Management Accounting: Balance Scorecard Analysis Report

This report provides a comprehensive overview of the Balance Scorecard (BSC) approach in management accounting. It begins with an introduction to the BSC, a strategic performance management tool, and its four key perspectives: financial, customer, internal processes, and learning & growth. The report then delves into the features of the BSC, highlighting its ability to connect cause-and-effect relationships, evaluate performance from multiple viewpoints, and facilitate data collection. A significant portion of the report contrasts the BSC with traditional performance measurement methods, emphasizing the limitations of the latter. The report then applies the BSC framework to Rockwater Limited, a UK-based underwater engineering and construction company, assessing the suitability of the BSC for the client's strategic goals. The report concludes that BSC is a beneficial strategic tool for measuring company performance and is well-suited for Rockwater Limited, enabling it to achieve its strategic objectives. References are included to support the information provided.

RUNNING HEAD: MANAGEMENT ACCOUNTING
Balance scorecard

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Contents
Introduction................................................................................................................................2
Part 1..........................................................................................................................................2
Client’s description – Rockwater Limited..............................................................................2
Part B..........................................................................................................................................3
Introduction of Balance scorecard and its features.................................................................3
Part c...........................................................................................................................................8
Traditional approaches VS Balance Scorecard......................................................................8
Part D.......................................................................................................................................11
Suitability of the approach to the client................................................................................11
Conclusion................................................................................................................................13
References................................................................................................................................15

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Introduction
This report is an overview of the balance scorecard approach and features it possess. It
explains in detail all the aspects of the new performance measurement tool adopted by the
companies. The report provides a brief summary of BSC approach and its characteristics.
This new approach of balance scorecard measures the performance of company based on its
four perspectives called learning & growth, customer, financial, and internal process. The
main objective of preparing this report was to check the suitability of BSC in the firm’s
client. The first part deals with the detail description of the client which is Rockwater
Limited, a wholly owned subsidiary of Brown & Root/Halliburton which is a global
engineering and construction company.
The second part of the report deals with the introduction of BSC approach and explains its
features in detail. The later part contains a difference between the traditional performance
measurement tools and the new balance scorecard approach. The differences reveal that BSC
covers up all the weaknesses of the earlier used systems and provide greater insights to the
management. In the last section, report includes a brief discussion of sustainability of BSC to
Rockwater Limited and followed by the conclusion that suggests that the BSC is one of the
most beneficial strategic tools which is used to measure the performance of company. Also it
is best suitable for Rockwater because it helps the company to achieve its strategic goals.
Part 1
Client’s description – Rockwater Limited
A fully owned subsidiary of Halliburton Company, named as Rockwater Limited is an UK
based underwater Engineering and Construction Company. It was founded in 1990 and is
situated in Dyce, United Kingdom (Bloomberg.com. 2018). The company is a global leader
within its industry. It offers variety of services that include commercial diving, scour and

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erosion, installation of marine structures and underwater coatings. The targeted customer
base of Rockwater are the oil companies whose deep-sea oil rigs are been serviced by
Rockwater Limited. The major clients of the company are oil, gas and offshore construction
companies. It has its headquarters in Aberdeen, Scotland and is an operating division of
Brown & Root Energy Services, which is also a part of Halliburton Corporation (Kaplan and
Norton, 1996).
The vision and mission of the company is to great services to its customers, enhance its
profitability and focus on increasing its growth in near future. The company was formed by
merging two independent construction companies which is focused on improving his
strategic management system and achieving its predetermined objectives.
Part B
Introduction of Balance scorecard and its features
Today all the companies have adopted BSC as a new strategic tool used for performance
measurement, to keep safe and check regularly their daily activity records which is essential
to achieve company’s long term goals.It helps the management in controlling the actions of
staff members and to monitor the consequences of the same. It is also explained as a
performance metrics which is used in strategic management with an objective to improve and
enhance the internal control measure of an organization. This new approach of balance
scorecard was first introduced to the world by Dr. Robert Kalpan and Dr. David Norton
which was published in one of the Harvard Business Articlesin 1992 (Niven, 2011).
If we consider the definition of balance scorecard given by Balance Scorecard Institute then it
is defined as a tool or system used for strategic planning and implementation of the
management that can be used to interlink several elements of the strategy of the company for
long term run. This includes the interlinking of target areas, core values, vision and mission

