A Performance Measurement Tool Called The Balanced Scorecard Bsc Accounting Essay

1.0 Introduction

This study chiefly discusses a public presentation measuring tool called the Balanced Scorecard ( BSC ) . BSC attack has been found by Kaplan and Norton, and they define BSC as a tool which translates an organisation ‘s mission and scheme into a comprehensive set of public presentation steps that provides the model for implementing its scheme ( Kaplan and Norton, 1996a, cited Horngren et al 1999 ) . In add-on, it measures and concerns both qualitative and quantitative issue in an organisation which in return to pull off its short-run activities to long-run fiscal end. There are normally other public presentation measurings available merely like ratio analysis, entire quality direction ( TQM ) , merely in clip ( JIT ) and economic value added ( EVA ) . Unfortunately, these public presentation measurings simply focus based on fiscal public presentation merely that is to come out ideal fiscal study based on historical informations and it is less important compared to BSC attack.

The major different of these public presentation measurings is that fiscal public presentation is merely concerned with the result of the fiscal study, but is non concerned with the value created whilst BSC attack concerned both fiscal and non-financial public presentation in order to supply better public presentation in individual study by measuring both short-run and long-run activities. Horngren et Al ( 1999 ) mentioned that BSC measures an organisation ‘s public presentation from four cardinal positions: ( 1 ) Financial, ( 2 ) Customer, ( 3 ) Internal concern procedure, and ( 4 ) Learning and growing. However, each of these four key positions has its ain feature in mensurating public presentation expeditiously and will be exemplify more specific with a diagram to demo how these four key positions work at the same time in an organisation.


0 Balanced Scorecard

Balanced Scorecard ( BSC ) attack to public presentation measuring comprises a set of fiscal and non-financial steps that relate to the full scheme of the organisation. Furthermore, BSC integrates fiscal and non-financial public presentation steps and helps to maintain direction focused on all of a company ‘s critical success factors, non merely its fiscal 1s. Besides, BSC helps to maintain short-run operating public presentation in line with long-run scheme ( Jackson et al, 2008 ) .

Guan et Al ( 2009 ) argued that BSC permits an organisation to make a strategic focal point by interpreting an organisation ‘s scheme into operational aims and public presentation steps for four different positions: fiscal position, client position, the internal concern procedure position, and the acquisition and growing position.At the average clip, Kaplan and Norton created the BSC mechanism to set up organisational public presentation system and nexus organisation scheme to steps. Both of them have argued that traditional fiscal measuring like ROI offer a limited and uncomplete image of concern public presentation, and that will impede the creative activity of future concern value.

Therefore, they shout that fiscal steps should be supplemented with extra 1s that reflect internal concern procedures, client satisfaction, and the ability to larn and turn. ( Kaplan and Norton 2001 & A ; 2004, cited Huang et al 2006 )There are typically four cardinal position of BSC introduced by Kaplan and Norton that is client, fiscal, internal concern procedures, and larning and growing. The relationship between these four key positions is shown in Diagram 1 below. Brief illustration of each of these four key positions is provided in following page:

2.1 Customer Perspective

This position focuses on placing client value and market sections. It captures the ablity of the organizaion to supply quality goods and services, and overall client service and satisfaction. Harmonizing to ( Kaplan and Norton 1992, cited Amaratunga 2001 ) , core client value consists of client satisfaction, keeping, client profitableness, and new client acquisition which set up a sustainable long-run client relationship.


2 Internal Business Processes Perspective

Internal concern procedures are the mechanisms through which expected public presentation marks are met. Several concern betterment methodological analysiss available for implementing these concern procedures such as entire quality direction ( TQM ) , just-in-time ( JIT ) , activity based costing and many others. Besides, internal concern procedures perspective purposes on the internal concern consequences that lead to fiscal success every bit good as clients ‘ satisfaction ( Kaplan and Norton 1992, cited Bose and Thomas, 2007 ) .

2.3 Learning and Growth Perspective

With the purpose to success, frequent changing is required for that organisation make continual betterments to their existing merchandises and procedures and have the ability to present wholly new procedures with enlargement capablenesss. In order to run into altering standards and client outlooks, employees may be asked to take on new duties, this may necessitate capablenesss, accomplishments, engineerings, and organisational designs that were non available before ( Kaplan and Norton 1992, cited Amaratunga et al 2001 ) .

2.4 Financial Perspective

Fiscal position provides directors with a clear image of fiscal public presentation of an organisation. Bose and Thomson ( 2007 ) provide that fiscal steps normally used are return on capital employed ( ROCE ) , return of investing ( ROI ) and runing income. Based on the sentiment given by Kaplan and Norton ( 1992 ) , fiscal position steps fiscal public presentation by finding whether or non the organisation ‘s scheme, executing, and execution are lending to bottom-line in order to heighten efficiency of the organisation. However, the aims and measuring of the other positions must be linked to fiscal position. There are normally three strategic subjects of fiscal position itself: Gross Growth, Cost Reduction and Asset Utilization.

Diagram 1

3.0 Benefits of implementing BSC

There are Numberss of benefits of implementing BSC in an organisation.

