The balanced scorecard is a strategic management and planning system used largely in governments, industries, and businesses globally to align the various activities of the business to the organization’s strategy and vision. It is an approach that is also used to monitor the performance of the organization against critical goals, and modify and enhance external and internal communications.
Successful Implementations
Wells Fargo
Wells Fargo, a company that deals with electronic banking on a large scale level, put into effect a balanced scorecard in the financial services group that operates online to measure and keep track of performance. This group supports and modifies services that permit the future and existing customers to carry out transactions through the internet thus exposing them to breakneck changes (Tempest, 1998). They implemented the Balanced Scorecard to update and communicate their strategies in an environment that change rapidly.
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Philips Medical Systems
In this particular system, they use the balanced scorecard to improve the results’ accountability. It is put together by the utilization of a data transferring system which conveys the data from the in-house reporting systems directly to the scorecard. It enables workers to view the outcomes on a monthly basis instantaneously, wipes out human error, and scales down the time required for compilation. The balance scorecard approach also allows the workers to get what exactly is required to be accomplished on a daily basis so as to affect results positively.
Performance Measurement Categories
The Financial Perspective
This targets an organization’s financial performance. It covers the profit targets and revenue of commercial firms as well as the cost-saving and budget targets for non-profits companies. The overall financial situation of a company is crucial for managers to look into and track. The financial performance of an organization is usually the outcome of a well-managed performance of the other perspectives. Examples of measures include the marginal revenue per employee, cash flow, the total number of expenses, and profit margins.
The Customer Perspective
This category focuses on the performance targets in relation to the market and the customers. It covers branding objectives and market share as well as service targets and the growth of customers (Biazzo & Garengo, 2012). Examples of classic measures in this perspective are market share, the satisfaction of customers, net promoter scores, brand awareness and service levels.
The Internal Process Perspective
This perspective targets a company’s internal operational goals and tackles objectives as they relate to crucial procedures which are essential in delivering customer objectives. Organizations lay out the goals of the business processes and the tasks the company has to do exceptionally well internally so as to push performance. Examples of measures here include capacity utilization, quality optimization, and process improvements.
The Learning and Growth Perspective
This perspective highlights the company’s future intangible drivers. It is broken down into components such as organization capital, which includes the employee alignment, knowledge management, culture, teamwork, and leadership; information capital which includes the technology infrastructure, information systems, databases, and networks; and human capital which include skills, knowledge, and talent. Examples of measures include assessment of skills, corporate culture audits, staff engagement, and performance management scores.
Benefits and limitations of the balanced score card
The balanced scorecard promotes the understanding and communication of strategies and goals at each and every level in a company. It also brings about the company’s vision and strategy to the focus of the management which ensures they never deviate from them. The scorecard also consolidates the performance measures and financial goals into one simplified system, something which the controlling techniques used in the past would never implement.
The biggest limitation of this approach relates to the fact that it measures performance from only four perspectives. It only highlights the problems after everything is analyzed but does not suggest anything on how to improve the performances from these perspectives. The balanced scorecard is a hazy concept to governing a company’s success for it does not have any specified standards as to how goals should be achieved. The fact that it only has four perspectives also means that it is limited since there are other important aspects for example social responsibility and managerial development.
Some interesting fact about the balanced scorecard is that more than 52% of Fortune 500 companies are implementing this approach to analyze their companies’ performances. This has resulted in more than 65% of these companies reporting massive profits within a short duration of time.
Conclusion
The balanced scoreboard approach has provided a crucial performance measurement component, which is the concept of balance in organizations. With this method, the needs of customers are balanced with all the financials, and this is a good thing for both the firm and the customers. However, there is a need to expand it since it only contains four perspectives.
References
Biazzo, S. & Garengo, P. (2012). Performance measurement with the balanced scorecard (1 st ed.). Berlin: Springer.
Tempest, N. (1998). Wells Fargo Online Financial Services (A). Havard Business Review . Retrieved from https://hbr.org/product/wells-fargo-online-financial-services- a/an/198146-PDF-ENG?Ntt=198146
