Balanced Scorecard: Development and Implementation

Introduction

A balanced scorecard is a tool that is used to manage performance levels in organizations and is focused on the achievement of strategic goals. This concept was introduced in 1992 and was met with positive reactions from most businesses and economists. It lists key factors that should be taken into account during the assessment of the overall progress of a particular strategy. One of the most significant aspects that are worthy of discussion is that it is focused on the development of tools that would help managers with the process of decision-making (Kaplan & Norton 1993).

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The main idea of this method is that it is paramount to take the necessary measures to make sure that information is delivered to management in a structured and comprehensive manner. This methodology is used by a broad range of businesses all over the globe, and numerous enterprises are planning on incorporating it in the nearest future. This tool was studied from different points of view, and it is quite remarkable because specialists in various areas have agreed that this approach is extremely useful in most cases when successfully implemented.

Balanced Scorecard

Basic concepts

It is paramount to note that a balanced scorecard is an efficient tool that is used to measure attributes that are related to performance. One of the most significant aspects is that approaches that were previously available were not as useful and had few glaring weaknesses, and this point should not be disregarded. It needs to be said that this tool is extremely innovative, and it can be quite useful during the introduction of new strategic approaches (Ittner & Larcker 2003).

It is imperative to understand that measures that are added are necessary, and there are no instances when information that is collected is irrelevant. This approach takes into account the issues that may occur and is used to make sure that data can be efficiently utilized in the organization. It is paramount to say that the behavior of managers and employees is also affected, and the way most processes are perceived in the firm also changes most of the time (Kaplan & Norton 1996).

It is imperative to say that sustainability is another high point of this approach that needs to be discussed. The fact that it gives the management team the ability to have better control over the processes of the organization is significant because it is easier to predict and avoid possible complications. The linkage between this approach and quality management is a major factor that should not be disregarded because most enterprises started to view this concept as extremely significant and pay a lot of attention to it. Kaplan and Norton (1993) believed that some of the measures that were traditionally perceived as the most important can give misleading results, and it may hurt the company (Maltz, Shenhar & Reilly 2003).

The issue is that many severe complications may occur if final decisions in the firm are based on some of the data that is collected. Broccardo (2000) has studied the efficiency of this method as a tool for reporting and strategic management. The exploratory case study method was chosen as a primary method of this research because it was the most appropriate option in this case. Interviews with the management in three firms were used to collect the information. The results indicate that this approach is extremely flexible because it may be implemented in different kinds of enterprises, and helps to reach organizational goals.

Generations

It needs to be said that one of the issues that are related to the first generation of balanced scorecards is that the authors did not provide a precise definition and mostly focused on other aspects. They have tried to represent causality, but it was also not explained comprehensively. It is paramount to note that this approach has evolved, and new versions have been introduced. Lawrie and Cobbold (2004) have noted that information symmetry is of utmost importance, and it was necessary to make sure that this aspect is improved.

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The second generation of this approach was especially important because it has introduced several key factors that would be focused on in later versions. Strategic objectives are viewed as the most significant aspects, and management teams are supposed to select them based on particular perspectives. It was also discussed how the process can be simplified with the use of strategy maps. Such measures indicate the connections between specific economic measures and focuses on long-term values and improvement. Some design challenges were present, but the approach has evolved. It is imperative to say that the difference between the third and second generations is rather minimal, but the effectiveness is increased dramatically.

The most significant aspect that needs to be discussed is that it has supported the development of various balanced scorecards within one enterprise. It also has addressed the problem of information asymmetry. It needed to be improved because the previous version had several weaknesses. The biggest problem of the second generation is that it did not view the need for intervention, or an ability to influence the strategy as important as it should have. Those approaches that include Destination Statement are perceived as the third generation of balanced scorecards. They are still being improved to make sure that any deficiencies are addressed.

The implementation of software systems is especially important because it becomes much harder to collect and analyze such enormous amounts of data, and it allows identifying any performance anomalies that occur (Marr and Neely 2001). Numerous companies offer their versions of software programs that are based on the principles of the balanced scorecard approach, and most of them are especially useful because of frequent updates that address any issues that occur to make sure that the experience of the customers is not negatively impacted.