First, directors can acquire unexpected thoughts and addition creativeness through the feedback made from assorted degrees within organisation, and it aligns cardinal public presentation steps with scheme at all degrees of an organisation. Second, BSC provides direction with a comprehensive image of concern operations and it facilitates communicating and apprehension of schemes and concern ends at all degrees of an organisation. Third, all degrees of an organisation may see maximized cooperation as they are focused on assisting one another win. For case, all degrees of organisation must be give full cooperation to each other and united into one individual entity in order to run into certain demands. As such, an addition in productiveness is come-at-able as the cooperation is at that place, and the fiscal public presentation of the organisation will finally better. Fourthly, an organisation that implements BSC could avoid some unneeded occasions such as struggle, misconstruing between different degrees, linguistic communication barriers and civilization barriers. Next, the construct of BSC is linked both fiscal and non-financial facets into one entity and it facilitates directors in planning, monitoring and commanding long-run schemes so as to come out better and right determinations. Finally, Kaplan and Norton ( 1992 ) provided one of the BSC benefits is to incorporate four cardinal positions and act as an umbrella for a assortment of frequently staccato corporate plan such as re-engineering, quality, procedure redesign, and client service.

For illustration, organisations that adopt BSC can merely incorporate four positions into an umbrella, and they can heighten on both fiscal and non-financial public presentation by concentrating on the peculiar umbrella and so settle the instance.

4.0 Pitfalls of implementing BSC

In general, there are several booby traps of implementing BSC such as barriers among all flat direction in term of civilization, linguistic communication, thought, and so on.

In some fortunes where there are barriers among all degrees of organisation, the fiscal aim of organisation will be misunderstood by lower degree employees as their cognition are non really good compared to middle and top degrees. Besides, linguistic communication barrier has become one of the serious factors, for illustration, if the organisation is communicated in English, decidedly some of the lower degree employees do non understand the intent and intending given by top direction. Furthermore, clip slowdown has become one of the serious factors as good due to things are deal with uncertainness and equivocal. Therefore, the determination today may non be the same as the determination made one hebdomad ago because anything can go on and make large impact towards the determination at anytime. Next, where cause-and-effect relationships are recognized, they are chiefly within single positions, but non between the other positions. In relation to that, conclusiveness is more equivocal as it involves uncertainness about both the agencies and the terminals. For illustration, a pupil who surveies for test does non intend that he/she will finally acquire good consequence, because it depends on how much attempt that he/she put in test and human behaviour may be an impact every bit good.

Finally, immune to alter is something which is really difficult to mensurate as it involved human behaviour. For illustration, when things that we get used to it, most likely we would non desire to alter a new one and this likeliness is applicable to organisational every bit good.


0 Other public presentation measuring

There is another public presentation measuring system called the concern values scorecard ( BVS ) , this peculiar public presentation measuring system is adopted by BAE Systems, an aerospace company in UK. Apparently, the BAE Systems does non follow precisely in term of the construct of BSC and they have created their ain systems called BVS. For illustration, harmonizing to the article written by Jazayeri and Scapens ( 2008 ) , the BVS intended to concentrate everyone within BAE on five cardinal values that are ( 1 ) public presentation, ( 2 ) people, ( 3 ) partnership, ( 4 ) client, ( 5 ) invention and engineering as shown in Diagram 2 below.

Indeed, this cultural undertaking included the development of the BVS to mensurate public presentation by following these five key values. In add-on, BVS concerned that the different positions have to suit together in a consistent manner so that the organisation can organize the actions of the assorted maps and the activities of the concern as a whole. Norreklit and Mitchell ( 2007 ) both have agreed that the coherency of BVS ‘s five cardinal values is necessary in order to organize and incorporate the public presentation direction system as a whole. However, BVS construct does non suitable for all the organisation on the land that every organisation is really curious on its concern aim. For illustration, there is no such thing that everybody like to have on denim, some people prefer cotton ; and some people prefer short bloomerss, it has to depend on suitableness.Business Value ScorecardDiagram 2 ( Beginning: Evans and Price, 1999, p.191, cited Jazayeri and Scapens, 2008, p.

58 )

Performance: Our key to Wining

1. Business unit 3 year hard currency flow2. Business unit value – 10yr.

3. Growth in order book4. Change in overall European Federation for Quantity Management ( EFQM ) mark5. Change in EFQM Business Result mark

Partnership: Our hereafter

1. Growth of provider appraisal evaluation2. Gross saless bringing through partnership3. Change in EFQM mark on impact on society4.

Decrease in Supplier base

Customer: Our highest precedence

1. Change in EFQM2. Gross saless chances transition versus planned3. Growth in client satisfaction

Peoples: Our greatest strength

1. Personal development program ( PDP ) deployment2. Change in EFQM and People satisfaction mark3. Opinion study feedback

Innovation & A ; Technology: Our competitory border


Addition in campaigner for Chairman award2. R & A ; D % of turnover3. Number of best pattern instance surveies4.

Value of new lines of concern5. Number of employees on intranet

6.0 Decision

With the being of BSC attack, every organisation should follow this attack and modify it into ain as what BAE Systems did instead than stress fiscal public presentation entirely. In the circumstance where an organisation manage its non-financial position ( e.g. productiveness, supply better and faster service, addition clients ‘ satisfaction by having their feedbacks ) , the fiscal public presentation will increase automatically even without any sweetening about this facet. As mentioned above, the four key positions play an of import function in an organisation as they guide directors on how to implement BSC within the organisation.

On the other manus, Jazayeri and Scapens ( 2008 ) provides that BSC measures each position as single portion and it measures cause-and-effect relationship whereas BVS takes all its five cardinal values and steps in a consistent manner so as to incorporate and organize the activities of the concern as a whole. However, it depends on which type of public presentation measuring whether appropriate for organisation or non because different types of public presentation measurings sometimes may non suitable to other organisations by assorted internal factors. By the manner, it is really hard to organize and command BVS attack as it requires frequent meetings, and it requires full co-operation between directors and workers from different direction degree.To sum up, BSC enables organisations to manage both of their fiscal and non-financial measurings by finding the four key position in term of Customer, Internal Business Processes, Learning and Growth, and Financial position which are officially introduced by Kaplan and Norton ( 1992 ) .