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New businesses are established with a clear objective. It is the desire to achieve this goal that drives the company in performing its day-to-day activities. However, changes in market forces may make an organisation lose track.
That is why it is important to evaluate business performance on a regular basis. Balanced scorecard (BSC) is one of the strategies that can be used to carry out this assessment.
In this report, the author analyses an article addressing BSC among contemporary organisations. The article is by Nicholas Coe and Steve Letza. It is titled “Two Decades of the Balanced Scorecard: A Review of Developments”. A critical review of the article shows that BSC has undergone significant developments since inception.
The report is organised into four parts. In the first section, the author analyses the inception of BSC as discussed by Coe and Letza (65). The second section touches on the development of the concept over the decades.
The third part examines BSC in the context of modern organisations. The last section will be a review of a case study by 2GC, a consultancy firm. The case study will highlight the application of the third generation balanced scorecard.
Inception of the Balanced Scorecard
According to Kaplan and Norton, the BSC is a strategic planning and management system used by both profit and non-profit organisations. It is used to align business activities to goals and objectives. It is grouped into three generations. They include the first, second, and third generations.
The BSC was originally a study of performance measurements. Dr. Robert S. Kaplan and Nolan-Norton were the figures behind the development of the concept. In 1996, the two researchers published a book titled “The Balanced Scorecard”. The concept was refined and published in another book, “The Strategy Focused Organisation”.
Over the years, BSC has evolved from a simple performance measurement tool to a strategic planning and management system (Kaplan and Norton 170). In the article, Coe and Letza state that the first generation of BSC adopted a four perspective approach to keep track of the implementation process (70).
Financial approach is the first perspective. It involved identification of high level financial measures like sales growth, operating income, and cash flow (Lawrie and Cobbold 620). In addition, it was used to provide information on how the company presented itself to shareholders.
The next perspective involves customer approach. In this case, the firm can access information on how customers perceive its products (Coe and Letza 65). Examples include rankings by customers. Third is internal business processes. Every organisation wants to excel in its business.
The major question that managers have to address is how to achieve this success. The approach is used to solve the puzzle (Lawrie and Cobbold 615). Finally, there is learning and growth. After growth, the organisation needs to improve and innovate. The management applies the last strategy to develop new products.
The four approaches can be summarised by evaluating financial performance, satisfaction, efficiency, and knowledge.
Development of the Balanced Scorecard
Organisations follow different paths in building a BSC (Kaplan and Norton 169). As Coe and Letza put it, the first generation BSC was widely accepted (70). It was used by over 50% of firms in the USA.
The second generation was designed to tackle the practical difficulties associated with the first version. Consequently, Coe and Letza observe that the second generation BSC evolved from a measurement to a management system. It accurately reflected organisational goals.
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More effective measures were put in place to improve the tool. The undertakings led the third generation of BSC (Lawrie and Cobbold 615). The flaws in the second version were addressed through the introduction of destination statement. The statement is a design process used to check for objectives, visions, and missions.
It highlights the major issues that have been addressed at a given time. For the statement to be efficient, it has to be simple and easy.
Modernisation of the Scorecard
A successful project needs to be expanded to give room for innovation (Kaplan and Norton 174). The BSC was developed around twenty years ago. Since then, there have been advancements in technological, political, and environmental fronts. Coe and Letza state that it is important to modernise the tool to tackle these concerns (65).
Examples of modernisation approaches include making BSC part of social responsibility undertakings. Another reason to modernise is that non-profit organisations continue to play a major role in the modern society. The goals of these entities are different from those of other establishments. As such, BSC needs to be tailored to their needs.
A Case Study of 2GC and Modernisation of the Balanced Scorecard
Founded in 1999, 2GC is a firm dealing with performance measurement issues encountered by modern organisations (Coe and Letza 65). The solutions provided by this entity include implementation of the third generation BSC. The major goal of the organisation is to help entities meet their strategic goals.
Technology has enabled 2GC to develop software to achieve its objectives. Methods of data collection and analysis are simplified. In addition, storage is unlimited. The software is also customisable.
The approach used in 2GC involves three stages or workshops. They include destination statement, strategic planning, and objective planning. After this is accomplished, the plan is validated, measured, and implemented.
The article by Coe and Letza shows that BSC has become one of the most influential management ideas used by modern organisations (66). It has evolved significantly over the years. The evolution shows that it is an effective strategy used to achieve the objectives of a firm.
The third generation BSC is customised to cope with technology, social and political changes. 2GC illustrates modernisation of the tool. The company takes advantage of the time consuming process of strategic planning. They consult with clients for strategic alignment and goal setting.
The aim is to make sure the plans are effectively implemented.
Coe, Nicholas, and Steve Letza. “Two Decades of the Balanced Scorecard: A Review of Developments.” Poznan University of Economics Review 14.1 (2014): 63-75. Print.
Kaplan, Robert, and David Norton. “Having Trouble with Your Strategy? Then Map It.” Harvard Business Review 78.5 (2000): 167-174. Print.
Lawrie, Gavin, and Ian Cobbold. “Third-Generation Balanced Scorecard: Evolution of an Effective Strategic Control Tool.” International Journal of Productivity and Performance Management 53.7 (2004): 611-623. Print.