A Review of the Application of the Balanced Scorecard

The Balanced Scorecard

The changing context of the last decades has prompted companies to perfect their working methods to maximize value for their shareholders and obtain the highest customer satisfaction. In this situation, intangible resources are beginning to be essential in organizations, since they only measure and manage economic and financial resources. Managers begin to identify the latest tools, models, approaches, or personal, actives that are able can and allow the company to survive, properly manage those resources, and face, litate the achievement of the strategic objectives included in the vision of the company.

In 1992, the Balanced Scorecard (BSC) was born, which became one of the models most used by managers.

One of the consequences of living in the information age is its abundance. The CMI is not the exception, and since its creation, much literature has been generated on this model (Banchieri et al., 2011). Beginning with its creators, who have been able to explain, exemplify and modify it through an extensive bibliography (Kaplan and Norton 1992, 1993, 1996a, 1996b, 2001, 2004).

On the other hand, its critics, who have exposed and described their contrary opinionscontributedg nuances to it (Nørreklit, 2000, Brignall, 2002, Bessire and Baker, 2005, Voelpel et al.

Finally, the scientific and professional community in general, with their research and practical experience, have tried to provide empirical evidence on its use and utility of it. All this literature has been shaping the current theoretical framework of the model.

Financial accounting does not contemplate the inclusion and valuation of self-generated intangible assets, such as the processing of a new product; the capabilities of the process; The skills, motivation, and flexibility of employees; Customer loyalty; Databases, and systems, because they can not assign them reliable financial values.

Get quality help now

WriterBelle

Verified

Proficient in: Balanced Scorecard

4.7 (657)

“ Really polite, and a great writer! Task done as described and better, responded to all my questions promptly too! ”

+84 relevant experts are online

Hire writer

However, these are the critical assets and capabilities to achieve success in the current and future competitive environment. For this reason, it must be considered that successfully navigating the new competitive scenario of the third millennium can not be achieved if one merely observes and controls the financial indicators of the past performance. They are inadequate to guide and evaluate the trajectories of the organization through competitive environments. There is a lack of indicators that reflect much of the value that has been created or destroyed by the actions of the managers of the organizations.

Consequently, Kaplan and Norton have developed a new approach: the integral scorecard whose essence and fundamental concepts are summarized below.

1. The Balanced Scorecard translates an organization’s strategy and mission into a broad set of action measures that provide the framework for a strategic management and measurement system.

The BSC continues to emphasize the achievement of financial objectives, but also includes inducers of these objectives, which, organized as a coherent set of performance indicators, are focused on four different perspectives:

1. Financial: financial indicators summarize the economic consequences, easily measurable, of actions that have already taken place. If the objectives are the sales growth or generation of cash flow are related to measures of profitability such as operating income, returns on capital employed, or economic value added.
2. Customers: identified the customer and market segments in which the business unit will compete and the measures of performance for that, indicators include customer satisfaction, customer retention, acquisition of new customers, Customer profitability, and market share in selected segments.
3. Internal processes: identify the critical processes that allow the business unit to deliver the value propositions that will attract and retain customers of the selected segments and meet expectations of excellent financial returns from shareholders. Under the focus of the Balanced Scorecard, it is customary to identify new processes and not only to improve the existing ones that represent the short cycle of value creation.
4. Training and growth identify the structure that the organization must build to create long-term improvement and growth. Its main sources are the people, systems, and procedures of the organization. Employee-based measures include satisfaction, retention training, and employee skills. Information systems can be measured through the real-time availability of reliable and timely information to facilitate decision-making. Organizational procedures will be measured through critical processes.

The four perspectives of the Scorecard have proven to be valid in a wide variety of companies and sectors. However, depending on the circumstances of the sector and the business unit strategy, one or more additional perspectives may be required. For example, relationships with suppliers if they are part of the strategy that leads to customer growth must be incorporated within the perspective of internal processes. Likewise, to gain a competitive advantage should be emphasized environmental performance must also be added to the Scorecard.