The fact that the information is represented in form of charts and graphs is paramount because it becomes much easier to have a better understanding of the processes in the organization, and it is easier to show such data to employees. One of the key factors that should be considered is that this approach is often reactive. However, some of the studies are focused on the improvement of this aspect. Chytas, Glykas, and Valiris (2011) have suggested that it is necessary to create a dynamic network that would consist of key performance indicators that are related to each other to have a better understanding of what aspects are the most important for a particular target.

Overall, it is imperative to note that the progress is evident, but, likely, an improvement is also necessary because new technologies that are often introduced may be disruptive.

Implementation

Kaplan and Norton (1993) have conducted a study to explain the effectiveness of a balanced scorecard and the process of implementation. The companies that participated in the research needed a framework that would help to develop a set of goals that need to be reached according to the strategy. The enterprise’s scorecard has consisted of a financial perspective, customer perspective, internal business perspective, and innovation and learning perspective.

The fact that each one of them is connected is essential because it increases the overall efficiency of the process. A questionnaire is an excellent tool that can be used to have a better understanding of the customer’s perspective of the organization, and the knowledge that is received can be used during the implementation. It needs to be said that there is an apparent connection between the satisfaction of consumers and the success of the business in most cases, and it is imperative to focus on this aspect of production and service companies. One of the key factors that should not be disregarded is that overall quality is of utmost importance, and the balanced scorecard is an efficient tool to guarantee that this point is not overlooked.

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The identification of customer needs is paramount because it allows the company to develop a detailed plan on how to meet those expectations (Kaplan & Norton 1993). Another essential point that needs to be discussed is that a shift in the perspective of the company after the introduction of such measures is quite noticeable most of the time. The initial analysis is extremely necessary most of the time because it allows evaluating the current situation in the enterprise.

Fernandes, Raja, and Whalley (2006) have studied the implementation of this approach in companies that are focused on production. They have listed the recommendations that should not be overlooked, and KPI analysis development of backup systems and management of projects were viewed as the most important. Shortage of materials is no longer a significant issue in the company that was monitored, and the rate has been reduced by 15%. Inventory levels were also lowered by approximately 12-18 percent. It was also mentioned that some issues during the implementation also frequently occur because some managers have different views on metrics that should be chosen, but it is imperative to come to a consensus (Fernandes, Raja & Whalley 2006).

However, it needs to be said that some barriers that prevent the implementation of such approaches in some firms are also present and need to be addressed. One of the primary factors that need to be discussed is that many businesses lack the resources and experience to consider a balanced scorecard as an option. Kaplan and Norton (1993) have noted that it is paramount to measure aspects that are related not only to the overall goals of the company, but also the ones that may be used to expand or develop an organization. Niven (2002) has discussed the importance of time management during the implementation of this system and has suggested the measures that should be taken to avoid complications.

It is necessary to make sure that resources are used efficiently, and the process should not affect the operations too much. It is essential to develop a team that will be focused on the implementation, and it should consist of the executive sponsor, champion, team members, and change expert. This approach is quite efficient and is used to make sure that the system is implemented correctly, and the whole process is monitored.

One of the most important aspects that need to be discussed is that it is entirely useful when it is necessary to identify linkages that are present in four areas (Niven 2002). It is paramount to note that sometimes it is hard to implement such a system in an organization because of the limitations and barriers that are present. Another issue is that it is hard to justify such decisions most of the time because risks that are associated with the introduction are also present, and should be taken into consideration. It is necessary to evaluate the factors that may lead to complications and take appropriate measures to make sure that there are no significant losses.

Sawalqa, Holloway, and Alam (2011) have studied the implementation of this approach in Jordan, one of the developing economies, and have surveyed 168 firms. Results of the study indicate that approximately 35,1 percent of the companies are using a balanced scorecard, and 30 percents of those who participated in the study are either considering or already implementing it. It is paramount to note that they have focused mostly on perspectives that are suggested by original authors of this approach. The efficiency of this method often varies, and there were some instances when the implementation was followed by complications, and the levels of performance were also reduced. Professionals can be hired to avoid such issues, and they will guide the company through the whole process.

