Balanced
scorecard is used by organisations to align business activities to the vision
and strategy of the organisation. This is a kind of performance monitor that
tracks the organisations performance against strategic goals. The balanced
scorecard approach is to give a clarification to their vision and provide them
with prescription to balance up in areas where they are lacking. This process
allows the organisation to collect feedbacks in order to improve in their
performance and hence their results.
Kaplan and Norton describe the innovation of the balanced scorecard as
follows:
"The balanced scorecard retains traditional financial measures. But
financial measures tell the story of past events, an adequate story for
industrial age companies for which investments in long-term capabilities and
customer relationships were not critical for success. These financial measures
are inadequate, however, for guiding and evaluating the journey that
information age companies must make to create future value through investment
in customers, suppliers, employees, processes, technology, and
innovation."
The balanced score suggests that any
organisation should be assessed from four perspectives.
1. Learning and growth perspective :
This involves training
and corporate cultural attitudes related to both individual and corporate self-improvement.
Knowledge repository is a great asset to a company. Continuous training
activities should be held in order to be with the technology trends. According
to Kaplan it involves “learning” more than “training”.
2. Customer perspective:
Customer satisfaction and
customer focus are the key indicators for a “good” running business. If there
is a high churn rate of customers then it is evident that there is some
malfunctionining happening from the suppliers’ side or maybe we are not
offering products of high quality. This might cause further decline in profits
of the company.
3. Internal Business Processes perspective:
This mainly concerns with
the conformance of the business processes with the customer requirements. The
metrics for measuring this should be carefully developed by inhouse subject
matter experts and cannot be leased out to consultants.
4. Financial perspective:
Sources of funding, cost
benefit analysis and risk assessment all falls under this perspective. Company’s
continuous funding and profit indicators shows that the company’s performance. However
the company should also evaluate its projects in order to justify its funding.
This is the reason why they go in for cost benefit analysis. Financial support
is what makes a company functioning healthily.
