Loading... Please wait...

Categories

Our Newsletter


QuickMBA / Accounting / Balanced Scorecard The Balanced Scorecard Traditional financial reporting systems provide an indication of how a firm has performed

Price:
$16.99
SKU:
112658


Product Description

QuickMBA / Accounting / Balanced Scorecard The Balanced Scorecard

Traditional financial reporting systems provide an indication of how a firm has performed in the past, but offer little information about how it might perform in the

future. For example, a firm might reduce its level of customer service in order to

boost current earnings, but then future earnings might be negatively impacted due

to reduced customer satisfaction.

To deal with this problem, Robert Kaplan and David Norton developed the

Balanced Scorecard, a performance measurement system that considers not only

financial measures, but also customer, business process, and learning measures.

The Balanced Scorecard framework is depicted in the following diagram: Diagram of the Balanced Scorecard Financial Customer Strategy Learning

& Growth Business

Processes The balanced scorecard translates the organization's strategy into four

perspectives, with a balance between the following:

between internal and external measures

between objective measures and subjective measures

between performance results and the drivers of future results Beyond the Financial Perspective

In the industrial age, most of the assets of a firm were in property, plant, and

equipment, and the financial accounting system performed an adequate job of

valuing those assets. In the information age, much of the value of the firm is

embedded in innovative processes, customer relationships, and human resources.

The financial accounting system is not so good at valuing such assets.

The Balanced Scorecard goes beyond standard financial measures to include the

following additional perspectives: the customer perspective, the internal process

perspective, and the learning and growth perspective.

Financial perspective - includes measures such as operating income, return

on capital employed, and economic value added.

Customer perspective - includes measures such as customer satisfaction,

customer retention, and market share in target segments.

Business process perspective - includes measures such as cost,

throughput, and quality. These are for business processes such as

procurement, production, and order fulfillment.

Learning & growth perspective - includes measures such as employee

satisfaction, employee retention, skill sets, etc.

These four realms are not simply a collection of independent perspectives. Rather,

there is a logical connection between them - learning and growth lead to better

business processes, which in turn lead to increased value to the customer, which

finally leads to improved financial performance. Objectives, Measures, Targets, and Initiatives

Each perspective of the Balanced Scorecard includes objectives, measures of those

objectives, target values of those measures, and initiatives, defined as follows:

Objectives - major objectives to be achieved, for example, profitable growth.

Measures - the observable parameters that will be used to measure progress

toward reaching the objective. For example, the objective of profitable growth

might be measured by growth in net margin. Targets - the specific target values for the measures, for example, +2%

growth in net margin.

Initiatives - action programs to be initiated in order to meet the objective.

These can be organized for each perspective in a table as shown below.

Objectives Measures Targets Initiatives

Financial

Customer

Process

Learning Balanced Scorecard as a Strategic Management System

The Balanced Scorecard originally was conceived as an improved performance

measurement system. However, it soon became evident that it could be used as a

management system to implement strategy at all levels of the organization by

facilitating the following functions:

1. Clarifying strategy - the translation of strategic objectives into quantifiable

measures clarifies the management team's understanding of the strategy and

helps to develop a coherent consensus.

2. Communicating strategic objectives - the Balanced Scorecard can serve to

translate high level objectives into operational objectives and communicate the

strategy effectively throughout the organization.

3. Planning, setting targets, and aligning strategic initiatives - ambitious but

achievable targets are set for each perspective and initiatives are developed

to align efforts to reach the targets.

4. Strategic feedback and learning - executives receive feedback on whether

the strategy implementation is proceeding according to plan and on whether

the strategy itself is successful ("double-loop learning").

These functions have made the Balanced Scorecard an effective management

system for the implementation of strategy. The Balanced Scorecard has been

applied successfully to private sector companies, non-profit organizations, and

government agencies. Recommended Reading

Robert S. Kaplan and David P. Norton, The Balanced Scorecard : Translating Strategy into Action In The Balanced Scorecard, the original architects of the system introduce the framework assuming no

prior knowledge by the reader. Kaplan and Norton discuss the need for the Balanced Scorecard,

provide examples of metrics in the four perspectives, and explain how the system can be used to

implement and manage business strategy.

QuickMBA / Accounting / Balanced Scorecard

Home | Site Map | About | Contact | Privacy | Reprints | User Agreement The articles on this website are copyrighted material and may not be reproduced,


Find Similar Products by Category


Write your own product review

Product Reviews

This product hasn't received any reviews yet. Be the first to review this product!


Add to Wish List

Click the button below to add the QuickMBA / Accounting / Balanced Scorecard The Balanced Scorecard Traditional financial reporting systems provide an indication of how a firm has performed to your wish list.