...WHAT IS A BALANCED SCORECARD? According to Robert Kaplan and David Norton, the founders of the Balanced Scorecard, "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation. (4)" In essence, the Balanced Scorecard is a performance management system used in multitude of organizations throughout the world. It is used to develop an organization’s goals and mission that will enhance the success it has with its customers and employees. HISTORY Although first developed in the early 1990’s by Robert Kaplan and David Norton of the Harvard Business School and coined “Balanced Scorecard” in the early 1990’s, Kaplan and Norton’s method originally stemmed from the pioneering work of General Electric on performance measurement reporting in the 1950’s and the dashboard performance measures from French process engineers in the early 20th century (4) The idea behind this performance measurement tool developed from the fact that traditional performance measurement systems, mostly financial performance indicators, were insufficient in...
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...Executive Summary According to Bento, “the Balanced Scorecard (BSC) has been proposed as an integrated framework for the implementation of financial and nonfinancial performance measures that helps organizations align their initiatives with the organization’s strategy” (2013). The Balanced Scorecard offers management a system to use in plotting strategic objectives through four perspectives. The financial perspective is determined by the outcome of management’s implementation of the internal processes perspective, customer perspective, and learning and growth perspective. Aon Corporation is the “leading provider of risk management, insurance and reinsurance brokerage” (Aon, 2014). Using the Balanced Scorecard my operating segment, Benefit Marketing Solutions, can examine an implement each of the four perspectives by obtaining information on how we can achieve Aon standards in the operation of our business segment. Implementing the Balanced Scorecard, I will assess how our financials can improve by achieving the objectives of maximizing company profits, increasing our gross profit margin per client, and decreasing our accounts payable days. The first factor I will investigate is our customer perspective and how increasing customer loyalty, customer exposure, and customer education will improve upon our financials. The second factor I will investigate is the internal perspective and how effective company alliances, effective customer service, and effective payment of...
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...Balanced Scorecard The BSC is a planning & management system which can be widely applied to organizations and companies regardless of size or type of business. The technique, extensively used in business and industry, government, and non-profit organizations worldwide, provides a method of aligning business activities to the vision & strategy of the organization, integrating internal & external communications, & keeping a watch on organization performance against strategic goals. It was developed by Robert Kaplan and David Norton of Harvard University in 1990. The line of the balanced scorecard runs deep, and include the revolutionary and path breaking work of General Electric on performance measurement coverage in the late 1950’s and the work of French engineers in the early part of the 20th century in France. Due to the fact that balanced scorecard term is a generic, it is interpreted differently by different people, and in practice, there are wide variations in both understanding and implementation. To some, the balanced scorecard is just a simple control panel indicating performance measures, while to others it is a inclusive planning and management system encompassing the whole organization and planned to focus efforts on business strategy and more significantly on performance and results. The balanced scorecard has steadily developed from its early use as a simple performance measurement framework for non-financial performance measures to a full strategic planning and...
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...Name: Course number: Professor’s name: Date: Balanced Scorecard The use of the balanced scorecard (BSC) is quite common management tool for most organizations. Some organizations has found certain drawbacks that have made them not to adopt this management tool. The use of this instrument requires proper training and understanding of it thus making it time-consuming. The process of using it also requires accuracy as any slight mistake leads to undesired results. Due to the complexities of this management tool, many employees do not favor its implementation and may cause resistance. The most notable factor that drives away most organizations from using this tool is the high costs involved (Kathy & McKay, 2013). It requires higher costs to install as well as other maintenance costs. However, despite these costs, it is important for organizations to adopt this management tool due to its unmatched benefits. It offers instant results on the balanced view of a company’s performance something that is not achievable by any other method. The use of sensitivity analysis is very crucial during capital budgeting for a project. The sensitivity analysis helps in relaying the scenarios that will occur in case the assumptions made during the capital budgeting process do not materialize. Managers can determine the extent of the effects that might occur if a project does not deliver. It makes sensitivity analysis a very crucial process during any capital budgeting process. It helps in managers...