Balanced Scorecard in Organisations

Key to a Company’s Success

This approach is universal and can be used in most areas of business. It is paramount that it considers both internal and external factors because it allows the management team to have a better view of processes that are related to a particular enterprise. The framework that is developed is extremely helpful in most cases and helps companies to focus on points that are the most important. The number of successful implementations of this approach in companies all over the world is truly astounding, and most view it as an essential part of their overall strategy.

It is imperative to understand that it views businesses from different perspectives, and this fact is critical in the modern market because new technologies are always being introduced, and it is easier to analyze data. The fact that the availability of information is not the huge issue that it used to be is quite significant because it allows companies to consider both internal and external factors during the implementation process. Quesada and Gazo (2007) have tried to apply these principles during the studies, and they found that it is imperative to identify the vision for the company to have a better understanding of factors that are related to the success of the enterprise.

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Engagement of customers, management of supplies, and products was recognized as the most significant ones for enterprises that were studied. It is quite evident that it is extremely useful because it significantly improves the decision-making process of managers, and the efficiency of operations is also improved in most cases. One of the most significant aspects that should not be disregarded is that it has much more potential than other systems that are currently available.

The main reason behind its success is its ease of implementation and the fact that it considers a broad range of essential factors. Kairu et al. (2013) have studied the impact of this method on the performance levels of businesses that operate in the service sector, and 200 firms have participated. Questionnaires were used as a primary data collection tool.

Results of the research indicate that this approach is used differently by most companies, and close to 51 percents view customer satisfaction as the most significant measure, followed by financial gains at 27 percent (Kairu et al. 2013). It was noted that the implementation of this method has helped to improve the performance and skills of the employees, and a lot of funds are invested in innovations and pieces of training. Malina and Salto (2001) have conducted a study regarding the overall effectiveness of this approach and they found that there are loose connections between beneficial aspects of the balanced scorecard and efficient management.

It needs to be said that the benefits of the introduction of this system have included improvements in the services and other activities that are aimed at customers. It also was noted that there were several instances of disagreements and miscommunication. It was caused by the fact that managers had different perspectives on what is important, and it has caused problems. It needs to be said that an increase in performance as big as 49,2 percent, in this case, is quite significant and should not be disregarded.

The Process of Change

Herrscher (2006) has researched this issue in one of the articles and has identified that reinforcement is necessary in some cases to make sure that employees understand the importance of a particular change in the organization. Another significant aspect that needs to be noted is that complications may occur in different areas and it is imperative to take necessary measures to make sure that they are addressed promptly to prevent severe consequences.

One of the most important aspects worth noting is that this approach has several advantages over the methods that are much more complex. The most significant issue is that problems that are related to complexity are introduced most of the time after the implementation of such systems. Another aspect that is frequently associated with this system is that it often leads to innovations because overall levels of performance are increased significantly most of the time, and companies may devote some of the resources to research. It is essential to make sure that creative talent is utilized, and it will be possible to meet the expectation of most customers.

It is paramount to understand that. Another significant aspect that should not be disregarded is that information is presented comprehensively, and it increases the overall speed of decision-making processes. It is so important in production and service organization because most employees lack the necessary information and their understanding of some processes are limited, and a balanced scorecard helps to address this significant issue. The fact that some activities that are a part of the management system are not connected to the strategy in most enterprises is a problem that needs to be addressed because it severely limits possibilities for development in most cases.

Budget and policies should be closely linked if a company wants to make sure that funds are used rationally, and it allows the management team to have a better understanding of the ultimate goals of the enterprise. It is imperative to understand that the development of a balanced scorecard allows a business to clarify its strategy, and resources can be devoted to activities that are focused on the overall success of a particular firm. It is imperative to make sure that aspects that are associated with leadership are considered because it is quite necessary in most cases to ensure that no complications occur during the process of implementation and the potential of this tool is taken advantage of and fully realized.

