Balanced Scorecard

Introduction

A balanced scorecard refers to a set of financial and non-financial policies that play a role in determining the success of a business organisation. The scorecard provides a reflection of the innovative capability of a company and its value creation capability. Because of the efficiency of the capability of the balanced scorecard to improve the financial performance of the business organisation, a number of industries are adopting its use. The current paper provides an analysis of why the use of the balanced scorecard is an efficient corporate strategy that is beneficial to private and the non-private sector. To achieve the objectives of this paper, there will be an examination of the implications of the balanced scorecard for the management process and structures of organisations and business institutions. The major argument of this paper is that the balanced scorecard is an important management tool that manages to make the connection between the financial and non-financial objectives of the business organisation, resulting in the efficiency in meeting the objectives of the company.

The Importance of a Balanced Scorecard

The balanced scorecard is an important management tool that has extreme benefits to profit and non-profit business organisations. Examples of management tools that can be used by companies include the activity based Management tools, quality management, and supply chain integration system. Among these tools of management, the balanced scorecard is the most efficient in achieving the objectives of the company. Organisations normally anticipate a number of benefits while using this tool of management. Some of these anticipated benefits include:

  • It ensures an efficient understanding of the links between specific decisions and actions of the organisation and the strategic goals of the particular company.
  • It helps to redefine the relationship between the management of the organisation, employees, and customers.
  • It assists in improving and re-engineering specific processes of the business organisation.
  • The balanced scorecard plays a role in ensuring that a new corporate culture that blends well with the mission and vision of the organisation is introduced (Northcott & Tulapapa 2012).

Kaplan (2012, p. 22) explains that the above-mentioned benefits are some of the general advantages of the balanced scorecard. While explaining the importance of the balanced scorecard, Kaplan (2012) identifies four important areas in which it can be utilised for purposes of meeting the mission and vision of the organisation. Two of these areas are improving the internal and financial position of the company. Others are enhancing the relationship the organisation has with its customers, as well as improving the business growth of the institution.

Balanced Scorecards and Internal Analysis of an Organisation

The balanced scorecard is important for business organisations because it measures the level of their successes and provides methods which these companies can use to improve their failures. The management of these business organisations normally relies on the balanced scorecard to find ways and methods of improving the manner of their operations and achieving a competitive advantage over their rivals (Madsen & Slåtten 2015). The balanced scorecard helps to achieve the above objectives because it identifies the weaknesses of business organisations and various policies and strategies that these companies can use for purposes of improving their operations.

Through the balanced scorecard, the organisation will identify areas of its success and decide which policy to implement to help it to attain more successes or improve the efficiency of its service delivery (Northcott & Taulapapa 2012). Furthermore; the balanced scorecard shows the performance of an employee and assists in introducing strategies that can be used to improve these performances. Therefore, the balanced scorecard is crucial for the internal analysis of any organisation.

Balanced Scorecards and Financial Analysis

The balanced scorecard has the capability of making the company conscious of its financial position and status. There are four major methods that management of the company can use for a financial analysis. These methods include the identification of the capability of the organisation to spend or makemoney. It further identifies the capability of the firm to sustain its business operations through its existing funds. It is an important practice for business organisations to keep a track record of their financial performance (Northcott & Taulapapa 2012), hence ensuring that the organisation under consideration manages to use money under its control in an efficient manner.

Furthermore, the main objective of the business organisation is to make profits. Through the financial analysis of the organisation, the management will identify the weaknesses that make these institutions fail in meeting their financial objectives. Identification of these weaknesses will enable the company to implement strategies that can be used for purposes of improving the profitability. Gibbons and Kaplan (2015) maintain that some organisations also use the balanced scorecards when it comes to the preparation of their budgets. The scorecard identifies various financial needs for which the company should cater.

Balanced Scorecards and Growth Analysis

The balanced scorecard can also be used to analyse the growth of a business or non-profit organisation because it is concerned with the performance of every member of the organisation. It is important to denote that employees play a critical role in determining the success or failure of a company. Through their skills, the organisation manages to meet its vision and mission (Northcott & Taulapapa 2012). The balanced scorecard will analyse these skills and make suggestions whether they are utilised properly by the employees who hold them. Furthermore, the balanced scorecard will play a role in the identification of various skill gaps in the organisation and introduce strategies that can be used for purposes of acquiring those skills.

