However, an over emphasis on achieving and maintaining
short-term financial results can cause companies to over invest in short-term
fixes and to under invest in long-term value creation, particularly in the
intangible and intellectual assets that generate future growth. The pressure
for short-term financial performance often causes companies to reduce the
resources spent on new product development, process improvements, human
resource development, Information technology, databases and systems as well as
customer and market development. In the short run, the financial accounting
model reports these spending cutbacks as increases in reported income, even
when the reductions have cannibalized a companys stock of assets and its
capabilities for creating future economic value. In short, these organizations
use the financial and non-financial performance only for tactical feedback and
control of short-term operations.
Linking Strategy with Performance Measures
The essential thrust of the balanced score card is based on
the fundamental proposition that within organizations what gets measured gets
done however, organizations dont always get what they measure. If
measurement, by itself, had that much impact on human behavior, then anyone
that had weighing scales would never get fat.
An appropriate measurement system is one that energizes
employees in the context of what the organization is trying to do. Thus, the
logical starting point for the development of any performance measurement
system for an organization must be a clear statement of mission, objectives and
resultant strategy. An organizations mission is its basic function in society
and is the reason why the organization exists. Related to this are the
objectives to be achieved and they represent a precise statement of purpose for
a specific period. Basically a strategy is a shared understanding about how the
organizations mission is to be achieved in a competitive environment.
Strategic thinking will focus on customers and competitors as well as internal
capabilities and resources. It will include reference to the firms
competitiveness, quality of output and levels of customer service. In turn,
specified performance measures allow all employees understand what the strategy
is and how their performance is linked to that overall strategy. The
relationship between Mission, Objectives, Strategy and Performance Measures is
depicted in Fig.1.
There are at least three reasons why organizations should,
and often do, measure their performance:
- To align mission, strategy, values and behavior
- To improve the right things
- To numerically define the meaning of success
The 4 perspectives of the Balanced Scorecard
The Balanced Scorecard method of Kaplan and Norton is a
strategic approach, and performance management system, that enables
organizations to translate a company's vision and strategy into implementation,
working from 4 perspectives:
- Financial perspective.
- Customer perspective.
- Business process perspective.
- Learning and growth perspective.
This allows the monitoring of present performance, but the
method also tries to capture information about how well the organization is positioned
to perform in the future.
