Balanced Scorecard is one of highly used strategic evaluation tool that is extensively used in business and industry, government and non-profit organisations. Balanced Scorecard is defined as ‘ A strategic planning and management system used to align business activities to the vision statement of an organisation’. Balanced Scorecard evaluates both financial and non-financial performance indicators.
The term Balanced Scorecard was coined by Art Schneiderman and became popular with article by Dr. Robert Kaplan and Dr. David Norton in 1992. Again in 1996 they published the book named The Balanced Scorecard. Both this article and the book on Balanced Scorecard made it popular and started to use by both business and government organisations. Initially the Scorecard was around the four perspectives that were labelled as “Financial”, “Customer”, “Learning and growth” and “Internal Business Processes”. Five or six good measures were selected in each perspective and these measures were evaluated and given a score against the strategy.
Later the Balanced Scorecard was interpreted according to the needs of different organisation. The visions of the top management are written as strategies and these strategies are broken into different measures for each perspective of strategy and the score card is formulated. Once the actual performance is happened, they are compared with the strategic measures listed in the Scorecard and each measure is given score according to the performance. The measures need not be only financial, it can also represent measures such as acquire a company, complete 2 projects within the particular time and so on.
Business Scorecard is only a measuring tool and usually does not replace the Company Strategic planning tools. The four steps appeared in Kaplan and Norton’s article were
1. Translating the vision into operational objectives.
2. Communicating the vision to all concerned employees and link it to their individual performance.
3. Business planning
4. Changing the strategy according to the current situation by getting the results and feed backs.
The Balanced Scorecard was initially used only for measuring the company’s performance or particular division of the company. But later it became popular to evaluate the individual performance and their bonus and benefits were given according to the scores in the balanced Scorecard. Even now many companies both in West and developing nations use Balanced Scorecard for employee bonus and benefits.
In 1997, Kurtzman found that 64 percent of companies in America were measuring performance from a number of perspectives in a similar way to Balanced Scorecard. The strategies are broken into different categories and the important measures in each category are listed. The categories may be according to the set of criteria which the top management feels important.
These are some of the measurements that can be used in Balanced Scorecard.
Finance- Return on investment, cash flow, Gross Margin for each customer, Net profit for each division for each period, returns on particular project and so on.
Internal Business process - Number of process per function, process automation, process bottleneck, aligning the different processes and so on.
Customer – Customer satisfaction rate, delivery performance and quality performance to customer, Market concentration and penetration rate, customer retention rate and so on.
Learning and Growth – Employee satisfaction rate, employee retention rate, career opportunities for employees, correct match of job to employee, proper training and learning opportunities and so on.
These are some of the points were the company can have a strategy and be measured in Scorecard.
Balanced Scorecard not only acts as measurement tool but it can also be used as strategic tool for the organisation. It will immediately show the places where the company is going out of track and corrective measures can be taken. This tool, if effectively used will give amazing results for the organisation.
The term Balanced Scorecard was coined by Art Schneiderman and became popular with article by Dr. Robert Kaplan and Dr. David Norton in 1992. Again in 1996 they published the book named The Balanced Scorecard. Both this article and the book on Balanced Scorecard made it popular and started to use by both business and government organisations. Initially the Scorecard was around the four perspectives that were labelled as “Financial”, “Customer”, “Learning and growth” and “Internal Business Processes”. Five or six good measures were selected in each perspective and these measures were evaluated and given a score against the strategy.
Later the Balanced Scorecard was interpreted according to the needs of different organisation. The visions of the top management are written as strategies and these strategies are broken into different measures for each perspective of strategy and the score card is formulated. Once the actual performance is happened, they are compared with the strategic measures listed in the Scorecard and each measure is given score according to the performance. The measures need not be only financial, it can also represent measures such as acquire a company, complete 2 projects within the particular time and so on.
Business Scorecard is only a measuring tool and usually does not replace the Company Strategic planning tools. The four steps appeared in Kaplan and Norton’s article were
1. Translating the vision into operational objectives.
2. Communicating the vision to all concerned employees and link it to their individual performance.
3. Business planning
4. Changing the strategy according to the current situation by getting the results and feed backs.
The Balanced Scorecard was initially used only for measuring the company’s performance or particular division of the company. But later it became popular to evaluate the individual performance and their bonus and benefits were given according to the scores in the balanced Scorecard. Even now many companies both in West and developing nations use Balanced Scorecard for employee bonus and benefits.
In 1997, Kurtzman found that 64 percent of companies in America were measuring performance from a number of perspectives in a similar way to Balanced Scorecard. The strategies are broken into different categories and the important measures in each category are listed. The categories may be according to the set of criteria which the top management feels important.
These are some of the measurements that can be used in Balanced Scorecard.
Finance- Return on investment, cash flow, Gross Margin for each customer, Net profit for each division for each period, returns on particular project and so on.
Internal Business process - Number of process per function, process automation, process bottleneck, aligning the different processes and so on.
Customer – Customer satisfaction rate, delivery performance and quality performance to customer, Market concentration and penetration rate, customer retention rate and so on.
Learning and Growth – Employee satisfaction rate, employee retention rate, career opportunities for employees, correct match of job to employee, proper training and learning opportunities and so on.
These are some of the points were the company can have a strategy and be measured in Scorecard.
Balanced Scorecard not only acts as measurement tool but it can also be used as strategic tool for the organisation. It will immediately show the places where the company is going out of track and corrective measures can be taken. This tool, if effectively used will give amazing results for the organisation.
No comments:
Post a Comment