Importance of Balanced Scorecard and Decentralized Decision-Making Authority in Business Organizations

This essay discusses the importance of Balanced Scorecard and Decentralized Decision-Making Authority in promoting the long-term growth of a business organization. It explains the four perspectives of Balanced Scorecard and the advantages of decentralized decision-making. The essay also highlights the limitations of Balanced Scorecard and the shortcomings of decentralized decision-making.

Accounting & Finance
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Introduction
The present essay is undertaken to analyse and examine the importance of balanced
scorecard and decentralized decision-making authority within the business organizations. The
contribution of these strategic tools in promoting the long-term growth of a business organization
is discussed in the essay.
Answer 1
Balance Scorecard refers to the performance metrics that is used by the business for the
purpose of strategic management decision. The main purpose of the balance scorecard is to
identify and improve the internal business functions so that resultant outcomes come in favor to
the organization. It is the strategic planning and management tool that is used by the
management for communicating about their missions and objective in the concise manner, align
the business activities with the business strategies, align the projects, products and services
according to priority and lastly measure & monitor the business progress towards the strategic
targets (API, 2010). The balance scorecard helps the organization to focus on what has to be
achieved in order to create the breakthrough performance. It acts as an integration device in order
to solve various corporate programs. It helps in making the business strategy operational through
translating them into the different measures and targets. It breaks down the objectives at top level
into the smaller one so that each department can understand what exactly they have to do to
achieve the desirable goals. Balance scorecard is the complex process yet it is easy to understand
and implement in the organization. It has some limitations that make it unfavorable in some
cases. It provides so many performance indicators that create issue for the management as well
employees to align them with the business strategies (Kaplan and Norton, 2011). It is not easy to
maintain the balance between the four perspectives of the balance scorecard. Implementation of
the balance scorecard requires huge flow of money at the initial stage. In order to make the
balance scorecard successful there is need to update it regularly (Balanced Scorecard Institute,
2010).
Balance scorecard aims to use the business mission and strategies in order to translate
them in the operational objectives and other performance measures of four different perspectives.
In this context the four different perspectives of the balance scorecard are as follows:
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 Financial Perspectives: A financial perspective is the main perspective of the balance
scorecard and management has most focus on the financial perspective of the
organization. Financial perspective helps the company to evaluate the financial
performance of the company using various tools of financial management such as ratio
analysis, trend analysis, variance analysis, and share market performance. All these
financial indicators tell growth of the company and tell the actions that need to be taken
to achieve the desired growth in the future period. All the stakeholders of the business are
interested to know the financial performance of the business in order to take the
important decisions. It is important to include the historical, current and future financial
performance results in the balance scorecard (Bardy, 2011).
 Customer perspectives: The customer perspective of the balance scorecard focuses on the
people who buy the product or services of the company. As per this performance
customer satisfaction must be the main goal of the business in order to achieve the
maximum revenue. The main of the customer perspective is to identify the main
customers and business segments in which organization will compete and measures its
business performance. The measures applied in this perspective are customer satisfaction,
customer retention, acquiring new market and thing about the customer profitability.
 Internal Business Process: This perspective of the balance scorecard helps the
management to deliver the value propositions that in return helps to attract and retain
customers in target market segments. This perspective also provides the management the
ways to satisfy the shareholders expectations through providing the excellent financial
results (Kaplan and Norton, 2009).
 Learning and growth perspective: This perspective looks at the overall corporate culture
of the organization and provides the information to the management about new ideas and
technology (Eisenberg, 2016).
Multinational companies focus on the core competencies of the business and use many
tools to measure the performance. The traditional management control system does not help to
implement the global strategies as very traditional system only some of information to measure
the performance and ignore some of important information that balance scorecard successfully
implied in the system (Drury, 2011).
