Balanced Scorecard

How successful does it work in business life

Introduction
The existence of strategic management has arisen as a significant issue in the
21st century. Modern companies give strategic matters an important role as it
provides firms and its shareholders with wealth and is predicting an increasingly
successful future.
Business studies include immense information about strategic issues and
theories. The balanced scorecard (BSC) is known as a modern, appreciable and
strategic instruments, which is used widely by companies to work on strategic
matters.
This

paper

is focusing

on

the

use

of

the

BSC,

its

development and

implementation in business life.

Development
Robert Kaplan and David Norton, the inventors of the BSC, were driven by two
main aspects:
Firstly, companies prefer financial terms to measure performance. Therefore,
ratios can only be compared to numbers of previous periods and do not affect the
future performance accordingly. Terms such as customer satisfaction, technology
progress, employee commitment cannot be considered.
Secondly, it comes to the fact, that managerial actions include more and more
strategic initiatives. Whereas, the management is not used to measure strategic
success correctly or at all. Leadership is affected with a strong focus on creating
increasingly wealth for its shareholders and rather works on introducing new
strategies accordingly.
Furthermore, an explanation of the author Lynch is that strategic plans were not
translated into measures that managers and employees could understand and
use in their daily work (2012).
Shareholders and the leadership were missing the fact that the operating part of
an organization, which include mostly the day-to-day work, needs to be involved
in strategic arrangement strongly.

According to Morden strategic management is described as the character and

direction of the enterprise as a whole (2007). Strategic plans and innovations
should be introduced to every department of a firm.
Kaplan and Norton divide an organization in three segments, which should help
implementing strategies into the whole company:

Management Leadership and decision-making-procedure

Business includes quality of products, customer satisfaction, design, etc.

Work operating part

The above mentioned sections need to be linked with the financial ratios, which
present the control part of performance measure and are an essential part of
strategy planning.
However, main aspect of Kaplan and Norton was to connect financial terms and
strategic issues with the operating sector of a firm.
Consequently, every employee is affected with strategic matters and the process
of reconsidering on how each individual work is connected to strategic planning
and decision-making, has started.
Definition and Structure of the BSC
The BSC uses strategic and financial measures to assess the outcome of a
chosen strategy. It acknowledges the different expectations of the various
stakeholders and it attempts to use a `scorecard` based on four prime areas of
business activity to measure the results of the selected strategy. (Lynch, 2012).

Figure 1: Balanced Scorecard Framework (Kaplan and Norton, 1996)

Four perspectives of the model are essential and explained as below:
Perspectives
Financial

Key topics
Financial
statement

Customer
Internal
Learning

performance
Customer satisfaction & loyalty
Quality of employees and processes
Degree of innovation and future expectations

&

&

shareholders

view

of

Growth
The financial perspective is the most relevant part of the model as all the other
mindsets are based on the financial aims in order to create more wealth for the
shareholders. The perspective of customers and the internal context are
subordinated.
Finally, the perspective of learning and growth, which means to continue the
achieved improvements for the ongoing process while adapting in a highly
competitive environment, is to be considered.
An interdependence between these mindsets is given, for example, a great level
of customer satisfaction is influencing the financial situation in achieving higher
profits.

Likewise, an individual strategy and vision of the company, should be inherent

from all of the perspectives in order to fulfill the strategy.
Each of the perspective is divided in the following four factors:
Objectives

Key topics
What to achieve

Measures
Targets
Initiatives

interest?
Metrics to measure the performance.
Individual goals of departments, employees, etc.
How to use the outcome in the future.

