Balanced Scorecard
Last years foreign literature on economics very often was written with criticism about traditional financial indicators, the source of which is accounting system and financial accountabilities as foundation for managerial decision-making. This criticism turns to historical character of these measures that considerably reduces their value for managerial decision-making policy.
Balanced Scorecards (BSC) were worked out by Robert Kaplan and David Norton in 1992 to solve a simple problem: more complete and harmonious presentation of company work effectiveness. They have broadened the kit of measurable organization’s parameters including not only financial information, but also information about customers, business process, learning and growth. However BSC is not a simple set of financial and non financial indicators. BSC force to think about marketing, HRM, use of information technologies, creation of corporate culture – such important things without which it is impossible to lead business in information epoch.
BSC showed itself as quite flexible and universal method that can be used in different parts of the world. Consulting companies in all regions accepted and adapted it according to operating on their market traditions without essential changes in metrics construction. Method can be used in different fields: known examples of its application in banking, public health, government authorities, insurance, telecommunications, Nonprofit Organizations and some others.
The aim of the work is to learn BSC and possibility of its implementation in Ukraine.
Tasks:
1. To find out the history of BSC beginnings.
2. To study content of BSC.
3. What advantages does implementation of BSC offer?
4. To determine necessity of BSC usage in Ukraine.
5. To learn possibility of BSC implementation in Ukraine.
The Balanced Scorecard method of Kaplan and Norton is a strategic approach, and performance management system, that enables organizations to translate a company's vision and strategy into implementation, working from 4 perspectives:
The Balanced Scorecard method of Kaplan and Norton is a strategic
approach, and performance management system, that enables organizations to
translate a company's vision and strategy into implementation, working
from 4 perspectives:
- Financial perspective.
- Customer perspective.
- Business process perspective.
- Learning and growth perspective.
This allows the monitoring of present performance, but the method also
tries to capture information about how well the organization is positioned
to perform in the future.
Benefits of the Balanced Scorecard
Kaplan and Norton cite the following benefits of the usage of the
Balanced Scorecard:
- Focusing the whole organization on the few key things needed to
create breakthrough performance.
- Helps to integrate various corporate programs. Such as: quality,
re-engineering, and customer service initiatives.
- Breaking down strategic measures towards lower levels, so that unit
managers, operators, and employees can see what's required at their
level to achieve excellent overall performance.
1. The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial
data. Timely and accurate funding data will always be a priority, and
managers will make sure to provide it. In fact, there is often more than
sufficient handling and processing of financial data. With the
implementation of a corporate database, it is hoped that more of the
processing can be centralized and automated. But the point is that the
current emphasis on financial issues leads to an unbalanced situation with
regard to other perspectives. There is perhaps a need to include
additional financial related data, such as risk assessment and
cost-benefit data, in this category.
2. The customer perspective
Recent management philosophy has shown an increasing realization of the
importance of customer focus and customer satisfaction in any company.
These are called leading indicators: if customers are not satisfied, they
will eventually find other suppliers that will meet their needs. Poor
performance from this perspective is thus a leading indicator of future
decline. Even though the current financial picture may seem (still) good.
In developing metrics for satisfaction, customers should be analyzed. In
terms of kinds of customers, and of the kinds of processes for which we
are providing a product or service to those customer groups.
3. The Business Process perspective
 This perspective refers to internal business processes.
Measurements based on this perspective will show the managers how well
their business is running, and whether its products and services conform
to customer requirements. These metrics have to be carefully designed by
those that know these processes most intimately. In addition to the
strategic management processes, two kinds of business processes may
be identified:
- Mission-oriented processes. Many unique problems are
encountered in these processes.
- Support processes. The support processes are more repetitive
in nature, and hence easier to measure and to benchmark. Generic
measurement methods can be used.
4. Learning and Growth perspective
This perspective includes employee training and corporate cultural
attitudes related to both individual and corporate self-improvement. In a
knowledge worker organization, people are the main resource. In the
current climate of rapid technological change, it is becoming necessary
for knowledge workers to learn continuously. Government agencies often
find themselves unable to hire new technical workers and at the same time
is showing a decline in training of existing employees. Kaplan and Norton
emphasize that 'learning' is something more than 'training'; it also
includes things like mentors and tutors within the organization, as well
as that ease of communication among workers that allows them to readily
get help on a problem when it is needed. It also includes technological
tools such as an Intranet.
The integration of these four perspectives into a one graphical
appealing picture, has made the Balanced Scorecard method very successful
as a management methodology.
Norton and Kaplan presented interaction of four Balanced Scorecard components in strategic map. The map gives in detail Scorecard illustrating dynamics strategic development and making more clear focus on fundamental directions. Strategic map gives universal and consecutive method of strategy formulation so that we can define aims and indicators and also manage them.
In the issue of studying companies that have implemented BSC, authors marked out five principles of strategy oriented organizations:
1. Transfer of strategy to operating level.
2. Creation of organization strategic correspondence.
3. Strategy as staff‘s everyday work.
4. Strategy as continuous process.
5. Activization of changes as result of active leadership.
Balanced Scorecard is becoming more and more popular. There are many evidences of it. These are the enormous quantity of publications and new books on this subject, full houses on conferences and seminars devoted to BSC implementation, growth of number of clients of consulting companies that realize this method. Hundreds of organizations all over the world have approved it.
BSC is applicable to Ukraine. But in our country this conception just appears. BSC is new tendency that has just entered the market the estimate of its real application is absent. Low level of practical BSC realization as control system in Ukraine identifies that there haven’t yet been formed necessary culture of productive relations and observed insufficient understanding of this technology potential.
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