Balance Scorecard: Concept, Assumptions, Critique and Examples

This report analyses the process of balance scorecard usage in organisations. It summarises the concept of balance scorecard, assumptions it’s based on, and different perspectives it is used in companies. It also includes examples of usage of balance scorecard in different sectors like healthcare, manufacturing and software industries.

Running head: BALANCE SCORECARD
Balance Scorecard
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Executive summary
The purpose of this report is to analyse the process of balance scorecard usage in
organisation. The discussion briefly summarises the concept of balance scorecard. The main
purpose is to criticise balance scorecard and the assumptions it’s based into. The report also
summarises different perspectives it is used in companies. Different sector like healthcare,
manufacturing and software industries uses this scorecard. It is also used in different
department of an organisation. Therefore, an example of Human resource balance scorecard
is used in this text and described briefly. Moreover the real life usage of balance scorecard in
Ethiopia industry and Tolko Industry’s usage of BSC is summarised in the discussion.

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Table of Contents
Introduction................................................................................................................................3
Concept of balance scorecard.....................................................................................................3
Assumptions on which balance scorecard is based on...............................................................3
Critically review balance scorecard...........................................................................................7
Benefits......................................................................................................................................7
Drawbacks..................................................................................................................................8
Examples of usage of balance scorecard....................................................................................9
Real life examples of usage of balance scorecard....................................................................12
Conclusion................................................................................................................................13
Reference..................................................................................................................................14

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Introduction
Kaplan invented the balance scorecard in 1992, which was later published by Norton
in 1996 in an upgraded version (Kaplan and Norton 2012). The performance measurement
tool is one of the most important part of organisation to predict the future. The industries
have also become competitive in nature with changing environment. To achieve success in
this competitive market the companies are also becoming more conscious about their
performance. After globalisation, competing in a global market has also become imperative.
Therefore, this tool of measurement has gain attention of several business personnel’s to
methodically use it according to the organisation’s requirements (Buller and McEvoy 2012).
The following discussion about balance scorecard and different examples from different
sector has been discussed. The balance scorecard comes under the strategic map of the four
perspectives (Casey and Peck 2014). This strategic map helps in drawing an overall
conclusion of from four different perspectives.
Concept of balance scorecard
This tool of measurement has originated to involve two different matters of
measurement and combining them in a proper manner. The age-old financial data to gain
insights in performance, as well as the effect of non-financial data. This also takes into
consideration of the different strategic agenda the company have or had (Pineno 2013.). This
is also known as the strategic linkage model because it takes into account of the strategic
advantage. The measurement features and version has flexibility to change with the different
factors of the organisations.

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Assumptions on which balance scorecard is based on
The basic scorecard consists of four different perspectives that affect the development
of the original business perspectives.
Financial – the success of the business or the organisation depends on the revenue or the
capital of the business. The financial performance of the company is calculated by the
financial metrics decided. This is one of the most important of the pillars of BSC. In this case,
the main aim is to gauge the financial perspectives of the company (Pineno 2013). To
improve the productivity of the company and incorporating growth strategy is main objective
of this process. It also involves the stakeholder’s satisfaction in the company (Rid 2016). It is
also monitors and evaluates the implemented process in the organisation. The generic metrics
or measurement of this is return of capital, economic value addition, sales growth and cash
flow (Casey and Peck 2004). The financial success of the business is also dependent upon the
operating cost and efficiency, capacity to utilisation ratio, capability constraints and
warranties and guarantee cost.
Customer – the customer perspective of the company is essential part of balance scorecard.
This factor was not considered in the previous measurement tools. With the product or
service offered by the company the cost to customers is very sensitive matter to consider.
Therefore, this element of organisations success is considered in this measurement tool. With
lowering the cost, more attraction of the customer and consistency in their buying behaviour
will be gained. In this customer, perspective element of balance scorecard the two most
important part of this factor is customer satisfaction and brand image of the company (Madah
et al. 2013). Therefore, to ensure the highest satisfaction score the generic metrics of the
company is lowering manufacturing cost by increasing operational efficiency, Sales delivery
efficiency, and direct pass rate and market feedback (Casey and Peck 2014). The other
primary factors are sales volume analysis with keeping in mind about the profitability

