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The Balanced Scorecard Essay

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In a 1992 article, Professor at Harvard business school, Robert Kaplan and David Norton, founder and President of Balanced Scorecard Collaborative, called ‘the Balanced system of indicators – indicators that determine the effectiveness of’ in ‘Harvard business review’ has attracted a lot of attention to their method, and led to their business bestseller ‘the Balanced scorecard: translating strategy into action’ published in 1996. Balanced Scorecard is a system of strategic management of the organization on the basis of measuring and assessing its effectiveness on a set of indicators, selected in such a way as to take into account all significant from the point of view of the strategy aspects of the activities.

This principle is implemented by the Balanced Scorecard system, which takes into account four Perspectives of an organization: Financial – traditional financial indicators and factors that directly or indirectly affect them, Customer – success in working with clients, Internal Process – optimal internal business processes, Learning & Growth / Employees – the overall competence of the company’s personnel in their field.

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Taken together, these perspectives provide a holistic picture of the current strategy of the enterprise and its dynamics.

The literature review will focus on past empirical and comparative studies and research undertaken in the area of Human Resource Measurement in relation to the Balanced Scorecard Approach resulting in increasing organizational performance.

Many companies have implemented various tools to measure their HR level performance to stay in business and come into contact with tough competition. One of the effective tools that help achieve the desired development in Human Resource Management is a Balanced Scorecard concept. Method accepts financial and non-financial indicators (human capital) spectacle. This is a modern method that allows you to track and show A significant amount of data from various areas of company management. Kaplan and Norton (2007, p. 3) state that “A balanced scorecard is not only benchmarking operating system; innovative enterprises apply this as strategic management system, that is, to manage a long-term strategy and implement critical management processes. ‘ At the same time, the implemented method can provide become a strategic partner of top management because the tool can help properly manage and manage your employees.

Thurow (1999) indicates that employees in an organization will be crucial to the company’s success in the future. Moreover, it presents recent research on the effectiveness of intellectual capital for organizations that pay particular attention to human capital. He imagines that in connection with the development of the era of knowledge economy, studying the competitiveness of an enterprise is becoming increasingly important. However, the accounting policy in the financial sphere allows enterprises to claim intangible assets at book value due to the growing need for intellectual capital. In his study, publishes that intangible assets that create value for an organization quickly become more and more important. The share of intangible assets as a share of total assets also shows a huge increase in recent years. As a result, each organization now finds the logic in measuring, evaluating, and reporting its intangible assets, since they have also become one of the most important performance indicators in a strategy to gain a competitive advantage. But if employees contribute value-added, top managers must be more sensitive to human capital.

Next, Kaplan and Norton (2000), the creators of the management concept of the Balanced Scorecard, are trying to find the answer to the question: “In what form Integrated management of individual parts of the organization achieves a higher final value of the organization’s outputs as a whole, than with the usual independent management of parts of the company?” Kaplan and Norton (2004) in their publication emphasize the idea that the additional synergistic effect of mutually coordinated cooperation created through centrally provided coordination and indicative planning separate departments in the company. The authors are convinced that when an organization is able to organize the activities of various businesses and support units, thus additional sources are created, which are called values, whose source is the organization as a whole. A company may, for example, hire a new sales channel that supports the cross-selling of products and services that are offered by various business units. This can lead to savings through the sharing of expensive and important sources, such as production capacity, a common information system or research and development system. According to the authors, synergy is one of the ways to gradually optimize costs. The authors suggest that one way to achieve the synergistic effect is that strategic goals are formulated in such a way that they strengthen communication and coordination between the individual business units. Strategic goals are marked on the strategic map and in the whole BSC system. According to the author, synergies in an organization should not have an effect if the conditions, consequences and the final effect of the synergistic solutions are not studied. One problem may be that implementation methods are incorrectly set.

Kaplan and Norton (2004) have based the BSC one main idea, which is undoubtedly correct and fruitful. The essence of the idea is as follows. An enterprise that has set itself the goals of strategic development should be aware that the achievement of strategic advantages in a modern economy is possible only with the introduction of innovations. Innovation is a generator of quantitative and qualitative growth of companies; they form a strategic reserve in the form of a stock of personnel skills, perfection of organizational processes, content of publicly available corporate knowledge and standards. Being displayed on internal business processes, these innovations transfer these processes to a qualitatively new level. First of all, this is expressed in the fact that the root business processes of companies become customer-oriented. Accordingly, customer satisfaction increases, which is almost immediately transformed into financial success: revenues and profits increase, risks decrease, and cash flows stabilize. Accordingly, the structure of the BSC model can be represented by a chain of blocks of factors: “innovation – internal processes – customer satisfaction – finance”. All indicators in the blocks are interrelated. Thus, a prerequisite for strategic planning and plan-based monitoring on the basis of the balanced scorecard is built. Here it is worth noting that BSC can include both traditional quantitative and qualitative factors. The simplicity and legitimacy of the BSF idea determines the widespread use of the system in the practice of corporate strategic planning throughout the world. In fact, the BSC approach forces corporations in most cases to change the focus of their business, redirecting the business towards meeting the key needs of the client. But the system does not solve all the problems in the course of strategic planning, and it is by no means a panacea for solving all the problems of managing companies. Let’s look at the cons of the system. We encountered them by developing a methodology for assessing the need and validity of implementing corporate information systems.

