The Balanced Scorecard: Different Perspectives.

8 Feb

As we all know, the concept of the balanced scorecard is probably the most widely used tool of strategic management. It is a framework which allows the overview of the business performance. As argued in my previous blog the factors which relate to the health of a business can often include the controversial ‘intangible benefits’. Executives seem to have come around to this way of thinking by adopting the balanced scorecard framework of analysing business performance. This framework is commonly used in businesses and in this piece, the question will be posed; is the balanced scorecard the right approach?

Balanced scorecard

Kaplan and Norton introduced the concept in the early 1990’s in an attempt to offer ways of innovative business performance measurement and it was quickly adopted by large scale businesses such as Wal-Mart, Federal Express and General Electric. These firms saw the potential for evaluating the whole business both in terms of financial and intangible benefits. However, it is argued that the BSC has become problematic in terms of the ever changing landscape of business. In a piece by Voelpel, Leibold and Eckhoff, “The Tyranny of the Balanced Scorecard in the Innovation Economy”, they make the case that the BSC may be in danger of becoming outdated as the needs for business alter continuously. They point out 5 main issues with the BSC.

  • Rigidity: The BSC is claimed to be too rigid in terms of placing every perspective into one of the 4 categories (Financial, Customer, Internal Business, Innovation and Learning).
  • External innovative connectivity hampered.
  • Struggle to deal with challenges of competitive and changing business world.
  • Limitations of dealing with knowledge creation, learning and growth.
  • BSC grounded in a mechanistic mind set.

The authors of this piece go as far as to say the BSC is “tyrannical” and “outdated” which is, when viewed as a whole, slightly unfair. What about the countless mega-businesses adopting the approach successfully? The key to successful adoption of the BSC lies in the efficient implementation of the tactic according to Kaplan and Norton. They point out, “The exemplar organizations developed and used the scorecard to translate their strategies into linked cause-and-effect relationships that could easily be understood and communicated to the entire organization.” In effect, what is being said here is that in order for the BSC to work in a business, the underlying strategy must always be present and guiding the business.

Sources:

1. “The Tyranny of the Balanced Scorecard in the Innovation Economy.” Voelpel, S,C; Leibold, M; Eckhoff, R, A. Journal of Intellectual Capital. Vol. 1 Issue 7. 2000. http://www.emeraldinsight.com/journals.htm?issn=1469-1930&volume=7&issue=1&articleid=1537446&show=html&PHPSESSID=qmu88qtummmprh5ds8ben48jg0

2. “The Strategy Focused Organization”. Kaplan, R,S; Norton, D,P. Harvard Business School. 2001. USA. http://books.google.ie/books?hl=en&lr=&id=6sC_X4DR-WoC&oi=fnd&pg=PR7&dq=balanced+scorecard&ots=uTH2hN7tix&sig=UXGDbMbfYd6ipnJEOdK0hPzJElU&redir_esc=y#v=onepage&q&f=false

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