Balanced Scorecard a. G. Bar’s balanced scorecard and report baa lance scorecard “The ‘Balanced Scorecard’ approach aims to provide information to management to assist in the formulation of strategy and measurement of its achievement. It emphasizes the need to provide the users with a set of information that addresses all relevant areas of performance in an objective and unbiased fashion. ” report To discuss the above statement, we must first understand what the Balanced Scorecard at its core. The Balanced Scorecard is a tool used by businesses to set up goals and then lay out objectives on how they WOUld achieve these oils.
It utilizes both financial and non-financial measures of a business to give a whole, rounded improvement, and then requires measures to monitor how these improvements towards the goal are being met. This is because financial measures are usually historical costs and are not very good for forecasting future goals for the business and thus not particularly useful in Strategic Management. Background information The Balanced Scorecard was first introduced tool in 1992 as an improvement to already circulating management tools which were unable to count for links to strategic aims and the day-to-day running of the business. The criticism has been focused on the historic nature, revealing a great deal about the past, but nothing about the future alertness” (Nёriskier, 2000). Balanced Scorecards arose out of the necessity of an improvement in planning, control and performance measurements of management accounting (Davis & Albright, 2004). This suggests that there was not an efficient method of measurement or control before the introduction of the Balanced Scorecard when people were attempting to use management accounting.
After the Balance Scorecard was originally introduced to the world in an article by Norton and Kaplan in 1 992, for the Harvard Business Review, there was not much change in attitudes towards management accounting (Kaplan, 2008). However, the popularity of the Balanced Scorecard took off in 1 996 when Kaplan and Norton published it once more in their book titled fee Balanced Scorecard” (Nёriskier, 2003). Nёriskier goes on to say that “The Balanced Scorecard integrates the use of financial and non- financial strategic variable measures in a cause-and-effect relationship which assumes a general outlay of the scorecard”.
This cause and effect relationship was revolutionary in the Strategic Management world, as there was now a clear link for the financial figures which managers and directors were so focused on before. In his 2008 draft paper, Kaplan goes into detail to mention how the basic ideas of using non-financial variables was actually put forward initially in the offs based on a 1954 book by Trucker which claimed that all employees should have a clearly stated goal throughout an organization.
These claims of using non-monetary values for measurements thin business were often overlooked and dismissed, but it clearly shows the roots of the management planning and control systems combining the use of both non-financial and financial variables, which have now become almost pivotal to modern day businesses (Kaplan, 2008). Main features of a balanced scorecard In Kaplan and North’s original proposition, they chose 4 basic perspectives: Customer Perspective, Internal Business Perspective, Innovation and Learning Perspective and the Financial Perspective, for a business which were very much generalized (Kaplan & Norton, 1992).
They did mention that these objectives were just a template, and gave an example Balanced Scorecard with this layout for an example company. This could then be substituted to incorporate a specific business such that we will do with A. G. Barras following this report. The first of the 4 objectives that Kaplan and Norton set out was the Customer Perspective. What this means, in layman’s terms, is how do customers see what we are trying to achieve in regards to their happiness. Each of the 4 perspectives has their own cause and effect relationship with the other perspectives.
All 4 tend to have elements of both cause and effect, which are the cogs of a functioning business. The aim of a Balanced Scorecard is to mediate between the long term goals of the business and the short-term profitability of said business “which managers could be pressured into feeling they need to meet’ (Nёriskier, 2000). This is further helped by there being measurements to accurately assess how well this process is being executed (Moral. Et. Al. 1999). The second of the 4 was the Internal Business Perspective.
In order for the business to meet the criteria for the other 3 respective, then the business must focus on what they are actually doing themselves and what they deem as core priorities of the business. Internal Business Perspective is not just an effect perspective however, as any changes will lead to changes in the other perspectives and therefore it is also a cause perspective. The third of the perspectives laid out by Kaplan and Norton was the Innovation and Learning perspective. How can they tweak changes in order to support the other perspectives? Kaplan & Norton, 2001 It is pivotal that the business is able to adapt otherwise they will not be able o meet their goals. The last perspective which Kaplan and Norton identified was the Financial Perspective. Ultimately, the usual financial goals are to do with “profitability, growth and shareholder value” (Kaplan & Norton, 1992). Financial measurements are obviously used for these, so what makes it a key component to the Balanced Scorecard, is the fact that it is linked in with the perspectives to meet all the goals of the company. Unifies and drawbacks of the balanced scorecard A major benefit of using the Balanced Scorecard as a performance agreement and strategic tool is that it allows the integration of short-term targets set for managers and the long-term objectives of the business. This is essential in management Accounting as it means that there will be more chance of goal congruence within the business and managers will have modified targets in order to relieve pressure and guarantee that the managers will continue to take measures that the short-term targets are being met without sacrificing the long-term objectives of the organization.
This is usually achieved by taking small steps so that the transition through he business is smooth and not too disruptive the working environment. Financial incentives can be used to motivate employees to abide the targets of the Balanced Scorecard, as well as potential job promotions if they do well on the measurements of their individual Balanced Scorecard (Davis & Albright, 2004). However, the Balanced Scorecard requires an incentive for employees to switch to their new instructions, instead of being as profitable as possible in the short-term in order to gain as many bon uses as they possibly can.
J¶rig Budded (2006), stated that “Companies using the Balanced Scorecard incentive purposes experienced particular difficulties in quantifying measures based on the Customer Perspective and the Learning and Growth Perspective. ” With further discussion on this, it highlights a significant problem with the Balanced Scorecard, because each perspective has a “Non-o weight” which may not be strictly true if the company has problems trying to ensure that 2 of these perspectives have a value that is not O. I. E. Hey have problems getting the incentives for employees in these areas and find that employees are more easily driven to perform for their Internal Business Perspective and Financial Perspective as the monetary reward is more realizable. Another gain to companies of using the Balanced Scorecard is that it contains outcome measures and performance drivers of outcomes. This is more useful to a business than most management performance tools as they will usually not have both levels to their understanding like the Balanced Scorecard.
What this means is that the Balanced Scorecard is able to measure what has happened as a result of using it, as well as pushing the company in the right direction to achieving these goals. However, processes as large to a company as a Balanced Scorecard cannot be introduced into a business overnight, or instantaneously. It requires a lot of time and a lot of preparation in order to get the staff prepared for their new roles and this must happen throughout each level of the business (Ann., 2001).
There is numerous measures that need to be taken in order to co- ordinate staff decisions, and although the decisions may become quicker to adapt to the changes, there will be a lag in time before the actions of employees follows this lead. All in all, this could lead to a delayed effect of the Balanced Scorecard where a company is left in the dark waiting a number of years in order to reap the benefits that they would be expecting to happen as soon as they implement the Balanced Scorecard.
The Balanced Scorecard can even be broken down into simpler versions, to give objectives and measurements for each individual employee, allowing for efficiency to be striver towards because there is a monetary value to reach. However, this version doesn’t come without its own drawbacks. The sheer amount of individual Balanced Scorecards that would need to be produced old be expensive to the business as it is, also consuming time which would be at a premium already.
Then, as a further cost to the business, the Balanced Scorecards would need to be continually tailored so that there was an increase towards the overall goal and that employees don’t get stuck into a comfortable routine.