Introduction
Many organizations in the twenty first century usually use the balanced scorecard to align their strategies and visions. This is usually one of the strategic plans within such Companies. This concept is also usually incorporated by non profit organizations and government bodies.
It is also usually used in the measuring of overall performance of organization in relation to set goals. Some businesses usually use it to enhance their external and internal communications. (Atkinson, 2006)
This concept is mostly known to have been initiated by Kaplan in the early 1950’s but started being implemented in the nineties. This model is mostly used to analyse employees’ activities throughout the year.
This concept is usually praised for its advantages as a management framework within organization. It is also highly criticized for its various limitations experienced by users. This paper looks in-depth at the pros and cons of a balanced scorecard framework of performance management. (Kaplan and Norton, 2004)
Merits
Balanced view of organizational performance
Just like any other framework of managing performance within organizations, the balanced scorecard has its pros and cons. One of the merits of the balanced scorecard is that managers are able to have a view of organization’s performance that is usually balanced in nature.
This is comparing to other traditional methods that were used to analyse Company performance. In most cases, the methods would give financial aspects of the business only. They usually overlook other aspects that are part of organizational performance. (Kaplan and Norton, 2004)
The balanced scorecard looks at all the features in the light of Company objectives. This enables management team to ascertain whether Company objectives are being met or not. This is considering the fact that an organization may be performing spectacularly in financial terms but has poor organizational development. (Neely, 2007)
This also could include very poor customer satisfaction. It is also possible for an organization to be making enviable profit while its communication systems are poor and processes outdated.
A balanced scorecard helps managers to analyze all these aspects and to have an overall view of the Company performance. Through the use of a balanced scorecard, there is a comprehensive view of the organization. (Pandey, 2005)
This tends to overturn the conventional idea of organizations having separate departments and isolated functions. It helps to show that all units within organizations are correlated. Analysis of all essential departments helps management team to correct areas that require change. This also includes putting rectification measures in time before the Company’s performance is adversely affected. (Zanini, 2006)
Helps in implementing organizational development
Through the use of a balanced scorecard, it is easy to implement organizational development. Organizational development is usually implemented in an official and organized way. It involves, coaching and instructing employees in areas of need. It also helps in accomplishment of organizational goals. Majority of the goals are usually long term in nature.
Organizational development is known to be part of the strategic plan in many Companies. This is where staffs are trained and educated on various areas such as customer care and resource management. The use of a balanced scorecard may show the customer care levels to be very low within the organization.
This usually indicates that staffs need training on customer care. Through this method, staffs easily trained on areas shown to have a deficit in service delivery. Research shows few managers implement strategic planning. (Atkinson, 2006)
The use of strategic maps as part of the balanced scorecard helps the organization to know its participation in achievement of strategic goals. The balanced scorecard in itself can be used to educate staffs on different organizational aspects.
Through the balanced scorecard, it is easier to show staffs on the essence of incorporating more training and development. Staffs get to know the effect of training on overall performance of the organization both in the short term and long term. (Neely, 2007)
Benefits of long term performance remedies are enjoyed
Further analysis of the balanced scorecard shows that it is quite advantageous as compared to other traditional methods. Other traditional methods of performance management analysed financial situations in the Company.
This usually resulted in incorporation of short term remedies on handling the problem. For instance, an organization in financial performance would have short term corrective measures put in place. These usually included an increase in prices among other interventions. (Pandey, 2005)
Most of the times the short term remedies never worked in the long run resulting in a situation where organizations still had the initial problem to solve. When using a balanced scorecard, managers analyse both the short term and long term effects of remedies.
This usually helps as managers are able to put in place strategies that work well for the organization even in the long term. Organizations that usually utilize the balanced scorecard as a framework of managing performance benefit from long term interventions of improving performance. (Zanini, 2006)
Flexibility
Analysis of the balanced scorecard shows that it makes it very easy to make amendments to the organization when need arises. This makes the system to be highly portable and quite flexible to use. Global and local business markets are usually known to be very unpredictable with changes occurring on a day to day basis.
Such changes in the business environment usually necessitate organizations to make internal changes. A balanced scorecard usually helps to make necessary amendments in case of such changes in the business environment. A balanced scorecard helps to make changes in objectives and day to day measures so that strategic goals within the organization can be achieved.
