Companies today are in the midst of a revolutionary transformation as Industrial age competition is shifting to Information age competition. The cut-throat competition that businesses faced in the last two decades has made them to look for improvement initiatives like Total Quality Management, Just-in-Time (JIT) systems; Activity based cost management, Employee empowerment and Re-engineering. Though these initiatives resulted in enhanced shareholder value, their structure was disjointed and focused on the short-term survival and growth. The programs centered on achieving breakthrough performance merely by monitoring and controlling financial measures of past performance. This collision between the irresistible force to build long-range competitive capabilities and the immovable object of the historical-cost financial accounting model has led to a new blend the Balanced scorecard.
The Balanced scorecard retains the traditional financial measures and complements them with measures that are drivers of future performance. The objectives and measures of the scorecard are derived from an organizations vision and strategy and these view organizational performance from four perspectives: financial, customer, internal business process and learning and growth. These four perspectives provide the framework for the Balanced scorecard.
The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.
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."
What is a Balanced Scorecard?
The balanced scorecard is a management system (not only a measurement system that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard improves strategic planning from an academic exercise into the nerve center of an enterprise.
First of all the balanced scorecard is a way of
The Need for the scorecard:
The objective of any measurement system should be to motivate all managers and employees to implement successfully the business units strategy. Those companies that can translate their strategy into measurement system will be able to execute their strategy because they communicate their objectives and their targets. The communication makes managers and employees focus on the critical drivers enabling them to align investments, initiatives and actions accomplishing strategic goals.
Historically, the measurement system for any business has been financial. Accounting was considered to be the language of business Innovations in measuring the financial performance of the industrial age companies played a vital role in their successful growth. And financial innovations, such as the Return on Investment (ROI) metric, and operating and cash budgets, were critical to the success of these corporations.