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maximisation, increasing quality standards, product and service delivery excellence, ensuring
knowledge and skilled partner of the company, reinforcing customer satisfaction through
providing a proper brand image.
Internal business process - the internal perspective of the organisation involves the
operational and process excellence, which are the main factor of the internal process. In
conducting the internal process evaluation the main criteria is to alliance more with the
Strategic Business Units of the organisation (Awadallah and Allam 2015). On the other hand,
process innovation helps in increasing corporate social responsibility. In this perspective, the
generic indicators are productivity, delivery, rapid improvement, Performance identifiers as
well as safety and health and environmental factors are considered too (Casey and Peck
2014). For some process, in different organisations the things that are used are Cycle time,
which increases the efficiency of two consecutive process, work in Progress, kaizen costing
to increase the efficiency, lessening the number of industrial accidents, timely introduction
(Madah et al. 2013).
Learning and growth strategy – the development is also essential for the company to consider
the availability and of skills and strategic alignment with the proposed plan. The research and
development unit should be part of the procurement process of the company (Awadallah and
Allam 2015.). The information system availability of the company also considers the set up
and validation cost and communication process of the system (Ciuzaite 2012). The
effectiveness of this process relies in the system as well as the people. The employee
retention, training, skills and morale are also evaluated in this process. The availability of
critical real time for information need and employee need is also measured in this process.
Evaluation - The monitoring and evaluation should be parallelly implemented in the
systems. It may be daily, weekly; monthly monitoring service but it should be specifically

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implemented in the process. The flexibility of this measurement tool lies in the intended use
of this in all level of business process (Siddique and Shadbolt 2016.). There can be two
different evaluation processes, one is system performance evaluation and another is strategic
performance evaluation (Buller and McEvoy 2012). The system performance evaluation is
very methodical in nature, the evaluation report consist of the assessments, interview, online
surveys, executive survey and surveys of the internal stakeholders of the company. The
technical evaluation and behavioural evaluation of the company gets influenced by the
characteristics of the system and culture and norms of the organisation (Siddique and
Shadbolt 2016). The strategic performance evaluation of the company is another essential
role of balance scorecard evaluation process. After the evaluation, revalidation of the
company’s mission, vision and the strategic points should be given emphasis. The validity
and modification process is done in this organisation (Madah et al. 2013). The performance
measures and re-prioritisation of the initiatives is main objective of this process.

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Figure: Balance Scorecard the nine-step success framework
Source: Buller and McEvoy 2012
The above system and strategic evaluation and monitor is used by companies in need of the
measuring their performance in any level.
Critically review balance scorecard
The balance scorecard was invented in order to balance between the positive and a
negative aspect of performance, which was at first was entirely dependent upon the
accounting measures. According to Nørreklit and Mitchell (2014), the aim was also to
broaden the financial perspective as well as to improve organisational performance by
incorporating different contributing factor that affects the performance. In addition, the aim
was to take into consideration, the strategic part of the company (Pineno 2013). It has become
essential that the company use different tools to particularly measure the outcome of their
performance. Balance scorecard consolidates the result of an organisation, which is complex
entity. Another benefit of this scorecard is that, it can be used in many context and different
nature of organisation. The casual relationship among the four dimensions is also argued to
be a main factor considered in the balance scorecard model.
Benefits
There are many advantages of using balance scorecard in the measuring performance
of organisation. According to Kurtzman and Urresta (2012) in the late nineties, the more than
50 % of the company used balance scorecard in different form. Government agencies military
units as well as the new non-profit organisations also used the balance scorecard (Siddique
and Shadbolt 2016). The modern balance scorecard is one of the most important tool to assess
the performance of the company. First, it gives structure to the strategy consolidating under a

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single strategy. For example, the financial perspective can be interpreted from BSC by the
HR manager helping them incorporating re-evaluation of strategy of training needs and skill
development programs in a company, which may be a liability or cost to company. As
explained by (Siddique and Shadbolt 2016), A logical structure of balance scorecard also
helps in communicating strategies in a layman’s language, like clearing key individual goals
as well as how it is aligned with the company’s objectives. Aligning the individual
department’s or teams objectives with the enterprise is also part of the done through balance
scorecard. Like generic metrics like economic value addition is measured in the process to
align the social responsibility of the company towards regional or global economy. This value
addition links to the projects that the company takes in the future (Ciuzaite 2012). The most
reviewed part of balance scorecard is involving the intangible factors into strategic
management.
Drawbacks
Though this measurement tool has been adopted by many organisations, some of the critics
has shown many disadvantages of using this tool. The second-generation balance scorecard is
one of the most complex models and the casual links of this modified version is also
complicated in nature. The empirical nature of the framework is one of the most criticised
parts of balance scorecard by Grevinga (2013). Another limitation of this is that the tool can
be less effective in the service industry. The service industry consists of many intangible
factors that cannot be incorporated in the measurement thus reducing its effectiveness.
According to Kraaijenbrink (2012), it is more suited to the engineering firms. Many
organisations use this tool to get an overview of their performance and implementing the
strategy. But the in-depth insights are not gathered in this process. Moreover, according to
him, the more influence of the strategy can also be a matter to avoid the other contributing