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...Balanced Scorecard Key Concept Explanation The balanced scorecard, first introduced by Harvard business professor Robert Kaplan and business consultant David Norton, is a performance measurement system (Peters, 2014). In the early 90s, as the concept of the balanced scorecard was introduced, companies largely used financial standards to measure performance. The financial evaluations were highly focused and lacked an evaluation of strategic objective (Janes, 2014). The balanced scorecard provides performance measurement that includes four main perspectives including financial, customer, internal business processes and learning and growth. Key performance indicators (KPIs) are chosen for each section based upon strategic objectives. Once established the KPIs can be laid out into a strategy map that creates an easy visual aid. The strategy maps allows for easy dissemination from management to employees with clear understanding. In determining the KPIs, the objective is to look at the strategy at hand and determine the causal relationship, answering the “if” and “then” questions (Janes, 2014). The cause and effect relationship is advantageous due to its ability to allow qualitative questions to be determined. The balanced scorecard is a commonly accepted performance measurement tool. The evaluation of performance can often be a difficult task. Particularly in the non-profit sector where the financial outlook may not paint a full picture, a balanced scorecard can step...
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...Putting the Balanced Scorecard to Work Managers recognize the impact that measures have no performance but they think that measurement is an essential part of strategy. Effective management however is an integral part of management process. New strategies and process are being introduces to improve performance without examining whether old measures of performance are relevant or whether new one is necessary. The balanced scorecard combines an effective measurement system that help a company’s strategic objectives with a management system that can help drive changes in key areas such as products process customer and market development. The scorecard presents manager with four different perspectives from which to choose measures.it compliments traditional finance indicators with measures of performance for customer internal process and innovation and improvement activities. The measure of the balance scorecard helps focus a company’s strategic vision encourages thinking about current and future success and helps provide a balance between external and internal measures. This helps manager to see what tradeoffs they are making among their key success factors. Looking at the balanced scorecard measures of a company which should be different for every company it should be clear that what is the company strategy. Many companies used balance scorecard. Rock water a global engineering and Construction Company used balanced scorecard to respond to their changing industry. The CEO &...
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...The Balanced Scorecard What is it? Definition: * The Balanced scorecard is a management system that enables organizations to clarify their vision and strategy and translate them into action. * Scorecard allows for actionable terms derived from company strategy. * Makes it easier for management to carry out strategy. * “A system that balances the historical accuracy of financial numbers with the drivers of future performance, while also assisting organization in implementing their strategies” * The term “Scorecard” signifies quantified performance measures and “Balanced” signifies the system is balanced between: * Short-term and long term objectives * Financial and non-financial measures * Internal and external performance perspectives When it started… * Developed in the early 1990's by Drs. Robert Kaplan and David Norton. * The Balanced Scorecard is the most commonly used framework for ensuring that agencies execute their strategies. * Today, about 70% of the Fortune magazine 1,000 companies utilize the Balanced Scorecard to help manage performance. The Balanced Scorecard Why do it? In just 90 days, Sandia Labs was able to redirect $190,000 in savings by dropping initiatives that didn’t fit their overall strategy. “The BSC has forced our management team to focus beyond financial measures… too often in the past we would get sucked into short-term thinking.” “The BSC dramatically improved our data analysis…...
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...Volume 17, Number 1, July Anand, Manoj, B. S. Sahay and Subhashish Saha (2005): Balanced Scorecard in Indian Companies, Vikalpa, Volume 30, Number 2, April – June. Batra, R. (2006): The Balanced Scorecard: An Indian Perspective, ICFAI Journal of Management Research, Volume 5, Number 8. Baldwin, C and Clark, K (1992). “Capabilities and Capital Investment: New Perspectives on Capital Budgeting,” Journal of Applied Corporate Finance, 5(2), 67-82. Emmanuel, C and Otley, D (1995). Readings in Accountingfor Management Control, London: Chapman and Hall. Ittner, C.D., Larcker, D.F., 1998. Innovations in performance measurement: trends and research implications. J. Manage. Acc. Res. 10, 205–239. Jeans, M and Morrow, M (1990). “Performance Measurement in the UK Industry,” Journal of Cost Management for the Manufacturing Industry, 3(1), 51-54. Joshi, P L (2001). “The International Diffusion of New Management Accounting Practices: The Case of India,” Journal of International Accounting, Auditing, and Taxation, 10(1), 85-109. Kaplan, Robert S and Norton, David P (1992). “The Balanced Scorecard: Measures that drive Performance,” Harvard Business Review, 70(1), January-February, 71-79. Kaplan, Robert S and Norton, David P (1996a). The Balanced Scorecard: Translating Strategy into Action, Boston: Harvard Business School Press. Kaplan, Robert S and Norton, David P (1996b). “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review, 74(1), January-February...
