Advantages of Balance Scorecard in Business

This assignment discusses the benefits of adopting a balance scorecard in business, including its ability to identify and utilize capitals effectively, measure performance from different perspectives, and ensure productive resource allocation. It also highlights the importance of effective leadership for smooth implementation.

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Introduction
A balanced scorecard is performance management tool used in strategic management to
improve and identify various internal functions of a business. It is related to aligning work on
day to day basis for every employee and it is also concerned with planning and analysing
effectiveness of an activity with relation to the strategic plans of the company. The use of
balance scorecard is crucial in strategic planning and management of resources. The resources
which are managed with the help of balance scorecard are social capital, human capital, physical
capital and financial capital. Generally, organizations use balance scorecard as a tool for
communicating to the personnel and users what the business is trying to accomplish, ensure that
there is alignment of day to day work as per the strategic plan of the business (Dechow 2012).
Discussions
Nowadays, Balance Scorecard is widely used in businesses in order to improve the
overall operational efficiency and measuring standard of the company. Balance Scorecard is a
useful as a tool which provides a bridge way between the company’s strategic elements which
are mission, vision, operational elements, core areas of the business. The tool is widely used in
businesses, government agencies, non-profit organizations. A recent research study shows that
balance scorecard is fifth among the top ten management tools which are used by businesses to
measure the performance of the company and strategic planning (Hoque 2014). The various
aspects of Balance Scorecard are shown below in the chart:

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Source: (Bisbe and Barrubés 2012)
The use of balance scorecard can be applied to implement strategies which is according
to the objectives of the organization. Moreover balance scorecard are used to identify and
effectively utilize the different sources of capital which the company has access to such human
capital, financial capital, physical and social capital. The different areas of balance scorecard are
also known as the four legs of balance scorecard. The different areas of balance scorecard are
namely learning and growth, business processes, customers and finance. The information is
collected and analyzed on the basis of the fours areas as identified above. The different
components of Balance Scorecard are discussed in details below.
1. Learning and Growth aspects: The first area deals with the fact how well information are
collected and how well the employees utilizes such information in order to gain

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competitive edge in the market. The learning and growth aspect of balance scorecard is
concerned with the intangible assets of the business which are obtained as physical
capital which can be used by the business such as machinery., technology, equipment.
Such aspect also includes the allocation and distribution of human capital in the balance
scorecard. These aspects mainly focus on human capital jobs and issues faced by
personnel, technological systems and issues which are faced by the organization in
respect of technological issues, organizational climate and quality of work (Sainaghi,
Phillips and Corti 2013). The learning and growth principle states how the organizational
climate, changes in technology and contribution of people can be aggregated in order to
support the overall strategy of the business and also provide assistance to the other areas
of Balance Scorecard.
2. Business Processes: The second leg of Balance scorecard is useful to evaluate how well
are the manufacturing process for products are carried out. The aspect is useful in
analyzing the gaps and delays which the management of the company faces. This
perspective focuses on all the activities and processes which the company engages in
order to provide the customers of the company with the quality products which are
expected by the customers (Anandarajan, Anandarajan and Srinivasan 2012). This leg
also uses human capital to represent the different business processes and the different
weakness which it faces. This is useful in the planning process as to how much resources
are to be needed and how are the same to be allocated. The business processes can be
further segregated into groups which are operational management which focuses on
efficient utilization of resources and effective supply chain management. The second
group which is customer management is concerned with widening the reach of the