Clear map that is strategic in nature
Research shows that the balanced scorecard clearly illustrates the strategic and operational features in an organization. In most cases, organizational measures, actions and day to day decisions tend to waver away from the organization’s strategy. The management team in the organizations usually assumes that they are usually working on strategic goals while this is not usually the case. (Neely, 2007)
The incorporation of the balanced scorecard as a framework of managing organizational performance helps in this realization. It usually provides a clear map that is strategic in nature. This also usually includes the cause and effect features of every action.
These usually include measures taken on a day to day basis in relation to organizational goals. These strategic maps are simple and can be interpreted by any of the staffs within the organization. This is even those who may not have any prior knowledge in strategic management. (Zanini, 2006)
Planning tool
A balanced scorecard is usually very essential in organizations since it can be used by managers as a planning tool. As earlier on illustrated, the business environment is highly characterized by uncertainty. Despite this, a balanced scorecard can be used to put in place a rational budget for a business’ financial year. It can also be used for resource allocation. This is more so financial and material resources within an organization.
This is usually based on the fact that a balanced scorecard provides a fact based and systematic management framework. This usually helps to replace planning based on intuition. It usually helps managers to anticipate future outcomes. This is usually because of leading indicators in a balanced scorecard. The simulations and cause –effect features of the balanced scorecard make planning easier. (Neely, 2007)
Facilitates improvements within an organization
A balanced scorecard is usually known to facilitate improvement within an organization. A balanced scorecard raises the visibility of managers on what is going on within the organization. This is because it shows areas that are currently performing well and those that are performing poorly. At one glance, managers can identify areas that need to be worked upon. (Neely, 2007)
Through this, managers easily identify areas that require urgent changes. This spurs improvements to be carried out within the organization. Managers are usually able to identify best practices within an organization through the use of a balanced scorecard. Proponents of this model assert that a balanced scorecard helps to create more innovation opportunities within organization hence improvement of service provision and overall performance in organizations. (Zanini, 2006)
Enhances accountability
Unlike other traditional frameworks of performance management, the balanced scorecard is more comprehensive in nature. Various features within the organization are thoroughly analysed and not just financial aspects.
This tends to encourage accountability of stakeholders within the Company. This is founded on the fact that the work done in every department has to be analyzed. This in most cases is not just the accountability of employees but also that of the management team. (Pandey, 2005)
Some organizations tailor the balanced scorecard such that time management of all staffs and management team is analysed. This also usually includes the way they relate to other staffs within the organization. Employees and management team tend to be more responsible as they go about their duties. (Kaplan and Norton, 2004)
Essential in benchmarking
Balanced scorecard helps managers to identify areas that are performing poorly within the organization. Benchmarking is part and parcel of strategic management. Many businesses are incorporating benchmarking in order to enhance efficiency and effectiveness. An essential step in benchmarking is identifying processes within an organization.
Generally, benchmarking gives a different view of handling quality issues within an organization. It actually acts against any resistance to change whatsoever. This entire process can be carried out by an organization as an individual venture or as a joint undertaking between organizations. (Kaplan and Norton, 2004)
A balanced scorecard makes it easy for managers to identify the process within the Company. It also makes it easy to compare the performance of various processes and departments. This allows improvement of quality of production, service delivery to be improved through benchmarking process. It is also essential to note that the balanced scorecard can be used for comparing performance of processes and departments between organizations. (Neely, 2007)
Break down of measures at the corporate level
A balanced scorecard is usually known to help in breaking down measures at the corporate level. This is such that managers at local levels clearly understand their role in enhancing organizational effectiveness. This also includes the role of the rest of the employees within the organization in improving overall corporate effectiveness.
This makes stakeholders take their positions and roles since they get to understand the organizational measures in their respective levels. This means that the organizational strategy is usually made operational through overall translation into targets and measures for each group of staffs. (Zanini, 2006)
Limitations
Scorecard metrics
There are also some limitations of using a balanced scorecard as a framework of managing performance in organizations. One of limitations is the fact that the metrics in the framework do not relate to all organizations.
It means that the balanced scorecard metrics cannot be used for all organizations that would desire to use it. This usually leads to a situation where some organizations incorporate the balanced scorecard, use the metrics. These are usually not beneficial to the organization.
This makes the entire process of using the balanced scorecard meaningless as the organization may not benefit at all. It is usually recommended that managers tailor make metrics that are usually relevant to the organization before using the balanced scorecard. This would help analyse and improve current performance. (Atkinson, 2006)
Limited view of organizational performance
Critics of the balanced scorecard assert that it does not give a full view of Company performance. The scorecard has four major areas that managers use as a framework of analyzing performance. These areas in essence are mostly meant to show development and growth aspects of any business. The four areas, according to critics, do not who the overall picture of performance in an organization.