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factor. Comparing two electrical firms, it has been seen that the two firms to gain similar net
and gross profit but one firm used the measurement tool and the other did not. Therefore, this
practical acquisition of the framework originated the negative effect in the usage and
adoption of balance scorecard (Swierk and Mulawa 2014). The positive financial result may
or may not be dependent on the balance scorecard implementation. Implementation of BSC in
the organisation is time consuming and it has been found that the employees got more
irritated in the process and claimed that they could have used the time in doing the assigned
responsibilities in the company. On several account it has been claimed that it does not take
into consideration of the important aspects of stakeholders issues (Madsen and Stenheim
2014). In fact, it is also cited that the importance of the key stakeholders like suppliers,
government and environmental factors are ignored as well as it fails to accommodate the
shareholders interests. Moreover, though the internal process and learning and growth
strategy includes employee in the framework but at times, it lacks explicit involvement of
employee engagement and

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Examples of usage of balance scorecard
Figure: manufacturing scorecard
Source: Swierk and Mulawa 2014)
The manufacturing scorecard of the company consists of the volume profit and low cost
operations. Most of the time, the manufacturing companies are more concerned about their
operational efficiency (Swierk and Mulawa 2014). Increasing the output and decreasing the
production cost, with correctly pricing strategy should be obtained (Grevinga 2013). The
large emphasis should also be on the safety needs of the in a manufacturing camp. The
metrics that are given should be consolidated under the strategic framework. The main four
pillars of balance scorecard are separated in the process.

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Figure: HR Balance score card
Source: (Poureisa et al. 2013).
An HR balance scorecard is given above that includes the financial perspectives of the
company. The main objective is to increase the profit and productivity per employee. At the
initial stage, there should be increase in the new hire, as that would increase the performance.
To alleviate the customer perspectives talent management and talent attraction strategy
should be increased as the structure suggests. The talent pool is essential to consider in the
Human resource management (Poureisa et al. 2013). The internal process the main aim is to
lowering the employee turnover by enhancing the work culture and work life balance. In the
fourth stage of learning and growth, aim is to maintain the ever-changing nature of

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organisation and incorporating that in the organisation. For the entire observed and identified
variable, the key performance indicators are decided.
Figure: Generic Software industry scorecard
Source: (Swierk and Mulawa 2014)
In this, the internal perspectives are combined with the external need of the company. As this
customisation is very dependent on the services requirements of the product the it needs all
the Key Performance metrics to be incorporated in gaining market leadership, customer
relationship, Operational excellence (Swierk and Mulawa 2014).

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Figure: A healthcare balance scorecard
Source: (Swierk and Mulawa 2014)
Real life examples of usage of balance scorecard
Ethiopia’s federal health ministry has struggled from real health problems and communicable
diseases. The balance scorecard on this division of the company was used by the government
sector. The administrative sector was unable to use any plan to uplift the process in this
sector. But the usage BSC in aligning program, process, personnel and incorporating it in the
system was measurably improved the health of the citizens of Ethiopia
(Balancedscorecard.org. 2017). Similarly Tolko industry limited has also used the BSC in
their favour while increasing the performance efficiency as well as the employee engagement
in the industry. Just aligning the incentive structure with the process is not enough. The 3500

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employees of the company were engaged and made understand of the strategic plan and were
involved in the process which was only possible after the launch of balance scorecard and
nine step evaluation and monitoring of the process (Balancedscorecard.org. 2017).
Conclusion
Therefore, from the above the discussion it can be concluded that balance scorecard is one of
the most important tool for the company to check and measure the performance. The
changing environment and nature of organisation includes changing the method of viewing
success only in terms of profitability. The intangible factors must also be considered and
measured if possible to measure the success of the company. Balance scorecard helps in
reviewing process and incorporating all the contributing factor that makes the organisation
successful entity. Considering all the four factors and the secondary and primary key
performance indicators should also be incorporated in the balance scorecard’s identified
elements. As from the real life examples, it can be seen that this process has helped many
companies to identify their root cause of the problem and thus after evaluating and
implementing balance score card has helped them in solving strategic problems regarding the
four factors.

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interlink with employee incentive system (Doctoral dissertation, Thesis, University of Aarhus
Denmark).

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Grevinga, K., 2013. Common measure bias in the balanced scorecard: an experiment with
undergraduate students(Master's thesis, University of Twente).
Kaplan, R.S. and Norton, D.P., 2012. The balanced scorecard: translating strategy into
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