CONCEPT AND THEORY OF BALANCED SCORECARD
Dr. Robert Kaplan and Dr. David Norton developed this theory in year 1992.
The Balanced Scorecard was originally developed by Dr. Robert Kaplan of Harvard University and Dr. David Norton as a framework for measuring organizational performance using a more balanced set of performance measures.
A tool for monitoring the strategic decisions taken by the company based on indicators previously established and that should permeate through at least four aspects – financial, customer, internal processes and learning & growth.
BALANCED SCORECARD FEATURES
- Identifies, clarifies, aligns & provides meaning about the vision and strategy.
- Strategy is communicated to all
- Strategy translated into measurable targets
- Fosters communication about strategy and its meaning throughout the company.
- Assists in alignment of department and employee goals & actions with strategy.
- Motivates Managers to achieve targets
- Helps link strategy with long-term targets, as well as short-term goals and budgets.
- Performance is reviewed at all levels for purposes of learning and improving strategy.
WHY BALANCED SCORECARD ?
- 60% Of Org Don't link Strategy & budgets
- 95% of typical workforce does not understand its organizations' strategy
- 90% of organizations fail to execute their strategies successfully
- 85% of Mgt teams Spends less than 1 hr per month On strategy issues
- 70% of organizations do not link middle management incentives to strategy
- 92% of orgs Do not report On lead indicators
USES OF BALANCED SCORECARD
- For conveying the vision and target
- For keeping and aligning everyday work
- Taking decision on products to be taken first
- Measuring strategic targets
- Better communication and reporting
FOUR PERSPECTIVE OF BALANCED SCORECARD
1. CUSTOMER'S PERSPECTIVE
2. INTERNAL BUSINESS PERSPECTIVE
3. INNOVATION AND LEARNING
4.FINANCIAL PERSPECTIVE
FINANCIAL PERSPECTIVE
- Financial result and growth
- Key Financial parameters and performance (ROE, ROCE)
- Higher Profit Margin
- Improved Cash flow
- Lower Bad loans and lower debt
- Net Interest Margin
- Reduced overhead Expenses
- Proper Revenue Mix
CUSTOMERS
- Increase Customer Satisfaction
- Increase Customer Loyalty
- Retention of key customers
- Sales revenue per customer
- Competitive pricing and product offering
- High Quality Service
- Customer preference.compared to competitors
LEARNING AND GROWTH
- Develop Critical Skills and Knowledge
- Proper Knowledge Management Provide Strategic Information to all
- Align Personal Goals with Company goals
- Employee growth and turnover
- Employee Satisfaction and Retention
INTERNAL BUSINESS PROCESSES
- Cross-Sell Products
- Improve Operational efficiency and minimize Problems
- Proper Customer relationship management
- Higher success rate in converting business opportunities
- Fast business decisions and approvals
- Proper work culture and higher employee confidence
ADVANTAGES OF BALANCED SCORECARD
- Communicate vision thru the organization
- Translate vision into measureable goals
- Design business processes
- Implement organizational learning
DISADVANTAGES OF BALANCED SCORECARD:-
- It is a scorecard not a decision making tool.
- Tool for strategy implementation not formulation.
- Limited insight on how to get back on track to meet goals
- It can not helps used as a tool thought it can be help in assessing performance.
- Lack of well-defined strategy.
- Using only lagging measures.
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