BALANCED SCORECARD

BALANCED SCORECARD

A discussion of the advantages of the balanced scorecard(BSC) as a basis for performance measurement (PM) over traditional mgt a/c views of PM.

In the early 1990 studies in several co’s carried out by Robert Kaplan & David Norton. The studies aimed at investigating the need to balance short term performance with drivers of long term growth opportunity. The advantages over the traditional focus of financial performance are:

1. Traditional measures tend to be dominated by financial a/c requirements

Eg. Stock valuation, including WIP, ROI
The BSC is more broadly based. It argues that no single measure can provide a clear performance target or focus attention on critical areas of the business.

1. Traditional measures are mainly inward looking whereas BSC is more outward looking & focus on comparisons with competitors in order to establish best practice & to ensure change is implemented to achieve it. It requires a balanced presentation of both financial & non-financial PM and goals.

1. BSC focuses to a great extend on strategic planning for the long term. It attempts to identify the needs & concerns of customers & identification of new products and markets.

1. BSC attempts to overcome the emphasis on the quantifiable aspects of internal operations in financial terms. It also considers a range of non-financial and qualitative measures.

The BSC views the business from 4 different perspectives.(Internal business, Innovation & Learning, Customers, Financial perspective). It provides measures that should assist in movements towards these goals. Its focus is both internal & external.

Example of measures that can be used:

1. Internal Business

Cycle time, unit cost analysis, engineering efficiency

1. Innovation & Learning

# of new products introduced, time to market new products

1. Customer perspective

% Sales from new product, % on time deliveries, % orders from enquiries

1. Financial Perspective

Profit, Sales growth, ROI, cash flow analysis