(b) The balanced scorecard assesses the key areas of business performance not just the financial aspects and as such is a more ‘balanced’ view of performance.
The balanced scorecard approach focuses on four different perspectives: customer, financial, internal and innovation and learning.
The financial perspective focuses on shareholder value and long-and short-term profitability..
The customer perspective focuses on customer needs and customers' perception of the company.
The customers' perspective is considered important because it has an impact on long-term profitability. Even if the company is profitable in the short-run, it will not be able to sustain profitability if it cannot maintain and increase a satisfied customer base.
The innovation and learning perspective considers our own ability to improve our internal procedures and staff training and they continue to keep up with new developments and innovations to add value to our customers in a fast changing competitive environment.
The internal business perspective focuses on the business processes at which we must excel. This perspective looks at our ability to design our systems and processes and serve our customers in an efficient and effective manner
The driving philosophy of the balanced scorecard is that all four perspectives are required to ensure the company's long-term success.
Benefits include:
(i) It looks at both financial and non financial measures
This provides a much more holistic view of a businesses performance than financial measures alone can give.
(ii) It looks at both internal and external matters affecting the organisation
As well as looking internally, the balanced scorecard looks outside the organisation to consider competitors, suppliers and customers. So relationships with customers and suppliers are monitored. Action is taken to ensure competitiveness is maintained by comparisons with competitors.
(iii) It is related to the key elements of a company’s strategy and looks at the longer term Strategy considers the objectives of the organisation and how these are to be achieved. The balanced scorecard looks at longer-term strategic perspectives such as customers and markets and balances these against traditional financial perspectives. Therefore it also gives equal weight to long-term measures that relate to these perspectives as well as the traditional short-term performance measures used to measure financial goals.
(iv) It links quantitative and qualitative measures
The balanced scorecard uses traditional quantitative measures such as growth, profitability and shareholder value. However it gives equal balance to qualitative measures relating to customers, internal processes and innovation which are not financial. These factors such as quality, customer satisfaction etc are hugely important if we are to deliver the desired financial results. |