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...people engaged in strategic planning there has been an on-going dilemma. The finished product, the strategic plan, has not communicated and reached the end user. Sure strategic plans are nice to look at, full of bar charts, nice covers, well written, and professionally prepared; but they simply have not impacted the people who must execute the strategic plan. The end result has been poor execution of the strategic plan throughout the entire organization. And the sad fact of the matter is that execution of the strategic plan is everybody’s business, not just upper level management. Upper level management creates the strategy, but execution takes place from the bottom up. Chapter 1 So why do strategic plans fail? According to the Balanced Scorecard Collaborative, there are four barriers to strategic implementation: 1. Vision Barrier – No one in the organization understands the strategies of the organization. 2. People Barrier – Most people have objectives that are not linked to the strategy of the organization. 3. Resource Barrier – Time, energy, and money are not allocated to those things that are critical to the organization. For example, budgets are not linked to strategy, resulting in wasted resources. 4. Management Barrier – Management spends too little time on strategy and too much time on short-term tactical decision-making. Only 5% of the workforce understands their company strategy. Only 25% of managers have incentives linked to strategy. 60% of organizations...
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...The Balanced Scorecard - Measures that Drive Performance Robert Kaplan and David Norton Harvard Business Review OnPoint 2000 Jennifer Oberly Oklahoma Wesleyan University Advanced Managerial Accounting BUSI 5243 Bill Elliott October 04, 2011 The Balanced Scorecard - Measures that Drive Performance The purpose of this article was to look at what information companies are using to rate themselves and determine what areas need improvement. This article focuses on the concept that companies should be taking in a number of factors when determining how they are doing in a market. The authors set to show how using more than just financial information is vital to obtaining the complete picture of how a company is performing. They feel that using four to five key areas provides more accurate information and can show how improvement in one area could be at the cost of another area. The authors spent over a year looking in depth at twelve companies and implementing their balanced scorecard to show that by using a wider array of data elements can provide a better overall evaluation of a companies performance. The target audience for this article is any business or company that is looking to improve their performance. The authors focus on one company and show how applying their balanced scorecard method can help a company plan...
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...Balanced Scorecard Michelle Baird BUS/475 July 15, 2013 Larry Myers Balanced Scorecard Introduction The four quadrants will be addressed in this paper for Cyber Café on the strategic objectives. This will be shown in the form of a balanced scorecard for each section, followed by and explanation on how these objectives will be met. By the end of the paper you (the reader) will have a better understanding of Cyber Café’s strategic objectives for the four quadrants of its balanced scorecard. The purpose of a balanced scorecard for Cyber Cafe is to be able to align the company’s business activities to the strategy’s and vision of the company. In this section Cyber Café will implement the use of a balanced scorecard to help understand and visualize the strategic objectives of the company. This will also help the company be able to analyze the performance of the employees and the business. The four quadrants of a balanced scorecard are: 1) Customer values 2) Financial prospective and shareholder value 3) Process of internal operations 4) Learning and growth prospective The following tables are the balanced scorecard of Cyber Café. This will show Cyber café’s various strategic objectives and tactics in different areas of the business. Financial: | Objective | Measures | Target | Initiatives | | First year | Meet budget growth targets. | Revenue growth versus budget targets. | Budget targets for growth. | Achieve financial sustainability...
