The balanced scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization. In other words, it translates the vague statements and undefined aspirations of a company's vision or mission statement into practical components of performance required at every level of the organization. It takes a holistic view of the organizations and facilitates effective co-ordination between the various departments to achieve common organizational objectives and goals, and is therefore a performance management tool for measuring whether the smaller-scale operational activities of a company aligns with its larger-scale objectives in terms of vision and strategy. The roots of the Balanced Scorecard approach traces back to the pioneering work of General Electric on performance measurement reporting in the 1950's, and the work of French process engineers who created the "Tableau de Bord" or a dashboard of performance measures in the early part of the 20th century. The concept also has similarities to the activity based costing methods, a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each
[...] Value Maximization, Stakeholder Theory, and the Corporate Objective Function (October 2001). Unfolding Stakeholder Thinking, eds. J. Andriof, et al, Greenleaf Publishing Kaplan, R. S. and Norton, D. P. (1992) "The balanced scorecard: measures that drive performance", Harvard Business Review Jan Feb pp. 71-80. Kaplan, R. S. and Norton, D. P. (1993) "Putting the Balanced Scorecard to Harvard Business Review Sep Oct pp2-16. Kaplan, R. S. and Norton, D. P. (1996) "Using the balanced scorecard as a strategic management system,” Harvard Business Review Jan Feb pp. 75-85. Kaplan, R S. and [...]
[...] Many people confuse Balanced Scorecards with a “strategic linkage model” or “strategy map.” Balanced scorecard has nothing to do with formation of strategy, and its only role is to enable managers' focus on the already laid out strategy. Balanced Scorecards can comfortably co-exist with strategic planning systems and other tools. Similarly, many have the mistaken notion that Balanced Scorecard facilitates better decision making. Balanced Scorecard is a measurement, and the decisions base on the things measured. Better decision making depends not on how the measurement takes place, but rather on what is measured. [...]
[...] The balanced scorecard exercise would not be complete unless the administrators of the system communicates the results, be it a lag on the expected standards or an attainment of the expected values, to the people responsible for performance. It is through such a feedback loop that the scope for improvement or modification rests. CRITICISMS The major criticism levied against of Balanced Scorecards is that the process is entirely subjective and not based on any proven economic or financial theory. The process does not assess quantities like risk and economic value in a way that is actuarially or economically valid, and therefore have no basis in decision sciences. [...]
[...] With these changes, the balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. USES OF THE BALANCED SCORECARD According to Kaplan and Norton, Balanced Scorecard provides managers with the instrumentation they need to navigate to future competitive success.” Companies use balanced scorecard to execute the laid down strategy by translating strategy into operational objectives, align key processes with strategy driven initiatives, link the strategy with the budget, and conduct periodic reviews. [...]
[...] A negative feedback from this perspective often indicates of the future decline of the enterprise even if the financial perspective remains sound for the moment The Financial Perspective The Balanced Scorecard approach is not an alternative to the traditional approach that focuses only on the financial aspects of an enterprise. It is rather a modification of the traditional approach. The Balanced Scorecard recognizes the need for timely and accurate funding data, and furthermore incorporates additional financial-related data such as risk assessment and cost-benefit data, not generally considered in the traditional method. [...]
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