Currently, managers are aware of the significance of measures on the performance of a company. However, not all managers consider the measures to be an essential part of strategy. For example, managers may resort to using conventional short term financial indicators when formulating strategy. It is common for companies to consider factors such as sales, income, and return-on investment to make their decisions concerning strategy. However, such managers fail to implement the right measures to monitor the objectives and goals while questioning the significance of the traditional measures in the strategy. Managers can remedy this challenge by using the balanced scorecard when formulating strategy. Strategy ion its own does not guarantee a company's success. Managers and organization need the right tools to translate the strategic objectives of an organization into actionable performance measures. Since running an organization is a complex process, the balanced scorecard provides a flexible and practical solution for translating strategy into results.
Managers are able to see a business from four crucial perspectives when they use a balanced scorecard. These include how the customers perceive the business, what the company needs to excel in, areas that need continuous improvement, and how the shareholders are considered in the overall business strategy. Therefore, instead of focusing only on financial performance, based on traditional measures, the financial scorecard enables the manager to consider both the internal and external measures of strategy, without compromising on aspects such as finances and the need for innovation (Kaplan & Norton, 1992). Therefore, it gives an all-round outlook of strategy based on the needs of the organization, the market, and all stakeholders.
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After the adoption of the balanced scorecard by several companies, it is clear that the tool meets a range of managerial needs. In a single report, the balanced scorecard brings together the disparate elements of an organization’s competitive agenda. It allows the strategy of the company to be more customer oriented, enhances teamwork, reduces the time for response, and improves quality among others (Kaplan & Norton, 1992). Therefore, instead of focusing on short term financial goals, the company is able to implement strategy in an actionable and practical manner.
Even though most companies have myriad physical and operational measures, they are mostly bottom up and are resulting from ad hoc processes. Contrastingly, the scorecard is grounded mainly on the competitive demands and the strategic objectives of an organization. As mentioned earlier the scorecard gives manager insight into 4 main areas that help the performance of an organization. Therefore, they are able to focus their efforts on areas that would have the biggest and most needed impact on an organization. In this context, the balanced scorecard can be used as a focal point of a company’ strategy. Instead of relying on generic methods such as a yearly budget to create a strategy, organizations have a better method of formulating their strategy based on their long term needs and goals.
However, the balanced scorecard is not a template which can be applied generally in industries and business. The market is dynamic and diverse meaning that organizations have to serve different needs and have different goals. Therefore, organizations have to tailor their scorecards to suit their long and short term needs.
What is the relationship between a company’s vision and the balanced scorecard?
The balanced scorecard allows organizations to achieve their vision by formulating effective strategies that help companies achieve their long term and immediate goals. Some of the roles of a balanced scorecard in an organization include communicating what it is trying to achieve, align daily activities to the strategy, prioritize products, projects, and resources, and monitor progress based on the strategic goals. In this context, the system connects the dots between the overall visions of an organization with its strategy. Companies have vision and mission statements to guide their efforts towards a bigger picture. Some of the strategy elements which are common in organizations are the mission, which entails the company’s purpose, the vision, which is what it aspires to achieve, and the core values or what the company believes in. Based on the definition of a vision, the balanced scorecard is a crucial element of achieving a company’s aspirations in the long term. For example, a company might aspire to be the best in its field of expertise. To achieve this, financial are not sufficient, even though they are widely used by companies when they are formulating strategies. Companies depend on data such as yearly budgets, revenue growth, and return on investment to make their strategic decisions. Their main concern is ensuring that they perform well financially. Even though financial stability and growth is one of the hallmarks of a successful company, all stakeholders in a company need to be catered for in order for the company to achieve its overall vision. Since a balanced scorecard allows a manager to look at strategy from 4 crucial perspective, it is more efficient in achieving long term strategy and consequently the overall vision of the organization.
In the first perspective, which is influencing how customers view the company (Kaplan & Norton, 1992). If a company is perceived negatively by the customers, it is impossible to achieve the long term vision, since its products and projects would be undermined by the very market it seeks to serve. The balanced scorecard enables organizations to create a positive perception in the eyes of the market, hence making consumers more receptive towards the company and its products, making it easier to achieve its long term vision. Companies recognize that consumers are one of its biggest stakeholders, and therefore, they should have the right strategy to appeal to them. In addition, the balanced scorecard enables organizations to prioritize what they need to excel in by looking at their internal business perspective. A company can only achieve its vision if it looks to excel from within (Kaplan & Norton, 1992). If it is efficient in its operations, then it is easy to pursue its overall vision and strategy. However, a company that fails to ensure that it is successful from within cannot excel in the competitive business environment. Furthermore, the balanced scorecard identifies which improvements and innovations can be adopted to improve the company further. Continuous learning and technological advancements ensure that a company stays on course to achieve its overall vision. Finally, the final scorecard considers how the company can perform well financially and fulfill its obligations to its investors and stakeholders (Kaplan & Norton, 1992). A company has to be financially self-sufficient in order to be sustainable. Traditionally, finances have been used as an indicator for success. The balanced scorecard does not disregard this fact and uses it as a key indicator in the overall strategy. Based on these perspectives, the balanced scorecard gives an organization a better chance of achieving its vision in the long term.
References
Kaplan, R., S & Norton, D., P. (1992). The balanced scorecard: measures that drive performance. Harvard Business Review .