in

satisfying

the

stakeholders

This is the part, where the operating sector is involved. Departments and
employees should define these factors in order to measure their performance.
Benefits of BSC
In past years the hierarchical factor played an important role in companies as the
leadership style of management by delegation was practiced through the top
management. Employees were delegated in implementing their defined tasked.
Accountability was scheduled by the leadership and in that event responsibility
and motivation for innovation was limited.
A new leadership style called management by objectives arose in the 1960s.
The authors Pitt and Koufopoulos explained this management style as follows:
Setting objectives and targets and monitoring performance against them are
characteristic features of all strategic and operational planning (2012). Modern
leadership consists of defining objectives and targets to control the performance
instead of delegating work to employees.
Whereas, the environment on the market has changed immensely due to
globalisation. Issues like the occurrence of new technologies, increasingly
importance of the internet, less barriers were given in doing global business
together or the increased level of export is affecting the competitive situation of
companies.
Management was forced to overthink former ways of achieving profits and
gaining market shares in order to stay successful and competitive on the market.

The aspect that the management style needed innovation, emerged out of the
condition that firms experienced the need to adapt to the upcoming changes the
globalisation has brought with.
Companies lost market shares and customers because they followed previous
strategies and old pattern. Additionally, they did not make enough effort to
match their business goals to the requirements of the 21 st century, in which the
internet affects business issues in an increasingly significant way.
Throughout the introduction of the BSC employees started to have the awareness
on how their individual work influence the strategic policies, which are
implemented by the management and were not communicated to the operating
staff before. The awareness that the every-day-performance of each employee is
responsible in fulfilling long-term strategic aims was created. The hierarchical
factor of leadership has become less important.
However, the business world and its competitive conditions are constantly
changing. Employees in the 21st century are facing a process that includes lifelong learning and an innovative attitude. In that event, the BSC helps to reeducate the employees and align them to the modern market conditions.
BSC is it a successful theoretical concept?
Introducing the concept of BSC into a company is to be seen as a huge
investment in the first place. It brings enormous costs and massive workload with
it. Objectives, measures and targets needs to be constructed and introduced.
Staff need to be persuaded and should identify with the BSC. Furthermore, the
measurement and improvement steps need to be done and additional employers
are to be hired.
However, investing in an introduction of a BSC is proofed to be worthwhile. The
fact that the theoretical model of Kaplan and Norton is bringing success in
modern business life is described through an example of the company Philips
Electronics.
By introducing the BSC, the aim was that each employee understands the
strategic policies of the leadership and the vision of the company. The awareness
that daily actions are influencing long-term goals should be recognized as a
significant term in their business context.

The motivation in performing duties well is linked with the process of achieving
individual goals.
In this case, objectives, measures, targets and initiatives afterwards are to be
defined by each employee in order to improve the performance of the company
performance as a whole.
Philips Electronics is using an automatic data transferring system that transfers
data from an internal reporting systems to the designed scorecard of each
individual. Employees can check monthly, if they have reached their goals.
The aim that employees do understand strategic policies while working on
individual goals, which are linked to their tasks and responsibility, was a
successful achievement.
Each process and responsibility of the business context can be connected to the
long-term strategy of company. In addition, educating staff to the terms of lifelong learning in working life, is being implanted successfully.
Furthermore, due to implementing the scorecard system to each quarter of the
company worldwide, has led to an additional value for the company itself.
Individual goals and work can be used in a global communication system, so that
employees can share practice experience.
Significant benefits have developed out of introducing the BSC as employees got
aligned successful with strategy issues, problems can be solved more efficient
and cost-effective due to a global network.
As the BSC is providing a successful strategic concept, the company Microsoft has
produces the
Microsoft Balanced Scorecard Framework (BSCF). The aim of the BSCF is to
empower an organization to use the Balanced Scorecard to achieve returns on
people, processes, customers, and information technology (Bloomfield, 2002).
Conclusion
BSC can be seen as a significant model of the 21 st century and became an
important techniques for companies. The fact that a well-established enterprise
like Microsoft has developed an automatic tool that makes the process of
introducing the BSC and measuring it outcome easier for companies to apply to,

is a relevant point, which states that the invention and development Kaplans
and Nortons model has been successful.
Nowadays, considering the technique of the BSC with regard to frame and
develop strategic issue by the leadership has become an important leading
question.