On the Conceptual Basis of the Balanced Scorecard by Kaplan - Article Example

This paper looks at evaluating the article titled “Kaplan (2010) On the Conceptual Basis of the Balanced Scorecard”. The analysis of the article is divided into three parts where the first part looks at providing details about the article, the author idea and provides concept that the article contains. The second part presents strength and weakness that the article has and the last part presents the implications which the article has for managers. This will thereby help to critically evaluate the article and provide an opportunity to look at different dimensions which the article provides. The article highlighted the manner in which management needs to integrate intangible assets in their planning process so that better value creation can be achieved. It was seen previously that businesses just used financial parameters to identify the value creation that the business was achieving for its stakeholders (Kaplan, 2010). The non financial aspect was ignored. Using the non financial parameters helped to analyze the performance of the company in a better way and helped managers to take better decisions. The article also showed the manner in balance score card can be changed depending on the different needs of the organizations so that the desired results are achieved. The article highlighted the manner in which managers can move away from the traditional method of understanding their performance to one which is more accurate and includes different parameters. Including the non financial parameters helps managers not only to understand their present performance but also helps to improve the future forecast as including the non financial parameters in the planning process provides better results (Faupel, 2012). The article highlighted that the balance score card focuses on four process which looks at ensuring that the short term activities are translated into long term objectives. This thereby helps to create the required focus for the future and provides an opportunity through which future planning is improved. On the forefront the balance score card looks at translating the vision into measurable objectives. This is achieved by identifying the non financial parameters based on which performance evaluation will take place. This thereby provides important metrics through which performance evaluation is carried out and provides better decisions. This is supported by the fact that balance score card looks at communicating and linking the entire organization (Kaplan and Norton, 2002). The focus is towards passing information to all levels and having individual performance evaluation chart thereby directing the manner in which work needs to be carried out. This helps to improve planning as it provides a better forecast for the future and provides an opportunity through which resource planning is improved. At the end balance score card helps to provide useful feedback and improves the learning process as different directives and areas which need to be improved can be easily identified. The overall process thereby helps to improve performance metrics and provides useful information to managers through which better decisions can be taken (Zizlavsky, 2014). The article also brought forward the manner in which balance score card helps organization to align the management process and focuses towards implementing long term business strategy so that better results are achieved. Since, the balance score card is developed and used in such a manner it has a cause and effect linkage (Kaplan and Norton, 2004). Making changes in certain areas brings about major ramifications in the different areas. This thereby reinforces the changes and provides different results through which overall business process is better developed and shaped. The article also highlighted the manner in which balanced score card provides an opportunity to have consistency. Since it becomes difficult for businesses to ensure consistency when major changes in the strategies are undertaken, consistency achieved can be achieved through balanced score card. This helps to improve the manner in which business works and links the entire processes towards achieving better results (Rillo, 2004). The balanced scorecard is thereby a tool which will help businesses to improve the manner in which different work is carried out and will help to gauge the performance of the business in a better way as using the different metrics better results can be achieved. The tool provides managers with better forecasting and provides an opportunity to gauge the real value creation that the business has been able to achieve through the different financial and non financial parameters. The article brings forward different strengths and weakness which the balance scorecard possesses and the manner in which it has different relevance for different people. The article brings forward the manner in which balance scorecard had different beneficial values for the one implementing it. The main benefits which has been highlighted in the article is the manner in which it contributes towards effective implementation of the business strategies (Molleman, 2007). Different proponents argue that balance scorecard doesn’t help to clearly establish the relationship between performance and non financial parameters but since it is being used by thousands of proponents it shows that organizations derive perceived or real values through it. The article shows that balance scorecard helps to reduce the inadequacies that the traditional financial performance measurement tools has and adds new dimension to the business process. The traditional financial performance tools analyzed past performance and based on it provided the future strategies which can be undertaken but balance scorecard takes into account the current situation thereby helping the business to take better decisions and analyzes the entire situation in proper light. Further traditional measurement tools helped business over different periods like quarterly, monthly and so on as financial figures were available then but balance scorecard can be carried out anytime thereby ensuring better analysis (Bigliardi and Bottani, 2012). The balance scorecard thereby provides past, present and future performance and helps managers to be better placed to take different business decisions. It is true that all aspect of the balance scorecard doesn’t provides the desired results but since the tool is still evolving and developing it has helped to ensure constant changes which business requires. Since balance scorecard is interpretive it has helped organizations in different directions (Niven, 2014). Its usage is being witnessed in different fields and arenas which has provided different results and has helped organizations. It has thereby provided different benefits depending on the purpose for which it is being used and the manner in which it would ensure gains. In addition to it balance scorecard primarily focuses on strategy, structure and vision. The focus of the tool is to find out the manner in which implementation strategy can be developed and the manner in which use of resources would improve. The balance scorecard provides an opportunity for managers to monitor the execution strategy by having a proper linkage between cause and effect thereby providing an opportunity to linking employees activities with the implementation strategy which has been identified (Giannopoulos, Holt, Khansalar and Cleanthous, 2013). This helps the organizations to solve issues related to organizational structure, specialization and different hierarchy which are present within the organization. The importance can be seen from the fact that failure rates have reduced for organizations implementing the balance scorecard as the different gains which organizations get from it is immense. As a result the balance scorecard shows the manner in