The system is completely unsuited to simulate uncertainties and risks. Tomorrow is shrouded in uncertainty, like a fog; thus, all BSC indicators predicted for several years ahead must have a backlash, tolerance, measurable fuzziness. And this vagueness will act as an additional risk during the decision-making process … But the system does not look this far. The question has not yet received scientific resolution. BSCs virtually ignore business risks, which are an independent hierarchy of factors. In the system, everything is limited to general considerations that risk must be taken into account. But how to do it, again, is unclear. This suggests the idea that decisions must be made within the framework of the generalized two-dimensional field ‘efficiency – risk’ or ‘efficiency – uncertainty,’ as is done in and applied throughout the multi-criteria choice.

Another important study undertaken by Olson, E. M., & Slater, S. F. (2002) focused on BSC standards. Over the past few years, the BSC (Balanced Score Card) method has become a key tool for managing and promoting an organization’s strategy. In accordance with this business need, many providers of analytical software applications, ERP systems and databases develop and implement software to support management decision making using the BSC methodology. This development of BSC supporting software inevitably leads to a growing number of organizations worldwide that have implemented BSC. The central position of the BSC is the holistic vision of the measurement system related to the strategic management of the company. The BSC is based on the implementation of the strategy with the help of four perspectives: financial goals, indicators evaluated by the client, internal goals, training goals and growth. By measuring and managing a business using a balanced set of indicators, an organization can quickly and efficiently implement a strategy and improve organization and communication structuring. Many organizations gain additional profits from the use of their BSC systems through the use of appropriate technologies facilitating BSC management processes. If an organization wants to get the full potential of a BSC-based management system, the appropriate technology for its implementation must support the requirements of the desired management process.

If the elements of the management process are not reflected in the application (software product), then the resulting management process will be non-optimal. Currently, many software vendors offer applications called BSC. Some of these applications support the strategic management process, others do not. This confuses potential buyers of BSC technology in the market. To facilitate the consistent and adequate use of BSC on a global scale, the need has arisen to harmonize and standardize the BSC methodology, which corresponds to the ideas of the concept creators: Dr. Robert Kaplan and Dr. David Norton. In this regard, the organization Balanced Scorecard Collaborative, the world center for the best developments in the field of BSC, founded by Kaplan and Norton, has developed BSC functional standards. The BSC functional standards determine the needs and requirements of users based on the experience of qualified professionals from the Balanced Scorecard Collaborative, who have worked for more than 300 clients. This experience is brought into the system in these functional standards in order to provide guidance for organizations intending to purchase an application supporting BSC and to provide a functional basis for developers who develop applications that support BSC. These standards should be considered as the minimum set of requirements that developers must meet to meet the additional requirements of their market.

Conclusion

Balanced Scorecard system allows you to implement an existing strategy, but not create a new one. Like any other tool, a system of interrelated indicators helps to introduce orderliness into operational processes, establish relationships, monitor and adjust. Abandon traditional planning and control tools. The system of interrelated indicators will not replace the existing controlling tools. It is only an addition to them, allowing to clarify the relationship of development parameters. Traditional controlling tools do not lose their attractiveness and should, as before, be used in the enterprise; Keep the system unchanged. Over time, every strategy should be reviewed. The company’s strategy should be regularly adjusted, along with it the Balanced Scorecard will also change, which is nothing more than a description of the strategy in the language of quantitative indicators; Implement this ideology in an enterprise with inadequate corporate culture. No matter how good the Balanced Scorecard is in itself, it cannot work properly in inadequate conditions. The main feature of the system is to create transparency in the enterprise. If the corporate culture in the enterprise is such that the transparency of the activities does not suit the employees, this system will not work. Also, the incentive system created on the basis of quantitative indicators will not work. Thus, the Balanced Scorecard maintains constant communication between the organization as a whole, individual business units and employees of the company to continuously follow the strategy, evaluate it and make quick changes that will maximize the operational efficiency of the enterprise, which will result in greater customer satisfaction in achieving the stated financial results.

Cite this The Balanced Scorecard Essay

The Balanced Scorecard Essay. (2021, Apr 24). Retrieved from https://graduateway.com/the-balanced-scorecard-essay/

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