Gibbons and Kaplan (2015) further explain that the balanced scorecard helps to make a connection between employees and the management. Through the balanced scorecard, the management of the company will know the weaknesses of their employees and implement strategies that can be used to eliminate their weaknesses and strengthen their skills. Such strategies will involve introducing training procedures and mentorship programmes that will play a role in motivating employees of the organisation. A highly motivated workforce is one of the keys to the growth of the business organisation (Rampersad & Hussain 2014) because workers will become innovative and perform their various tasks in a more efficient manner. It is necessary to denote that for the business organisation to succeed in its target markets, it should have an efficient workforce and provide innovative services.

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Non-Profit Making Organisations and a Balanced Scorecard

Non-profit making organisations can benefit in a number of ways through the use of the balanced scorecard. For instance, the effective implementation of the balanced scorecard in the non-profit making organisation can help to solve a number of challenges that these companies normally face (Northcott & Taulapapa 2012). One such challenge concerns the ways and strategies that these organisations should use for purposes of achieving their objectives and mission.

Non-profit making organisations are mission and vision centred, and they normally focus on achieving their objectives and purposes. Therefore, these companies make significant efforts to meet these objectives, and they are not concerned with the bottom line of the institution. The balanced scorecard can be used to accommodate those differences. Such an institution as the Cancer Society can serve an example. By the use of the balanced scorecard, the society can define its success and ability to reduce the rates of cancer deaths, as opposed to treating cancer. Through this definition, the society will focus on research and develop techniques that can be used for purposes of treating cancer (Grigoroudis, Orfanoudaki & Zopounidis 2012).

Another challenge that non-profit making organisations experience relates to fundraising. The aim of these companies is to meet their mission and vision as opposed to meeting the financial expectations of their shareholders. Through the balanced scorecards, these organisations will manage to identify their mission and goals. Madsen and Slåtten (2015) state that it is easy to convince donors to contribute to the organisation that has a clear and defined goals and objectives.

One more challenge that non-profit making organisations face concerns the explanation of the mission and vision of the organisation. It is always difficult for the non-profit making organisation to make people understand and appreciate its cause (Rampersad % Hussain 2014). By using the balanced scorecard, the management of a non-profit making organisation can develop a map of its achievements and various initiatives in which it is engaged. Furthermore, through the balanced scorecard, the management will develop a marketing campaign that will attract people to support the cause of the company.

Balanced Scorecards and Profit Making Organisations

The balanced scorecard was basically developed for profit making organisations. It is used for the identification of various weaknesses and strengths of the company, including its financial performance and the performance of its employees. Through the balanced scorecard, the organisation will manage to identify the reasons it is making profits and losses. The management will then develop strategies aimed at improving the performance of the company (Madsen & Slåtten 2015).

Balanced scorecards play an important role in determining the budgeting process of a profit making organisation because of the identification of various needs within the company and the amount of financial resources needed to cater for the identified needs. Therefore, the balanced scorecard is a crucial management tool that enables the profit making organisation to implement strategies that can help it to achieve profits.

Implications for the Management Process and Structure of Organisations

Kaplan (2012, p. 33) identifies two major implications that the balanced scorecard has had for the management process of the organisation. One such implication is changing the manner in which the management translates the vision and mission of the company. Using the balanced scorecard, the management of the organisation will build a consensus regarding the strategies of the company, expressing it in a manner that is understandable and can be easily implemented by the employees of the organisation.

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Furthermore, the balanced scorecard has the ability to improve the communication capability of the top managers in the company because it will link various departments in the organisation, creating a communication channel from one department to another (Kaplan 2012). The process and channel of communication used will depend on the goal of a particular department as opposed to the overall goal of the organisation. Before using the balanced scorecard, companies normally use a communication channel that will assist in meeting the overall goal of the organisation, not departmental goals.

Regarding the structure of the organisation, the balanced scorecard manages to integrate all the units and departments of the company into one (Kaplan 2012). The management tool aims at achieving the balance between financial and non-financial matters; therefore, it is necessary for all units of the organisation to be integrated in a manner in which that they are dependent on one another. For example, the financial department is integrated with the human resource department, so that any human resource policies developed will be based on the amount of available money the organisation has.

Conclusion

Finally, the balanced scorecard is an important management tool that can be used by non-profit making and profit making organisations to achieve success. One of the advantages of the balanced scorecard is that it provides a comprehensive overview of the entire organisation. It means that through the balanced scorecard, the company will identify its strengths and weakness both in financial and non-financial sectors. The management of these institutions can use this information to introduce strategies that can help to improve on their weaknesses, as well as maintain their strengths, resulting in their improved performance.

Other benefits include making employees and the management focus on the goals of the organisation, sensitising people on the mission of the institution, which directly applies to non-profit making organisations. Furthermore, companies that use the balanced scorecard as their management tool can know their intangible and tangible value because the balanced scorecard normally seeks to maintain the balance of all the elements of organisations.

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