Disadvantages Of Balanced Scorecard

Today’s business world is more competitive and complex. Business managers have to play diverse role to lead a business. Kaplan and Norton said “A company’s ability to innovate, improve, and learn ties directly to the company’s value.” Now a day it’s important to make business strategy based on overall business activity.

Successful company not only focus on learning and growth but also business process, customers, and finance. Kaplan and Norton are the inventor of the balanced scorecard (Bukh and Malmi, 2005).

World giants companies are using the balanced scorecard for assessing their performance like Apple (Kaplan and Norton, 1993).

The balanced scorecard is a business analysis tool which is being used to know the gap between actual performance and Company’s vision, mission, and goals. In this essay, I will talk about contribution of balanced scorecard to organization performance management.

Important of Balanced Scorecard

Every organizations are hungry for increasing their market share and accelerate growth. Without knowing the comprehensive of the organization, it’s not possible to achieve goal.

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The financial analysis tool-ROI, sales growth, and market share which can’t show the true scenario of organization’s proposition because they focus on the previous actions.  If a manager makes a plan based on only financial result-which is the result of past action, s/he might be made mistakes.

For Example, If XYZ company wants to increase revenue 50m-60m in running year, that firm should consider many factors such as business process expenditure, customer loyalty rate, financing, employee performance and so on; if customer is satisfied, they will be loyal and purchase again and again which lead to more sell and more profits as well.

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Performance of employees are lubricant of an organization- balanced scorecard facilitate to know the actual performance of employee.

For example, XYZ firm employee A produce 20 products in an hour with “zero” defect; while Employee B manufacture 20 products with “five” defects. As a result, the overall organization performance will be effected such production cost and time will be increase and revenue will decrease.

Balanced scorecard help to find the internal weaknesses of an organization. For example, Monarch Airlines collapsed because of their financial difficulties, huge competition and internal process break down. Moreover, Balanced scorecard assist to know the Customer perspective- it considers their satisfaction and loyalty rate; customer feedback can be used to improve service process and new products or services. In addition, it facilitates to create good structural strategy.

The Balanced Scorecard is a rational and systematic tool in order to facilitate the managers of a firm that all divisions of the firm are being considered similarly. Besides, employees can know that how their personal objectives are related to company goals. For example, employee A has a to sell one thousand products and his goals will be directly linked to marketing and other departments. By this way, BSC link employee to whole organization goals and vision.

Six Sigma Versus Balanced Scorecard

It is very difficult and long process to decide which management strategy and framework is appropriate for an organization. So, selecting the right methodology to improve the organization is very important. Balanced Scorecard and the Six Sigma are the most popular frameworks available for management.

Six Sigma is a management tool which organization uses for testing their process and improvements their systems. It mainly focusses on improving quality products or services and also improving the efficiency of the organization; While the Balanced Scorecard is a management tool for making plans by considering customers, finance, process, and learning /growth. Besides, Six Sigma assists organizations to reduce their fixed and variable cost by modifying business systems; Conversely, The Balanced scorecard are being used to analyzing the business policies and reveal the factors of success.

Moreover, Six Sigma aid companies to grow production efficiency through successful innovation; whereas The BSC helps organizations to bring plans and policies into operations by considering four different area of a firm. Furthermore, Six Sigma helps organizations to to satisfy stakeholders by repairing and improving the process; however, The Balanced scorecard helps organizations to adjust their policies along with company mission statement to avoid mistakes and misleading.

Limitations of Balanced Scorecard

The balanced scorecard is a well-known method to plan, direct, and control an enterprise business actions, by considering four areas of organization and making balance among them (Richards 2017). But during my research I found that it comes with certain drawbacks.

Cost and Time; a significant investment is needed to maintain Balanced scorecard. It is a much complex and lengthy process instead of short techniques. So, a firm has to maintain this process regularly. As a result, it required investment of money and time. Employs of all department- marketing, management, accounting and finance, and R&D, required to comprehend the system, that’s why they need training which will increase cost of the firm.

Suppose that there is no expertise inside the company, this company must outsource consultant’s agency to practice Balanced Scorecard. Data collection and analysis; the usefulness of balanced scorecard mostly depends on collected information-garbage in garbage out. If there are any fault in providing information, the result of this input will be misloaded.

Lack Focus on External environment; The BSC provides the internal insights of the firm. Therefore, the firm overlook external environmental factors. For example, XYZ co. Ltd. Uses balanced scorecard and give focus on four perspective such as customer; but they don’t take into account the suppliers and politics which has direct influence in organization (Finch 2015).

Conclusion

Balanced Scorecard can play a great role in an organization success. If Organization know themselves Systematically, they can adjust and adopt the best strategy- this is the way balanced scorecard help an organization. A balanced scorecard examines organization functions and strategies based on four.

Basically, organization evaluate their performance by using balance sheet which provides past scenario with one divisional focus. But the BSC emphasis on not only customers and finance but also internal process and learning/growth; which helps manager to increase efficiency in performance and make long term plans for sustainable growth and competitive advantage. However, the BSC method also has some disadvantage systems too.

References

  1. Leigh Richards (2017), Balanced Scorecard Drawbacks, [online] http://smallbusiness.chron.com/balanced-scorecard-drawbacks-4602.html
  2. Carol Finch (2015) “The Disadvantages of Balanced Scorecards”, [online] http://smallbusiness.chron.com/measure-operational-risk-balanced-scorecard-approach-77732.html
  3. P. Nikolaj Bukh & Teemu Malmi (2005), Re-examining the cause-and-effect principle of the balanced scorecard; Accounting in Scandinavia–The northern lights. [online] http://www.essay.uk.com/free-essays/business/balanced-scorecard.php
  4. Robert S. Kaplan & David P. Norton 1993), Putting the Balanced Scorecard to Work, Harvard Business Review.

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Disadvantages Of Balanced Scorecard. (2020, Jun 02). Retrieved from https://studymoose.com/moh-essay-rubel-21317-new-essay

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