The Balance Scorecard Enhances Essay Example

They will also coordinate initiatives that align with long-term strategic objectives. The process of feedback and learning serves as a mechanism for strategic review and provides opportunities for organizational learning. This strategic feedback and review evaluates whether individual, departmental, and company performance aligns with the company's budgeted financial goals.

Typically, short-term results monitoring involves assessing customer satisfaction, internal business processes, and learning and growth. This includes comparing current performance with past achievements and future goals. In contrast, strategic learning involves collecting feedback, testing strategy hypotheses, and making necessary adjustments. These four scorecard processes create a continuous cycle that allows for ongoing strategic adjustments. This also enables managers to evaluate strategy effectiveness at any stage of implementation.

The balance scorecard has evolved from being a tool for performance measurement to becoming a tool for strategic management. This evolution involves a series of processes, namely translating the vision, communicating and linking, business planning, and feedback and learning. These processes are explained in detail above. There are multiple reasons why the balance scorecard is considered a strategic management tool. Firstly, it incorporates measures that are interconnected and have a cause-and-effect relationship. Additionally, it involves the communication of nonfinancial measures into the strategy implementation.

Furthermore, the transition in the economy from tangible assets to intangible assets during the late 20th century has made financial statements inadequate for capturing important information about companies. This is because intangible assets have an implicit or indirect value that can affect financial outcomes through cause-and-effect relationships, as they usually do not hold standalone value. Nevertheless, the balance scorecard can act as a supplement to traditional financial reporting by showcasing the changing nature of technology

and competitive advantages.

The balance scorecard is a strategic management tool that incorporates nonfinancial measures through four perspectives: financial, customer, internal business processes, and learning and growth. These perspectives are interconnected in a cause-and-effect manner, where acquiring necessary learning and growth improves internal business processes, leading to customer satisfaction and ultimately achieving the desired financial goals or objectives. Strategy maps are constructed from a top-down approach, starting with the goal or objective and identifying the means to reach the desired destination.

The financial perspective typically involves increasing shareholder value or economic value. This can be achieved through revenue growth and productivity. Revenue growth entails expanding into new products, markets, and customers, or boosting sales to existing customers. The productivity strategy focuses on reducing costs and improving the effectiveness of asset utilization. The customer perspective centers around the customer-value proposition, which sets companies apart through operational excellence, customer intimacy excellence, and product leadership. The internal processes perspective is identified after considering the financial and customer perspectives.

The text explains that a comprehensive perspective on business strategies includes internal processes that contribute to the satisfaction of shareholders and customers. This perspective also emphasizes the importance of organizational learning and growth, which serves as the foundation for any strategy. Kaplan R. S. & Norton D. P. (2001) introduce two additional scorecards, namely stakeholder scorecards and key performance indicator scorecards, which are commonly used in practice. Although the stakeholder scorecard alone does not establish a complete management system, it serves as an initial step towards the development of a strategy scorecard.

The stakeholder scorecard focuses on the customers, suppliers, and shareholders of an organization. It sets goals for these

stakeholders, aiming to create a positive work environment and shopping experience. This scorecard is especially helpful for organizations that lack internal synergies between their different business units, as it provides a unified focus. Business unit strategy scorecards are then developed based on the organization's stakeholder scorecard.

The KPI scorecard is a scorecard that emphasizes internal-process measures related to initiatives, rather than outcomes. It is not as comprehensive as the strategy balance scorecard, which takes into account the relationship between internal measures like profit, portfolio, people, and process with customer-value proposition. It also considers the connection between learning and growth with internal process improvement, customer outcomes, and financial outcomes. The KPI scorecard is particularly useful for strategic programs at a higher level. It is worth noting that nonprofit and government organizations (NPGOs) also use the balanced scorecard.

However, at the start of the application, certain issues arise regarding NPGOs. These organizations often lack a clearly defined strategy, and their financial objective is not the primary focus of their scorecard. Instead, NPGOs primarily concentrate on process improvements, with profit organizations prioritizing product leadership or customer intimacy. As a result, NPGOs' scorecards resemble KPI scorecards more than strategy scorecards. Nevertheless, there have been subsequent modifications made to enhance the use of strategy scorecards by NPGOs.

