Understanding the Balanced Scorecard

This assignment delves into the Balanced Scorecard technique, a comprehensive management accounting tool that provides a holistic view of business performance. It examines how this approach differs from traditional methods, highlighting its four key perspectives: Customer, Internal Business Processes, Learning & Growth, and Financial. The document also discusses the benefits of adopting a balanced scorecard, such as addressing sub-optimization and aligning operational measures with financial goals, while acknowledging potential limitations like neglecting certain aspects like managerial development or social responsibility.

Running Head: Use of Balanced Scorecard Technique
Balanced Scorecard

Use of Balanced Scorecard Technique 1
Table of Contents
Introduction...........................................................................................................................................2
Change in the approach of measuring corporate success.......................................................................2
Other benefits of balanced scorecard.....................................................................................................3
Risks involved in use of balanced scorecard..........................................................................................3
Conclusion.............................................................................................................................................4
References.............................................................................................................................................5

Use of Balanced Scorecard Technique 2
Introduction
Balanced scorecard is an important management accounting technique that allows the
business managers to view business from four major perspectives. It is a comprehensive set
of measures that provides the top level managers a holistic view of business. These measures
are called as the performance measures. It includes the financial measures to tell the
outcomes of actions that are already taken and along with that it covers operational measures
on important aspects like customer satisfaction, firm’s innovation activities and the internal
processes (Kaplan & Norton, 2005). The said operational measures complement the financial
measures and are the drivers of organisation’s future financial performance. Therefore, a
balanced scorecard basically includes the following perspectives:
 Customer perspective: It tells how customers look at the business of a particular firm.
 Internal perspective: It covers the areas where the business of a firm must excel.
 Learning and growth/ innovation perspective: It tells the firm whether business can be
continued to improve and create values.
 Financial perspective: It determines how business looks to its shareholders (Kaplan &
Norton, 2015).
Change in the approach of measuring corporate success
The system of balanced scorecard is introduced to overcome the inadequacies of traditional
systems performance measurement. As some of those systems were primarily focused on
financial measures of performance and others considered operational measures more relevant.
But, to evaluate the performance, the managers should consider both financial as well as
operational aspects of the business. In today’s world where businesses are becoming complex
it is being realised that a single measure cannot offer the clean performance target. Also, no
individual performance measure can focus attention on key areas of business. Managers must

Use of Balanced Scorecard Technique 3
be able to consider business performance in multiple areas and thus they must have a
balanced presentation of financial as well as non-financial, i.e. operational measures to
understand and improve their businesses.
Other benefits of balanced scorecard
There are several benefits of adopting balanced scorecard. Few of them are discussed below:
First, it meets various managerial needs. A scorecard takes together the diversified elements
of a firm’s competitive agenda in an isolated management report. Such as becoming customer
focused, enhancing quality, reducing the response time, emphasizing on teamwork etc. (Paul,
2014).
Secondly, it guards businesses against sub-optimization as it enables the business managers
to focus on all the key operational measures together. It lets the manager know whether a
particular areas has achieved improvement at the cost of other.
Risks involved in use of balanced scorecard
There are few risks or limitations of using balanced scorecard framework. They are:
As the approach followed by balanced scorecard mainly focuses on the above mentioned four
perspectives, it ignores the other perspectives like managerial development, social
responsibility etc. Due to this, it may sometimes turn to be quite imbalanced and ineffective
management accounting technique (Rompho, 2011).
It sometimes proves to be a vague concept as it does not define any standard for the
performance. It neither provides a particular set of standard goals nor the ways to better the
performance of the business in those necessary aspects.

Use of Balanced Scorecard Technique 4
Conclusion
Therefore, it can be said that tough the technique of balanced scorecard is slight difficult to
employ, it helps the organisation in measuring the business performance.

Use of Balanced Scorecard Technique 5
References
Rompho, N. (2011). Why the balanced scorecard fails in SMEs: A case study. International
Journal of Business and Management, 6(11), 39.
Kaplan, R. S., & Norton, D. P. (2005). The balanced scorecard: measures that drive
performance. Harvard Business School Publishing.
Kaplan, R.S. & Norton, D.P. (2015). Translating the strategy into action: The Balanced
Scorecard. Harvard Business School Publishing.
Paul, R.N. (2014). Balanced Scorecard Evolution: a dynamic approach to strategy execution.
Wiley corporate F&A.