fundamental principles of the BSC have always remained notwithstanding new developments for the last two decades.

The witnessed developments in the BSC have also happened at the same time with the rise in technologies. For the last two decades, these developments have coincided and as a result, the BSC has acquired new dimension in software.

Analytical software can be customised and programmed to gather, summarise and present data that relate to the BSC. IBM Cognos Business Intelligence software, for instance, has customised BSC analytics that can generate BSC reports, perform analysis and send information to all workers.

Consequently, managers can respond immediately to alerts because delays that resulted from financial perspectives were reviewed.

It would be interesting to understand the future of BSC. Although there are four types of scorecards, currently, organisations use just one type. They all have performance measures and outcomes and implementation of scorecards could result in variations and specialisation in subsequent years.

In conclusion, since the development of the BSC in 1992, it has received global acceptance.

However, during the development of the BSC, which has reached both not-for-profit and public sector organisations, the BSC has experienced some challenges because of its rigid model, which was designed for profit-making organisations.

Nevertheless, the BSC has been revised to accommodate such challenges and has become extremely popular with senior executives in all types of institutions in the last two decades. Analytics software has improved the robustness and performance of the tool.

These developments have changed the BSC into a robust performance measurement tool, which is effective for all types of organisations globally.

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