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of the company, results and outcomes of the strategy. Moreover, the approach also focuses on
the key goals of the companies and their Key performance indicators which are used to
measure the strategic performance (Balancedscorecard.org. 2018). As per the institute,
following are the reasons why organizations use BSC in their business.
 To tell about their goals and objectives
 To align the daily activities with the strategic targets
 Prioritizing the projects, products and services
 To monitor the overall performance of the organization (Balancedscorecard.org.
2018).
There are many industries, business, government and non-government organizations which
uses Balance Scorecard in their business worldwide. Now days, it the most common
measurement tool used by most of the companies. According to a research, it was found out
that over 50% of the companies that are operating in United States has used BSC in their
operations. Also, major companies of Asia and Europe are looking forward to do the same.
The global study of Brain & Co. ranked balance scorecard fifth in the list of top ten most
used tool for management by the organizations around the world. Also according to the
Harvard Business Review, BSc is the most influential business idea of past 75 years (Biazzo
and (Garengo, 2012).
Perspectives of BSC
The four major perspectives are given by this approach which suggested that organisations
should also consider the non-financial aspect of the company, while measuring its
performance on the basis of its strategic objectives. According to BSC, an entity is viewed
from the four main standpoints which cover all the aspects of an organization and make it
successful in the future (Pham-Gia, 2009).

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The perspectives are as follows:
 Financial
It contains all that indicators which are related to the profitability and financial goals of the
company. This perspective measure the overall financial performance of an entity by
critically analysing the financial measures. These measures include total revenue, net profit
margin, cash flow, return on assets, return on investment, operating profit margin and many
other which are generally used by every company to evaluate its performance (Keyes,
2016). In case of non-profit organizations, this perspective covers their budget and cost
saving targets. For the managers, it is very important to track the financial health of their
organization to keep all the financial data up to date. They are required to deliver the correct
information on time so that they can enhance and maintain their performance in financial
aspect (Joshi, et. al., 2015).
While evaluating the performance, BSC allows the managers to reduce their cost data by
deploying appropriate corporate systems and to derive the relevant financial information

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which is to be used for making forecast. According to the balance scorecard methodology the
improved financial performance of an organization is the outcome of its better performance
in other three perspectives of the scorecard.
 Customer
This perspective allows the company to measure its performance through the perception of its
customers. It wanted them to focus on their performance targets as they are related to their
clients and the market. It covers company’s customer growth and service targets along with
its market share and objectives related to the branding. According to this terminology,
managers are required to determine their targeted customers and market segments in which
the company is going to compete. It consists of several strategic outcomes which are the
result of a well implemented strategy. The main KPIs of this perspective are customer
satisfaction, net promoter scores, market share, service labels, client retention, stakeholders’
needs and brand awareness.
 Internal process
It focuses on evaluating the performance of a business through the standpoint of quality and
efficiency of products and services offered. By measuring on the basis of this criteria,
companies are able to attract their customers in the targeted markets and can also fulfil and
satisfy the need of its stakeholders. This perspective mainly focus on internal operation goals
of an organization and covers the objectives which are related to the process followed for
delivering the customer goals (Pramudita, 2016).
It allows the entities to outline their internal control process and the strategies to improve and
enhance the same. Wastage of the resources is of much concern and for this management
must focus on controlling the input of resources and producing reliable products. The main