which different gains are evident and has been highlighted in the article. The article has brought forward the manner in which organizations have been able to develop its strategies and mould the manner in which different activities are carried out. Despite the different strengths which the article has highlighted about the balance scorecard it has certain limitations which impacts the usage of balance scorecard. It is seen that the results which are achieved from balance scorecard is unidirectional and simple. This thereby doesn’t provides the actual gain which the cause and effect relationship should provides and has impacted the overall performance. This is being substantiated by the fact that it doesn’t considers the time dimension and the manner in which it impacts cause and effect relationship is being neglected. The process of using balance scorecard also lacks validation (Bremser and Barsky, 2014). This thereby has a negative impact on the outcome as the different parameters which need to be considered are not clearly highlighted. This results in improper decision making as including the non important parameters at times doesn’t provides the desired results which thereby has an impact on the manner in which performance evaluation takes place. The article also shows that balance scorecard lacks a certain degree of integration especially between the top level management and the lower level management (Hoque, 2014). This makes the process of implementation difficult as it doesn’t provides the required directives through which measurement of performance can be improved. The focus is primarily internal which has been criticized by many proponents as it doesn’t consider the external factors. Despite the different limitations the balance scorecard is continuously evolving and has helped organizations to gauge their performance on different indicators. This has helped organizations to ensure better forecast and with continuous changes and developments taking place the usage of balance scorecard is bound to increase in the near future. The author through the article has brought forward the different practical implication that balance scorecard has and the manner in which it can help organizations. The implication for business is that it has provided an opportunity for managers to realize that intangible assets have a role in value creation and not including those while measuring performance doesn’t reveals the actual picture (Madsen and Stenheim, 2014). This has thereby ensured its wide usage in different areas like performance measurement, decision making support system, improvement of intellectual capital, and develop an employee incentive system through which better management is achieved. The balance scorecard focuses on four metrics namely financial, customer, internal process and learning and growth metrics. Using this four metrics through the balance scorecard approach has helped organizations to develop the required parameters through which performance is improved and better results are achieved. The other implication for business is that balance scorecard is used as a strategic management tool. This has thereby helped to develop a strategic management system which focuses towards better and informed decisions so that operational performance can be improved. This leads towards improved coordination of the different process and helps to control a wide range of management functions so that performance is shaped in a better way. The tool has also provided the managers with an opportunity to gauge the actual performance in a better way as using intangible assets and understanding the contribution that they make in the process helps to deliver superior results (Basuony, 2014). This ensures better planning and develops the required process through which effectiveness in seen in the working dimensions. The overall results are better shaped and as per the desired needs and requirements of the business. The balance scorecard has helped the management to draw a bigger and better picture regarding the manner in which the different non financial parameters contribute towards value creation. This has helped to work on different arenas and direction through which value creation can be further maximized. The level of decision making as a result has undergone widespread changes and has provided an opportunity through which business development has become possible (Chow, Haddad and Williamson, 2013). The overall impact has been positive and has lead towards changes. The tool is still in its developing phase and is constantly undergoing changes based on the needs and requirements of the business. This has led towards finding out the different areas through which improvements can be met. The tool is thereby assisting business to work on a model where different aspects which have a control on business is identified and the manner in which value creation can be achieved is better identified. The paper thereby presented the manner in which balance scorecard has evolved and has helped managers. The paper provides a complete description and critical analysis of the article titled “On the Conceptual Basis of the Balanced Scorecard” by Kalpan and shows the manner in which it has helped business. The paper provides description about the strength and weakness that the article provides and the practical implication it has for business. This will thereby help business and managers to take better decisions and would provide the required tool and framework through which effective functioning would take place. References Bremser, W.G and Barsky N.P. 2014. Utilizing the balanced scorecard for R&D performance measurement. R&D Management. 34(3), 229-238 Bigliardi, B. and Bottani, E. 2012. Implementing the balanced scorecard in the mechanical industry: Evidence from a case study. International Journal of Management and Decision Making. 11(2), 140-162 Basuony, M. A. K. 2014. The Balanced Scorecard in large firms and SMEs: A critique of the nature, value and application. Accounting and Finance Research, 3 (2), 14-22. Chow C.W, Haddad K.M and Williamson, J.E. 2013. Applying the balanced scorecard to small companies. Management Accounting. 79(2), 21-27 Faupel C. 2012. Value-based performance management. Advances in Management Accounting. 20, 187-208. Giannopoulos, G., Holt, A., Khansalar, E., and Cleanthous, S. 2013. The use of the balanced scorecard in small companies. International Journal of Business and Management, 8 (14), 1-22. Hoque, Z. 2014. 20 years of studies on the balanced scorecard: Trends, accomplishments, gaps and opportunities for future research. The British accounting review, 46(1), 33-59. Kaplan, R. S. 2010. Conceptual foundations of the Balanced Scorecard. Harvard Business School, Working Paper 10-074. Kaplan, R. S., and Norton, D. P. 2002. The strategy-focused organization: How Balanced Scorecard Companies thrive in the new business environment, Internal Auditor, 59 (1), 21-22. Kaplan, R. S., and Norton, D. P. 2004. Strategy maps: Converting intangible assets into tangible outcomes. Boston: Harvard Business School Press. Madsen, D. O., and Stenheim, T. 2014. Perceived benefits of balanced scorecard implementation: Some preliminary evidence. Problems and Perspectives in Management, 12 (3), 81-90. Molleman, B. 2007. The challenge of implementing the Balanced Scorecard.The proceedings of the 6th Twentieth Student Conference on IT, Enschede, 2nd February 2007. Niven P.R 2014. Balanced Scorecard Evolution: A Dynamic Approach to Strategy Execution. Hoboken: John Wiley & Sons. 368p Rillo, M. 2004. Limitations of balanced scorecard. Proceedings of the 2nd Scientific and Educational Conference, Business Administration: Business in a Globalizing Economy, Parnu, 30-31 January 2004, 155-161. Zizlavsky, O. 2014. The Balanced Scorecard: Innovative Performance Measurement and Management Control System. Journal of Technology, Management & Innovation. 9 (3), 1-12 Read More