The balanced scorecard (BSC) approach was developed and published by Kaplan and Norton in 1992 in the Harvard Business Review, and it became an immediate success in the fields of business and accounting (Madsen & Slåtten 2015, p. 90; Pitcher 2015, p. 5). Pitcher (2015) defines BSC as a system that is meant to measure the performance of a company in relation to strategic management and ensure the alignment of business activities with the strategic vision, which ultimately leads to improved control (p. 17).
The four critical BSC areas include the learning and growth, processes, customers, and finance, and the relationship between the areas is not linear. Janeš (2014) describes it as a set of cause-and-effect relationships, all of which are aimed at achieving the strategic goals by assuming what could help accomplish them and thus setting the key performance indicators (KPIs). KPIs are used to measure and control the performance in the areas.
According to Janeš (2014) and Pitcher (2015), the key advantage of BSC consists in the integration of various views on an organization including the financial and non-financial together with internal and external ones. For example, in the case study by Janeš (2014) that is devoted to a manufacturing company in Slovenia, internal financial KPIs included the return on assets while external nonfinancial customer perspective KPIs involved reputation. Apart from that, Nikolaou and Tsalis (2013) insist that BSC is especially good at fostering the environment for the recording of financial and nonfinancial information (p. 77). Also, BSC is a flexible system (Nikolaou & Tsalis 2013). For instance, Nikolaou and Tsalis (2013) describe the possible model of integrating BSC with sustainability reporting. Besides, as shown by the study reported by Pitcher (2015), accountants can end up using BSC to an extent, skipping the formalities of the method but utilizing its elements (p. 10). Madsen and Slåtten (2015) prefer to insist that this flexibility is the result of the system’s vagueness, but it does not change the fact that BSC is likely to develop to fit the needs of companies better. To sum up, the advantages o BSC are most appealing.
According to Janeš (2014), up to 90% of companies cannot successfully carry out their strategy because they fail to define the means of describing, measuring, and controlling them (p. 206). BSC provides these means and makes them customizable. As a result, BSC use is hardly limited to a particular type of business. Though the majority of studies in the field are concerned with the models used by for-profits, non-profit and public organizations can also utilize it to ensure the alignment of the areas with their strategy.
However, the popularity of BSC is a controversial issue. Madsen and Slåtten (2015) describe it as a fashionable tool that is being adopted in an increasing number of businesses. At the same time, according to Janeš (2014), few companies choose to test their models of BSC. It is important to remember that BSC needs proper implementation like any other tool, which means that if a company intends to benefit from its adoption, it should control this process as well.
Reference List
Janeš, A 2014, ‘Empirical verification of the balanced scorecard’, Management & Data Systems, vol. 114, no. 2, pp. 203-219.
Madsen, D.Ø & Slåtten, K 2015, ‘The balanced scorecard: Fashion or virus?’, Administrative Sciences, vol. 5, no. 2, pp. 90-124.
Nikolaou, I & Tsalis, T 2013, ‘Development of a sustainable balanced scorecard framework’, Ecological Indicators, vol. 34, pp. 76-86.
Pitcher, GS 2015, Management accounting in support of the strategic management process, Chartered Institute of Management Accountants.