Critically evaluate how the balanced scorecard can be used as a tool for senior management to assess the performance of an organisation?

Word Count: 2,794

Advanced Management Accounting (BBK_MOMN074S6_1617)

Aaron Sandhu

“The Balanced Scorecard is a strategic planning and management system that is used extensively in

business and industry, government, and non-profit organizations worldwide to align business

activities to the vision and strategy of the organization, improve internal and external

communications, and monitor organization performance against strategic goals.” The Balanced

Scorecard Institute 2016

Critically evaluate how the balanced scorecard can be used as a tool for senior management to

assess the performance of an organisation?

Word Count: 2,794

Introduction

All organisations use a form of performance measurement to assess itself clearly

and to see the progress that it’s achieving by looking at a variety of variables, such

as day to day activities and current projects. Once the data has been attained of the

company, it is then analyzed used to measure the overall performance of the

organisation. The performance measurement is then utilised to make changes and

improvements within the organisation, implementing new strategies or streamlining

certain processes. This shows that the performance measurement used to assess

the organisation is also used to manage it.

The form of performance measurement and management used by most

organisations (Silk 1998) is the balanced scorecard. In the early 1990s, Dr Kaplan

and Norton created the balanced scorecard as a new way to measure performance.

What set this system aside from others is that it took many different perspectives into

account – customer, financial, internal business process and learning and growth.

When the balanced scorecard was first introduced, the main way of measuring

performance was purely financial such as net profit after tax, earnings per share etc.

As the environment became more competitive and more stakeholders being made

up of customers who were interested in the processes of the company, the

perception of performance changed. The focus shifted from financial to productivity

and satisfaction of customers.

Since the introduction of the balanced scorecard, many other methods have come to

replace it such as the performance prism and applied information economics. The

balanced scorecard hasn’t evolved with its environment, where the four perspectives

aren’t enough to assess the performance anymore.

Word Count: 2,794

Balance Scorecard

The balance scorecard is a method that observes the strategies used by

organisations using financial and non financial measures. The system collects and

analyzes data from the four perspectives, financial, customer, internal business

process and learning and growth, to gain an overall view.

Each of the perspectives views allows us to gain a greater understanding of the

company. The balance scorecard uses both leading and lagging performance

indicators. Lagging indicators include revenue growth and profitability, as the

financial data used is from the past. The shareholder can clearly see from this

perspective how the company looks. Other indicators include, return on investment

and return on capital employed.

The customer perspective takes into account how they view the organisation and the

quality of the customer service they receive. There is a high level of pressure on

customer focus and satisfaction being high due to high competitiveness as there is

not much to separate organisations and the bargaining power of buyers. If this

perspective is considered to perform poorly it can spell the demise of the

organisation whether or not the financial perspective is performing well. When

selecting the indicators for customer measures one should analyse the processes

and services for the customers which are related to the product provided. Such

indicators may include, the number of complaints received, the number of returning

customers, and promptness of delivery. Stivers and Joyce (2000) found these to be

the most popular measures of performance with Fortune 500 firms in the US and

Canada

The perspective that looks at the internal business process focuses on the people’s

and processes’ quality. It looks at the inner workings of an organisation and what

actions should be made to improve efficiency and reach goals. Methods used before

the balance scorecard would look at ways of making the current systems better

however this process makes us aware of new options and strategies that could be

implemented. The performance indicators need to be carefully implemented and

should look at the internal processes which will have the best effect on customer

satisfaction and reaching company goals. Performance measures in this case should

include the effect on productivity and the percentage in defects. Anderson and Lanen

(1999) found these same examples measures when looking at Indian manufacturing

firms who excelled when measuring non-financial indicators in comparison with their

counterparts that solely measured financial indicators.

The learning and growth perspective looks at parts of the company that need to

improve, currently improving and what will create future value. How successful an