It is usually worth noting the financial metric on the framework is not comprehensive in nature. It is highly recommended that managers use the balanced scorecard as part of strategy that is bigger. There is mostly the need for organizations to incorporate comprehensive accounting models as part of the bigger strategy. This usually helps to have a more overall view of Company performance. (Atkinson, 2006)
Incorporation of non financial measures
For an organization to use the balanced scorecard, it has to tailor the metrics to the Company processes in order to enhance relevancy. This means that managers have to include non financial metrics in order to have an overall view of performance. This has been cited to be a complicated venture. This is usually based on the fact that organizations usually have many non financial departments.
It is mostly difficult for managers to identify non-financial metrics to be included and those that should be excluded. This is because the balanced scorecard cannot be effective if all dimensions within the organization have to be included in the framework. (Kaplan and Norton, 2004)
When the dimensions are very many, the balanced scorecard usually has high chances of failing. Critics of the balanced scorecard assert that it is challenging to track non-financial dimensions. This is because the dimensions are usually subjective in nature. The biggest challenge for managers is to include dimensions that are mostly related to outcomes that are usually defined in nature. (Neely, 2007)
Time consuming
While the balanced scorecard has been applauded for myriad advantages, it has one major limitation. It is usually a very time consuming process. This requires managers to burn the midnight oil trying to workout the balanced scorecard to suit their organizations. Collecting information concerning all the metrics on the balanced scorecard takes a lot of time.
Usually this involves collecting information from various stakeholders within the organization. The implementation of the balanced scorecard requires participation of both the management team and staffs. If any of them fails to participate then, the process can never be successful. This in the long run is usually quite time consuming. (Pandey, 2005)
Limited in scanning external environment
A balanced scorecard is an essential tool of analysing the internal environment in organizations. This tool is usually limited since it cannot be used to scan the external business environment.
This means that balanced scorecard cannot be used in scanning external environmental factors. It cannot replace external environmental systems used to analyse the environment. Managers need to incorporate other systems when scanning the external environment. (Pandey, 2005)
Resistance in initiating balanced scorecard
Researchers assert that there are various challenges commonly faced when managers try to implement a balanced scorecard. It is usually resisted by some of the staffs during the initiation process. This is usually because they do not see the holistic picture.
This requires total commitment of top management. In most cases, employees tend to resist the new system, since they perceive it as a tool that is mostly used to show underperformance. Some staffs tend to perceive it as unnecessary addition of administrative tasks. (Atkinson, 2006)
Conclusion
A balanced scorecard is usually incorporated as part of a Company’s strategies. It mostly used to align strategies and visions in organizations. It is also usually used in the measuring of overall performance of organization in relation to set goals. This concept is mostly known to have been initiated by Kaplan in the early 1950’s but started being implemented in the nineties.
This model is usually used to analyse employees’ activities throughout the year. The model has various advantages and limitations. A balanced scorecard gives balanced view of organizational performance. It enhances flexibility when amendments need to be made. It also usually encourages accountability of staffs and even the management team.
It is useful to benchmarking process and helps in implementing organizational development. A balanced scorecard also has its limitations. This includes the fact that it is time consuming. It requires a lot of time to include all the metrics in the framework of performance management. It is quite challenging for managers to include all the metrics in the balanced scorecard.
It is limited in scanning external environment. This means that it can only be used in scanning the internal environment in organizations. Critics of the balanced scorecard assert that it gives a limited view of organizational performance. This is because it is not all inclusive in terms of relevant metrics in organizations. All in all, balanced scorecard is quite instrumental in organizations and the merits far outweigh the limitations.
References
Atkinson, H. (2006). Strategy Implementation- A role for the Balanced Scorecard: Management Decision. 44, 10: 141-1460.
Kaplan, R., and Norton, D. (2004). Measuring the strategic readiness of intangible Assets: Harvard Business Review, 82(2): 52-63.
Neely, A. (2007). The search for meaningful measures: Management Services 51, 2:14-17.
Pandey, I. (2005). Balanced Scorecard Myth and Reality: Interfaces, 30, 1: 51-64.
Zanini, M. (2006). The Balanced Scorecard here and back: Management Accounting Quarterly, 7, 4: 18-23.