It is much easier to identify connections between the processes of the organization. Weak points of the strategy become much clearer, and it is easier to address such problems and to make sure that they no longer occur. It is imperative to understand that changes are often met with resistance. Also, the implementation of the balanced scorecard may lead to several processes, such as the introduction of the policies and overall regulation of the processes in the firm (Modell 2012). It should be noted that this is a quite significant aspect that is not often mentioned but should be taken into account in most cases. Organizations that are considering the implementation of this approach are suggested to focus on the causal model, the development of strategic linkage, and maintenance of sustainability.

Conclusion

In conclusion, it needs to be said that a balanced scorecard is an extremely efficient tool that can be used in organizations that are focused on production and services. It has numerous advantages over other approaches and is still much more useful than the ones that were introduced rather recently. Furthermore, it can be viewed as a system that has passed testing by time, and this factor needs to be taken into account because its effectiveness has been proven. Overall, it can be viewed as an essential part of the overall strategy of most companies and can be used to make sure that organizational goals are reached.

Reference List

Broccardo, L 2000, ‘An empirical study of the balanced scorecard as a flexible strategic management and reporting tool’, Economia Aziendale Online, vol. 1, no. 2, pp. 81-91. Web.

Chytas, P, Glykas, M & Valiris G 2011, ‘A proactive balanced scorecard’, International Journal of Information Management, vol. 31, no. 5, pp. 460-468.

Fernandes, KJ, Raja, V & Whalley A 2006, ‘Lessons from implementing the balanced scorecard in a small and medium size manufacturing organization’, Technovation, vol. 26, no. 5-6, pp. 623-634.

Herrscher, EG, 2006 ‘What is the Systems Approach Good for?’ Systemic Practice and Action Research vol. 19, no. 5, pp. 409-413.

Ittner, CD & Larcker, DF 2003, ‘Coming up short on nonfinancial performance measurement’, Harvard Business Review, vol. 81, no. 11, pp. 88-95. Web.

Kairu, EW, Wafula, MO, Okaka, O, Odera, O & Akerele, EK 2013, ‘Effects of balanced scorecard on performance of firms in the service sector’, European Journal of Business and Management, vol. 5, no. 9, pp. 81-88.

Kaplan, RS & Norton, DP 1993, ‘Putting the balanced scorecard to work’, Harvard Business Review, vol. 71, no. 5, pp. 134-147. Web.

Kaplan, RS & Norton, DP 1996, ‘Using the balanced scorecard as a strategic management system’, Harvard Business Review, vol. 74, no. 1, pp. 75-85. Web.

Lawrie, G & Cobbold, I 2004, ‘Third generation balanced scorecard: evolution of an effective strategic control tool’, International Journal of Productivity and Performance Management, vol. 53, no. 7, pp. 611-624.

Malina, MA & Selto, FH 2001, ‘Communicating and controlling strategy: an empirical study of the effectiveness of the balanced scorecard’, Journal of Management Accounting Research vol. 13, no. 1, pp. 47-90.

Maltz, AC, Shenhar AJ & Reilly, RR 2003, ‘Beyond the balanced scorecard: refining the search for organizational success measures’, Long Range Planning, vol. 36, no. 1, pp. 187-204.

Marr, B & Neely, A 2001, Balanced scorecard software report, Gartner, Inc. and Cranfield School of Management, Stamford, CT.

Modell, S 2012, ‘The politics of the balanced scorecard’, Journal of Accounting & Organizational Change, vol. 8, no. 4, pp. 475-489.

Niven, PR 2002, Balanced scorecard step-by-step: maximizing performance and maintaining results, John Wiley & Sons, Hoboken, NJ.

Quesada, H & Gazo, R 2007, ‘Methodology for determining key internal business processes based on critical success factors: A case study in furniture industry’, Business Process Management Journal, vol. 13, no. 1, pp. 5-20.

Sawalqa, FA, Holloway D & Alam, M 2011, ‘Balanced scorecard implementation in Jordan: an initial analysis’, International Journal of Electronic Business Management, vol. 9, no. 3, pp. 196-210.

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