In simple terms, the Balanced Scorecard is used to measure performance in an organization or track progress. It is a performance management tool which uses design methods and tools to help managers gauge and monitor the activities of employees as well as the impact of the consequences that result from these activities.
There are two broad forms associated with the Balanced Scorecard (BSC). It can be a scorecard of each employee in a company in terms of performance and the measures to be taken to control or manage performance. Also, it is a strategic management system that does not only focus on operating an organization and managing it with the use of financial measures. The second form was developed in the 1990s by David Norton and Robert Kaplan.
The BSC of today, which is popular among companies, has three characteristics that define this management tool. First is the focus on the strategy of the organization. The second has something to do with data mining or the selection of data that will be monitored. And the third one is a strategy that employs both financial and non-financial data.
Although this technique uses measurement to track, monitor and control the performance in an organization or company, the Balanced Scorecard is considered a management system. In order for a business to survive, companies need to make use of what is known as the “Four Legs of the Balanced Scorecard”. These are perspectives or design models that are crucial to make planning, implementation and achievement of the business strategies possible.
This is where aspects about customer experience are measured. These include customer satisfaction, their demands or expectations when it comes to performance related to the products or services a company offers.
This principle is about the financial status or performance of the company and how well is it handled.
Internal Business Process Leg
This monitors and tracks the requirements for critical-to-customer process.
Knowledge, Education and Growth Leg
This is about how an organization deals with improving the knowledge and skills of employees as well as how the management captures its knowledge and apply it to make a cut in the industry.
Since the Balanced Scorecard aims to help organizations manage the business better and equip managers with the tools to use metrics to achieve company goals, it has been adopted by organizations. However, it does not come without advantages and disadvantages. While it can work for some organizations and business structures, it might not be good for other companies. Let us take a look at the benefits and drawbacks of the BSC.
List of Pros of Balanced Scorecard
1. Provides a Clear Picture
Proponents for the application of the Balanced Scorecard posit that this is a systematic and methodological tool. As such, it is able to provide visual means of how the goals of the organization are being met and the plan of action necessary to achieve these goals. Since the BSC has different legs or perspectives, measurements are shown separately, making it easier to visualize and understand.
2. Indicates Company Performance
Supporters of Balanced Scorecard say that if it is used correctly, managers will be able to monitor performance of employees and create a plan of action while the organization will able to track the success of the company in terms of finances. As for the monitoring of the sales team, for example, BSC will be able to show how many leads have been generated or how many clients are lost. When the numbers are out, management will be able to know if results are negative or not. This can help in the planning and implementation of goals.
3. Makes Goals Achievable
If the Balanced Scorecard is used properly, organizations will be able to solve issues about the important aspects of the business such as customer satisfaction, employee’s skills and knowledge and internal business process. This will provide management metrics and be able to come.
List of Cons of Balanced Scorecard
1. Expensive and Time Consuming
Some managers say that despite the effectiveness of the balancer scorecard to measure performance and as a strategic planning tool, it also has drawbacks and two of these are cost and time. They claim that in order to apply the tool correctly, it is of utmost importance to have a thorough understanding of how the process works .If there is no one in the company who has the sufficient knowledge, there will be a need to hire a consultant or an expert and this can be costly. Moreover, the entire team responsible for the tracking and monitoring should have the knowledge of how SBC works. These include understanding its importance as well as the need to balance the scores. All these are not simple and require trainings.
2. Requires Data Mining
Critics of BSC claim that this tool demands obtaining information from managers and will require them to log and monitor the team. It also requires managers to create measures and plan of action, which can be tedious. Eventually, the performance of managers can be affected. Another concern about information is the possibility that it can be inaccurate. Since there will be several information that will be used for measurement, there is no assurance that the right elements will be derived.
3. Poor Support from Employees
Skeptics of the efficacy of the SBC say that there will be employees and managers who will not welcome this management tool with open arms. This is because learning and understanding the balanced scorecard needs time and training. Consequently, members of the team as well as the managers will have to put some extra time and effort to learn. This can affect productivity as well as their time.
The Balanced Scoreboard is an effective strategic planning method since it sends indicators on different aspects of the business, from employee performance to customer experience. Although it does have disadvantages, these are more on the cost and training needed. If an organization feels that these setbacks are manageable and can be addressed, the benefits of the SBC can outweigh its drawbacks.
Brandon Miller has a B.A. from the University of Texas at Austin. He is a seasoned writer who has written over one hundred articles, which have been read by over 500,000 people. If you have any comments or concerns about this blog post, then please contact the Green Garage team here.