2. Linking Balanced Scorecard Indicators to Strategy. A combination of financial and non-financial indicators, grouped into four different perspectives, is sufficient to ensure their success within organizations? The answer is no. The Balanced Scorecard measures should be used to articulate and communicate the business strategy, communicate the business strategy, and to coo,rdinate the individual, organizational and multi-departmental initiatives in order totocommon goal. This mode of use of the control panel transforms it into a system of communication, information, and training, not a traditional control system.

The four perspectives of the scorecard allow for a balance between the short- and long-term objectives, between the desired results and the inducers of the performance of those results for the future. Although the multiplicity of indicators in a Balanced Scorecard seems to be

confusing, if properly constructed according to a unit of purpose, all consistent and mutually reinforcing measures are aimed at achieving an integrated strategy.

Trying to communicate the strategy through the integral scorecard requires taking into account three principles:

• Cause-effect relationships: A strategy is a set of hypotheses about cause and effect. The sequence of hypotheses regarding cause and effect relationships must be identified and made explicit between the measures of the results and the inducers of the performance of those results.
• Performance inducers: Performancmeasureses, without performance drivers, do not communicate how these results are to be achieved, nor does it provide information on the degree of achievement of the proposed strategy.
• Linkage with finance: the causal trajectories of all the measures of a Balanced Scorecard should be linked to the financial objectives but without myopia arising from an exclusive focus on improving short-term financial measures.

Finally, it is remarkable that far from being simply a new measuring system, the integral control panel is transformed into a management system that can be used to:

• clarify the strategy and reaca h consensus on it
• communicate the strategy to the whole organization
• carry out periodic and systematic strategic reviews
• Get the feed.-back to improve or modify the strategy.

References

1. BESSIRE, D.; BAKER, C.R. (2005): “The French tableau de bord and the American balanced scorecard: A critical analysis”, Critical perspective on Accounting, 16 (6), 645-664.
2. BANCHIERI, L.C.; CAMPA PLANAS, F.; SÁNCHEZ REBULL, M.V. (2011): “What has been said, and what remains to be said, about the Balanced Scorecard?”, Proceedings of Rijeka Faculty of Economics Journal of Economics and Business, 29 (1), 155-192
3. BRIGNALL, T.J. (2002): “The unbalanced scorecard: A social and environmental critique”, Performance Measurement and Management (2002): research and action: papers from the Third, 85-92
4. KAPLAN, R.S.; NORTON, D.P. (1992): “The Balanced Scorecard-Measures That Drive Performance”, Harvard Business Review, 70 (1), 71-79. KAPLAN, R.S.; NORTON, D.P. (1993): “Putting the Balanced Scorecard to Work”, Harvard Business Review, 71 (5), 134-147.
5. KAPLAN, R.S.; NORTON, D.P. (1996a): “Using the Balanced Scorecard as a Strategic Management System”, Harvard Business Review, 74 (1), 75-85.
6. KAPLAN, R.S.; NORTON, D.P. (1996b): The Balanced Scorecard: Translating strategy into action. Boston Massachusetts: Harvard Business School Press.
7. KAPLAN, R.S.; NORTON, D.P. (2001): The strategy-focused organization: How Balanced Scorecard companies thrive in the new business environment. Boston Massachusetts: Harvard Business School Press. 17
8. KAPLAN, R.S.; NORTON, D.P. (2004): Strategy maps: Converting intangible assets into tangible outcomes. Boston Massachusetts: Harvard Business School Press.
9. KAPLAN, R.S.; NORTON, D.P.; RUGELSAlliances(2010): “Managing alliances with the Balanced Scorecard”, Harvard Business Review, 88 (1), 114-120.
10. NØRREKLIT, H. (2000): “The balance on the Balanced Scorecard—a critical analysis of some of its assumptions”, Management Accounting Research, 11 (1), 65-88