The modified scorecard for NPGOs places both the donor perspective and recipient perspective at the top, rather than the financial perspective. It includes three high-level perspectives: minimizing the cost of providing service, including social cost; creating value that benefits citizens; and supporting legitimizing authorities. This is similar to the strategy scorecard of a profit organization, where the mission is supported by these three

perspectives. These perspectives are then supported by internal processes and followed by learning and growth, which serve as the foundation for any strategy.

The balance scorecard is utilized in the strategic management system as it not only measures a company's performance but also establishes a connection between internal operations and external satisfaction. It serves as a guideline for organizations to achieve their desired objectives. Kaplan and Norton's second part on the same topic delves into the usage of BSC and strategy maps by organizations to effectively implement and integrate changes.

In order to achieve success and increase organizational performance, the steps involved would be redefining relationships with customers, reengineering business operations, enhancing worker skills, and deploying new technology infrastructures. The authors also highlighted the importance of implementing simple plans to ensure the success of the transformation program. The five principles described by the authors outline key elements necessary for building an organization that is focused on strategy.

The following paragraph discusses the five principles, highlighting the challenges organizations face in uniting employees with different knowledge and skills levels. Kaplan and Norton's first principle is to convert the strategy into operational terms, a crucial step for organizations. The second principle is to align the organization with the strategy, recognizing that organizations consist of multiple entities such as marketing and operation units, human resources, and information technology services. Effective communication is essential for successfully implementing strategies within an organization. To ensure success, it is crucial to provide a comprehensive strategy menu that outlines the desired level of quality, response time, cost, and functionality. It is important to remember the age-old saying that if we continue doing the

same thing for more than 21 days, we can change our behavior. The strategy should be integrated into employees' daily routines and serve as a simple reminder. Encouraging innovation in both creating and communicating the strategy is vital. Thus, involving everyone in making the strategy a collective responsibility becomes an essential principle.

To ensure success for employees in the organization, it is essential that they understand and incorporate the strategy into their daily work. Open communication is vital, as opposed to strict instructions from management. Human resources play a crucial role in training and educating employees. Offering incentive compensation, whether monetary or non-monetary, will motivate employees to collaborate and adopt the strategy for achieving success. It is important for the strategy to not only be successful initially but also continuously improve over time.

Principle four emphasizes the need to continuously review previous and current performance, discuss variations, and create action plans. It introduces the concept of a "double-loop process" that connects budgeting with strategy to enhance and develop existing products or services within an organization. This process involves reviewing strategies in management meetings, utilizing information feedback systems, and adapting evolved strategies for long-term financial success.

Cause and effect linkages are necessary for estimating and anticipating long-term financial success. Mobilizing leadership to drive change is the final and crucial principle. This step involves teamwork and focuses on the change process. Top management must serve as role models and actively participate in the strategy until the new cultural values and processes are fully implemented throughout the organization. To minimize risks and failures, it is recommended to take three significant actions: establish a sense of urgency, create

a guiding coalition, and develop a vision and mission.

To ensure maximum benefit is achieved through the integration of all value creation, it is important for BSC to be related to other approaches in managerial accounting. Shareholder value management tends to either underestimate or overestimate problems within an organization. By complementing BSC with shareholder value metrics, both short-term productivity improvement and long-term sustainable revenue growth can be achieved. ABC (Activity Based Costing) is a model that connects organizational expenses with operational processes such as marketing, sales, manufacturing, and more.

Utilizing BSC and ABC in conjunction can serve as a means to identify defects and enhance the financial system. Performance and process are evaluated based on cost, quality, and time. Measuring individual customer profit can be achieved through the combination of BSC and ABC. The resulting outcomes may include loyalty, customer satisfaction, market share, and account share. The integration of TQM with BSC in a cause and effect approach further improves quality programs by considering both internal and financial perspectives.