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Answer 2
The business organizations need to place emphasis on decision-making authority for
proper management of the overall functions and activities. It plays an important role in the
planning process of an organization by determining the goals and objectives to be achieved. The
presence of a decision-making authority provides an overall direction to the employees about
their job roles and responsibilities. However, the major issue present within the workplaces in
this context is that whether the authority should rest with senior management or should be
delegated. Thus, the business leaders have to decide whether to adopt a centralized or a
decentralized decision-making system within an organization (McKee, Kemp and Spence, 2012).
Centralized decision-making authority refers to concentration of authority at higher level
in an organization. This means that senior management holds the authority of making key
decisions about the strategic aims and objectives of the organization. Thus, employees are not
involved in decision-making process as there is presence of higher level of hierarchy between the
senior and lower level management. It can be referred to as a presence of a command and control
approach within an organization as employees have to gain approval from the higher level before
taking any important decision. However, the presence of such type of organizational structure is
often associated with difficulty of slow decision-making as employees have to gain approval
from their subordinates which in seeks emission from senior management before implementing
any changes. Also, it leads to lower productivity level of the employees as they feel reluctant and
ignored and thus does not consider them an integral part of the organization. The lower
motivation level of employees negatively impacts their job performance (Marquis and Huston,
2009).
The increase of competitive pressure is causing the organizations to adopt changes in
their decision-making authority. There is high need of decentralizing the power of authority to
promote employee involvement in decision-making process. This is essential to improve the
motivation level of employees to increase their organizational commitment level. The greater
employee engagement in the business processes higher is their productivity at the workplaces. It
will also help in gaining new and creative ideas from the employees to resolve the complex
problems present in the business context. Decentralized organizational structure relatively means
to remove the levels of hierarchy so that there is higher coordination and interaction between the
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upper and lower level of management. This enables the organization to take effective decisions
by greater employee involvement who can significantly contribute in providing innovative
solutions to problems as they possess greater knowledge about the day operational activities
(Coleman, 2007).
Therefore, it can be said that decision-making authority in an organization should be
delegated at lower levels. The most significant advantage of decentralization is greater employee
involvement and quick decision-making within an organization. This is because employees can
themselves implement a major decision to solve a complex problem without requiring gaining
approval from higher management people. This will help in resolving the problematic area
quickly and lead to its higher growth and development. This is highly essential for promoting the
growth and expansion of a business organization at a global level. The delegation of authorities
would enable quick decision-making across different departments of a global organization and
thus helping it to achieve its aims and objectives. The increased participation of employees tends
to improve their productivity as they feel themselves an essential part of the organization. This
encourages the development of new thoughts and processes within the employees to carry out
their job role and responsibilities which in turn improves the operational efficiency of a business
organization (Coleman, 2007).
However, the business organization decentralizing their structure needs to place emphasis
on some of the shortcomings of their type of decision-making authority system. This involves
increasing the ambiguousness in the business authority as it is not concentrated so that will be a
lack of proper chain of command to the employees. Also, it results in lack of uniformity as the
different departments may adopt varying type of policies and procedure for carrying out the
organizational functions. It will also lead to incur significant cost and time by the organization to
adopt decentralized system of decision-making (McKee, Kemp and Spence, 2012).
Thus, despite of the significant disadvantage associated with the decentralized system of
decision-making, the organizations are increasingly adopting its use to achieve e a competitive
advantage in the market place. The responsibility centre, a unit of business organization involved
in carrying out a specific task or activity is regarded as a major type of activity center. On the
other hand, profit center is regarded as a department of an organization that is controlled by the
managers and recognizes the profits on the basis of revenue and costs. It holds all the
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responsibility of sale of goods and production functions. The presence of a decentralized system
of decision-making improves the communication flow between responsibility centre and profit
centre promoting the growth and development of an organization (Drury, 2005).
Conclusion
Thus, it can be concluded from the essay that balance scorecard is powerful tool used to
evaluate the performance of business and helps to take strategic decisions. Also, decentralized
organizational structure facilitates quick decision making and achieving employee satisfaction to
promote the sustainable growth of an organization.
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References
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