The Balanced Scorecard

A detailed Summary of The Balanced Scorecard

'The Balanced Scorecard was devised to provide managers with a comprehensive method of evaluating corporate performance without placing extensive reliance upon traditional financial measures'

Critically examine the above statement

The Balanced scorecard is an approach to performance measurement that combines traditional financial measures with non-financial measures to provide managers with more relevant information about activities they are managing.

In addition to financial measures, which typically include, profitability, growth and shareholder value, managers are encouraged to look at three other perspectives of the business, the customer perspective, internal perspective and the innovation and learning perspective.

The customer perspective has the view that the Balanced Scorecard demands that managers translate their general mission statement on customer service into specific measures that reflect the factors that really matter to customers. This includes four categories: lead time, quality, performance and service. These are leading indicators, if customers are not satisfied, they will eventually find other suppliers that will meet their needs.

The internal perspective includes the business processes that allow ma

Traditional financial measures were used solely in the past to provide companies with an indication of how successful they were doing. Sales, profit growth and shareholder value signalled a highly successful company. But these traditional financial measures tend to report on what has happened in the past whereas managers need to be able to look into the future to improve performance.

Looking at their internal business processes, companies can improve processes that will have the greatest impact on customer satisfaction, thus achieving their financial goal. Kaplan and Norton say, "This approach will usually identify entirely new processes at which an organisation must excel to meet customer and financial objectives. A company may realise that it must develop a process to anticipate customers needs or one to deliver new services that target customers value"

The balanced scorecard still retains the financial perspective as this is important in measuring actions already taken, but it also allows managers to look at their business from other perspectives and improvement in these other areas should eventually give improvement in financial terms such as increased profit and sales, i.e. the operational measures drive the financial measures.

Traditional financial measures used by companies include profit and loss, quarterly sales growth, return on capital employed, earnings per share and shareholder value, but these financial measures can provide misleading signals. Profit and loss accounts often use estimates for some of their figures, for example if a company had not had their electricity meter read then an estimate would be made for this charge. Earnings per share may also give a very misleading signal as to how the firm is doing as it can vary with differing accounting techniques. Return on Capital employed, is an average and so it takes no account of timing of profit

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Approximate Word count = 1270
Approximate Pages = 5 (250 words per page double spaced)

Category: Miscellaneous