Essay on Balanced Scorecard

Introduction

In the area of operational management, balanced scorecards have been important in measuring performance. As a tool for measuring performance of organizational units and processes, a balanced scorecard aligns business activities (Niven, 2002). For decades government organizations, business firms and other non-profit organizations attribute to using balanced scorecard as their tool for measure. These organizations understand the importance of this tool in aligning business process with the mission and vision statements. Balanced scorecards assist in the formulation of business strategies, improving communication for internal and external publics (Kaplan & Norton, 1992).

Originally coined by Dr. Kaplan of Harvard business school in collaboration with David Norton the tool adds another perspective, which concentrates on providing non-financial strategic overview on organizations performance. This aspect therefore, provides managers as well as teams in organizations with a more balanced approach to performance. Balanced scorecards may come in the form of software. However, one should not confuse implementing parts of the software as implementing the scorecard (Niven, 2002). The tools have essential properties in the management of business operational processes. Considering some important strategic aspects in organizations, one needs to consider certain business processes. Customers, internal processes, organizational capacity, financial performance are some of these aspects (Kaplan & Norton, 1998). Performing a mental cross-examination on these aspects in relation to balanced scorecards, one mirrors on their interactions with the strategy and the vision of the organization.

Balanced scorecard in at this level provides a framework which assists all the above aspects align to business strategies. It is therefore, important to note that balanced scorecards provides one four perspectives in measuring organizational performance. This perspective in an organization relates to the analysis of organizational learning processes and growth. The other twist relates to the business perspective. Customer perspective is another part of the scorecard while, the last angle borders on organizational, financial conditions (Niven, 2002).

Performance Metrics

According to Kaplan & Norton, (1998), balanced scorecards are important tools for measurement performance in organization and business units. As a tool of measure, “balanced scorecards” provides management teams four different perspectives. By using the tools, management teams are able to evaluate their performance in terms of customer ratings. Using these tools for measuring performance management teams is able to understand their organizational capacity. This aspects assists organizations make improvements and make necessary corrections. The tool also assists in providing information. Further, the tool is important in providing analysis of shareholders.

The scorecard is an important tool of measure since it minimizes on information overload in a system. For efficiency as a performance metric measure, a balanced scorecard forces management teams to concentrate on some crucial aspects of the organization. The measuring tool is important in the performance of different business measures. It assists in linking performance to the internal functions of organizations (Norton, & Kaplan, 2007). The scorecard links the financial, internal operations, customer, innovation, and learning (Kaplan & Norton, 1998). Performance metrics in terms of customers is an important aspect to the management teams. This has become one of the most important aspects for organizations.

Its concerns in terms of customer satisfaction relates to time, performance service, lead-time and on the quality. Lead-time is essential in measuring products time since it considers the time of ordering and delivery. In relation to quality, it assists in the analysis of the defects in incoming products. Additionally quality measures may border on measuring the time of delivery as well as the accuracy of delivery (Niven, 2002). Therefore, in order for an organization to enjoy all the benefits of a balanced scorecard, various aspects come into consideration. Management teams need to concentrate on the performance of service, quality and time.

Consideration on customers ensures that organizations perform their duties in line with customer needs. Evaluation of customers needs enable organizations perform their tasks adequately. Another important aspect relates to the internal perspective of the organization. This refers to the internal operations as well as capacity (Norton, & Kaplan, 2007). A balanced scorecard then is essential in analyzing internal business processes. These internal measures however need to consider processes of greatest importance. These processes relate to skills, productivity, quality and influence of employees. Further balanced scorecards are essential in ensuring learning and innovation in organizations (Kaplan & Norton, 1998). As an important tool for measurement balanced scorecards provides the management team vital information. This vital information is important in providing information on available gaps with respect to learning and innovations.

Cost of Quality and Customer

The philosophy of quality management in organizations relate to continual improvement of performance. In respect to this philosophy, organizations need to consider some important principles. Some of these principles in ensuring quality of products and services include leadership influences, system influence, customer focus, process approach as well as continual improvements. It is therefore, of great importance to note that these processes in organizations need to be continuous and interrelated. It is then important for management teams in these organizations to consider the quality objectives provided for by the vision (Niven, 2002). The balanced scorecard therefore, comes into play in providing a measure for analyzing intangible as well as tangible assets.

Costs involved in the provision of quality products and services are part of the scorecard. This cost further refers to the price of maintaining long-term, as well as short-term strategic goals. The scorecard not only concentrates on the above aspects but also translates vision and strategy in ensuring process success. Moreover, one can state that a balanced scorecard ensures that there is an effective chain of processes between the financial, internal processes, learning and growth as well as on customer perspectives (Kaplan & Norton, 1992). In terms of costs, a balanced scorecard might concentrate on revenues, return on net assets, cash flow, solvency, total costs as well as contribution margins.

Learning and growth

Learning and growth is another important aspect in balanced scorecards. This perspective in relation to customers satisfaction concentrates on intangible assets of an organization. These assets include the internal capabilities of an organization. Learning and growth aspects, on the other hand, focus on human capital. Human capital as an aspect in balanced scorecards measures the influence of people on organizational performance. It refers to the influence of information capital on organizational processes (Norton, & Kaplan, 2007). Additionally learning and growth influences border on the influences of organization culture as well as on the quality of work-life. Human capital relates to employee’s knowledge, training and skills.

Information capital concentrates on networks and databases. On the other hand, organizational capital refers to leadership roles, alignment, teamwork and culture. Implementation of a balanced scorecard in terms of learning and growth involves rigorous processes that requires considerable amounts of time, money and other resources (Norton, & Kaplan, 2007). However, one needs to separate learning and growth from development and research. Learning and growth differs from research and development in respect to the process of implementation. For example, an organization may consider employing new technologies and equipment. This however may not transform its processes if employees do not have the knowledge of operating them. Therefore, balanced scorecards are essential in organizations. Balanced scorecards provides essential assistance in the performance of business operations, ensuring learning and growth, satisfaction of customers as well as the management of organizational costs (Niven,2002).

References

Kaplan, R. S., & Norton, D. P. (1992). The balanced Scorecard-Measures that Drive Performance. Harvard Business Review. www.,marketmatch.com.

Kaplan, R. S., & Norton, D. P. (1998). Putting the balanced scorecard to work. The Economic Impact of Knowledge, 315-24

Niven, P. R. (2002). Balanced scorecard step-by-step: maximizing performance and maintaining results. John Wiley & Sons.

Norton, D. P. & Kaplan, R. S. (2007). Using the Balanced scorecard as a Strategic Management System.Harvard review.www.hbrreprints.org