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company and developing relations with customers of the company and also involves
innovation processes for the products and services which are on offer for the company.
3. Customers Perspectives: The customer perspectives are used to measure the level of
customers satisfaction level which are associated with quality, price and supply of the
product. In order to collect data on the customer perspective of the business, the
management collects feedbacks from the customers regarding the products which are
manufactured by the company. Basically, customer perspective area of a balance
scorecard states the value proposition which the management of the company will be
using to satisfy customers and generate more sales while targeting more customers
(Kaplan 2012). The value proposition which is developed by the management can be on
the basis of any of the three strategy which the company wishes to follow as per the need
of the organization which are operational excellence, customer intimacy and product
leadership. The perspective is also included in balance scorecard so that the company also
ensure that focus of the company also remains in increasing customer loyalty, retaining
major customers, increase the overall satisfaction which is derived from the product,
improve the overall quality of the products.
4. Financial Perspective: This perspective includes the financial information of the
company such as sales revenue, net profit of the company and other similar financial
data. This part of the balance scorecard deals with financial aspect of the company. It
deals with how a company is performing financially. Financial aspects include wages,
salaries, travelling expenses, rent and taxes and other relevant expenses. This perspective
analyses the financial capital of the business and also points out how the businesses
utilizes such financial capital. This perspective includes various tools and techniques

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which are used for measuring the financial performance of the company and also identify
the overall requirement of the financial capital of the business. This area includes ratio
analysis, income targets, budgetary variances which are generally used by the
management to measure the financial metrics of the company. The financial perspective
of the business displays the long term strategic objectives of the business (Schobel and
Scholey 2012). The financial indicators which are used by the management provides the
information of the organization’s success and also describes how value can be created for
the shareholders of the company. The strategy which is applied by the company depends
on the policy of the company that is whether the company wants to apply growth strategy
or a strategy which give more emphasis on the overall productivity of the organization.
Some of the common measures which are incorporated in financial perspective of the
balance scorecard are net revenue, overall sales, different ratios, ROE and various other
returns which can depict the financial performance of the company along with estimate
the requirement of the financial capital of the company.
In today’s worlds, the use businesses are extensively using balance scorecard in order to
improve the overall operational efficiency, measurement and strategic planning process. Most of
the companies nowadays are adopting balance scorecard for improving strategic planning due to
the various advantages which are associated with the introduction of Balance scorecard in
business.
The most basic advantages which are associated with the introduction and implementation of
Balance Scorecard are that it is an efficient tool which can identify the capitals which are used by
the business and ensure that such capitals are put to productive uses. Balance scorecard can be
used as a strategic map for allocating different resources of capital which are human, social,

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physical and financial capital in an effective manner which can result in overall development of
the business. Moreover, it can measure the performance of the company considering the various
perspective and aspects of the business. The use of balance scorecard is also advantageous for
measuring and keeping a general track of the different types of capital which are employed by
the business in manufacturing process.
The only major disadvantage is that the application of balance scorecard is a bit too rigid for the
business and requires effective leadership for smooth working of the tool and overall
performance. Therefore, it is no wonder companies nowadays are adopting balance scorecard for
the purpose of management of the company.
Conclusion
Thus, from the above discussions it is clear that with the implementation and proper
reviewing of Balance Scorecard, the company can be reassured that the strategic plans and keep
track of the different capitals which is used by the business. Balance Scorecard as a tool can
impact the overall management performance of the company and also ensures that the resources
of the company are used in a productive manner. Various information can be collected with the
help of Balance scorecard which can be related to financial perspective, learning and growth
perspective, internal business perspective and customers perspective and apply them to formulate
effective strategies which can provide a competitive edge for the companies in the market.

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Reference
Anandarajan, M., Anandarajan, A. and Srinivasan, C.A. eds., 2012. Business intelligence
techniques: a perspective from accounting and finance. Springer Science & Business Media.
Bisbe, J. and Barrubés, J., 2012. The Balanced Scorecard as a management tool for assessing and
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Dreveton, B., 2013. The advantages of the balanced scorecard in the public sector: beyond
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Hoque, Z., 2014. 20 years of studies on the balanced scorecard: trends, accomplishments, gaps
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Kaplan, R.S., 2012. The balanced scorecard: comments on balanced scorecard
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Schobel, K. and Scholey, C., 2012. Balanced Scorecards in education: focusing on financial
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