Advantages of the balance scorecard system Essay
Advantages of the balance scorecard system
As a non financial measure BSC has significant advantages over the financially focused performance based measurement systems. BSC makes it possible for organizations to develop long term strategies. Because the focus is not only on finances, companies can focus on the business elements the would allow them to create a sustained long term perspective, and therefore assure a longer term financial health. Short term financial yardsticks relies more on accounting, so it runs the risk of neglecting other important areas, such as customer satisfaction. The BSC sees emphasize on better quality and the advantage of competitive edge provided by its inclusive measurement as equally important, because it is a better forecaster of future financial success. ( Ittner & Larcker 2000).
Short term forecasting does not consider such elements as new product development non does it encourage innovation. The other advantage is that BSC offers organization the opportunity to announce its objectives and its long term based incentives to the rest of the team. Also it recognizes the importance of intangible assets such human intellects as well as customer loyalty, it recognizes managerial abilities, and the benefits that can accrue when employees share good relationship with each other.
There is no doubt that a lot of organizations are paying attention to their intangible assets. (Ittner & larcker 2000). The other important advantage is that it is becoming clearer that BSC could actually be do a better job of forecasting the financial future of an organization. ( Ittner & larcker 2000). When companies make investment on customer satisfaction, it has been found to raise financial intake, as well as customer loyalty. This cannot be predicted by a system that focuses only on financial calculations.
The BSC helps the organization to bring many corporate programs that are usually disjointed into a single manageable roof. Kaplan and Norton also pointed out that by merely participating in the process of BSC development organizations give themselves an advantage, because they gain a better understanding of the strategy they want to implement. It transforms strategy into performance measures or targets. It helps the company to focus on what it has to do in order to achieve its performance goal.
Although the BSC aims to establish a long term strategic process, it is actually brief and direct to the point because it uses the four perspective to cover essentially all its system. It helps the team to learn because the strategies are regularly discussed. Also BSC is not limited to corporate offices, Kaplan and Norton cited the example of Exxon Mobile, it extended its BSC to all its stations, and they reported significant rise in customer satisfaction. It is important to be able to transfer the strategy to local outlets. And BSC does that. ( Kaplan & Norton 2002). As has been discussed on this discourse, there are some disadvantages associated with BSC.
For one it is expensive to implement, and it can take a lot of time. Considering the fact that financial measurement only system is measured based on finances only, the BSC does not have a common denominator measurement, and it does not have causal links with the rest of the measuring strategies. The facts are that most companies now report that using financially based measurement system is no longer adequate to formulate their true long term strategy. Emphasis on earnings and accounting returns are no longer persuasive enough in providing the complete picture to organizations. (Ittner & Larcker 2000).
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 17 May 2017
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