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...Since the 1990s, the Balanced Scorecard system has cut a path in business as a more rigorous way to measure performance by quantifying what had been considered intangible assets, such as human capital, information, and culture. The system draws strength from four perspectives: 1) financial measures; 2) customers; 3) internal processes; and 4) learning and growth. Developed by HBS professor Robert S. Kaplan, chairman of the Balanced Scorecard Collaborative, and David P. Norton, co-founder with Kaplan and president of the Balanced Scorecard Collaborative, the system has led to three books that take the ideas further, starting with The Balanced Scorecard: Translating Strategy into Action (1996) and The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (2000). Most recently, Kaplan and Norton have built on the original, four-perspective model of the Balanced Scorecard, and they link it with the time-based dynamics of strategy in their latest book, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Harvard Business School Press, 2004). In this e-mail interview, Kaplan discusses Strategy Maps' practical lessons for business leaders. Martha Lagace: Why should companies learn more about the benefits of strategy maps? What could companies be doing better than they are now? Robert S. Kaplan: A strategy map provides a visual representation of the organization's strategy. This is truly an example of how one picture is...
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...INTRODUCTION The balanced scorecard is a strategic management technique for communicating and evaluating the achievement of the mission and strategy of the organization. A more recent contribution to strategic management accounting that emphasizes the role of management accounting in formulating and supporting the overall competitive strategy of an organization is the balanced scorecard. The balanced scorecard seeks to encourage behavior that is consistent with an organization’s strategy. It comprises of on an integrated framework of performance measurements that aim to clarify, communicate and manage strategy implementation. The need to integrate financial and non-financial measures of performance and identify key performance measures that link measurements to strategy led to the emergence of the balanced scorecard. Only the critical performance measures are incorporated in the scorecard. The scorecard can provide top management with a fast but comprehensive view of the organizational unit. THE CUSTOMER PERSPECTIVE Philips set operating efficiency as its strategic theme. To get more customers to buy the Philip’s products by attract customers with new products, make a promotion every festival time and give free gift for who are buying the Philip’s products. The customer and market segments should be identify by the customer perspective in which the business unit will compete. The revenue element for the financial perspective objectives is make by the customer perspective...
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...Management Tool - Balanced Scorecard The idea of using Balance Scorecard like a tool for management effective development, firstly was introduced by Robert Kaplan and David Norton. They called their operation Balance Scorecard, for stressing balance of this system, which should be measured by system called Scorecard. The meaning of this concept – embodies managers’ view in reality and link strategy with operative activity, and cost factors. Main purpose of BSC – this system connected with business actions, which directed on customer satisfaction and all employees involved in it. BSC have differences from traditional management, which concentrated only on financial data, because this system orienting managers on adequate strategic development. BSC have some usage scenarios • Creating and using strategic plans in aim of strategic management • Using aims for evaluating departments and officials activities • Using aim for evaluating processes and functions of company We can assume that the aims of any company could be increasing profit and capitalization. It is clearly seen this is contradictory. For maintaining optimal balance between this aims, experts should find solution about as far as is necessary to increase profitability and capitalization, and fix this decision in two values. For reaching first aim of company decide to sell more and spend less. For second aim – invest money in new equipment debugging new production, it means...
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...Analysis The Balanced Scorecard (BSC) was an idea that was developed in the early nineties by Kaplan and Norton as an approach towards performance evaluation. The scorecard has four perspectives; the financial perspective, the customer perspective, the internal business processes perspective and the learning, growth and innovation perspective. The financial aspect requires that for an organization to succeed financially there is need to improve on the shareholder value, realize return on capital and also to utilize efficiently the available assets. The Zoogle Company benefitted financially because they registered improved market share value in the stock exchange for three consecutive years after inception of the scorecard. The customer perspective tends to answer the question,’ to realize our vision, how should we present to our customers?’ This would be through ensuring better products and services for customer satisfaction, enabling good customer relationships and making sure the company reputation is jealously protected. Zoogle noted some improved customer interest in their software business through a customer feedback program. Some even suggested what they would prefer to continue getting and what should be changed. This obviously impacted positively on the company’s revenue. The internal business processes perspective tends to identify the processes that can be altered so that both the shareholders and the customers are impressed. This would be through...
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