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key performance indicators used by this perspective are process improvements, optimization
of the quality and utilization of capacity (Schmeisser, et. al., 2011).
 Learning and Growth
It considers the intangible aspects of an organization and is mainly divided into following
components:
1. Human capital which includes skills, knowledge, specialization and talent.
2. Information capital comprise of the databases, information systems, technology,
infrastructure and networks.
3. Organization capital consists of leadership, employee engagement, culture, and
teamwork and knowledge management.
All these components are been taken into account by this perspective and the management of
the company has to measure the performance by keeping these points in mind. The measures
or KPIs include employee satisfaction, assessment of skills, corporate culture audit and
performance management scores (Makhijani and Creelman, 2011).
Features of BSC
BSC approach has possess the following characteristics
 It takes into account the cause and effect relationship which clearly reflects the
strategies of a business.
 It is considered that the financial evaluation is most traditional feature of balance
scorecard as it makes the scorecard more useful and important for strategic
management of the company. It considers measures like net profit, revenues, ROA
and ROE.

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 The new performance measurement toolis able to evaluate the performance of an
organization on the basis of customer perceptions and stakeholders’ expectations.
 It allows the company to work according to the needs of its clients and shareholders.
 It gives management full control on the administrative and other operations of the
company.
 With help of BSC approach, data collection process becomes easy.
 It is a communication tools which conveys the strategy of the company to all the key
people of company.
 It highlights some potential decisions that are taken by the management while not
considering both the financial and non-financial factors.
 It is able to reduce the number of measures used by the management for monitoring
the performance
 The approach is flexible in both functional and operational terms (Monden, Imai and
Matsuo, 2012).
Part c
Traditional approaches VS Balance Scorecard
The need of adopting BSC in the business was to overcome the weakness of the traditional
approach to performance measurements. There were many issues and variances in them, due
to which companies were not able to achieve their strategic goals and objectives. In the
beginning, a Performance Measurement Action Team (PMAT) was created to its eyes on the
different companies to observe their pattern or tool used, and it was observed that most of the
companies used top-down approach in order to evaluate the activities and actions of the
company. However, later on PMAT suggested that this top-down approach was not enough
sufficient for their efficiency enhancement and also resulting in poor progress of the
processes.

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To deal with the above issues, BSC approach was introduced and is widely used by many
companies across the world. However, Traditional measurement tools and BSC approach
have many differences. The major difference is that the earlier used systems tracks only the
financial performance of the business which takes into account the points related to net profit
earned and capital needed. Different financial matrices like, revenue, return on equity, and
cash flow, were the main focus of these tools as reported in the annual report of company.
These metrics are known as lag indicators as they only shows the past historical data of the
business and cannot be used for predicting its future (Kaplan and Norton, 2015).
Another difference was that traditional systems make the management ignore the benefit of
value creation for the organization in long run. It only focuses on the financial aspect. These
tools have also been used by other companies which were dealing with mass production and
having several tangible assets like plant, equipment, and property. Moreover, the earlier
approaches were not aligned to the strategic objectives of the organizations(Griff,
2014). These goals or objectives of the companies were mainly focused on benefit of the
company in long term and an efficient allocation of their resources as per the requirement of
business. These objectives were also accounting the value and expectations of shareholders.
Traditional systems basically concerned at short term financial performance and does not
completely comply the business operations with its strategic goals. This results in making
these not fit for the dynamic environment of completely change world for business (Suri,
Ratnam and Gupta, 2004).
However, now, instead of mass production companies are switching on knowledge based
production. This requires them to cover each and every aspect whether financial or non-
financial. Also they have to consider the value of intangible assets along with their tangibles
such as customer relationships, human and intellectual capital and many others (Ashioya,
2015).In this way companies have adopted new performance measuring tools that allow them

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to assess all the measurement aspects related to both quality and quantity of the production. It
also enables them to achieve their strategic goals and objectives. The tool adopted was
Balance Scorecard approach (Hoag and Cooper, 2006).
This new performance measurement tool is the best alternative for traditional tools as it
overcomes all the deficiencies and focuses on both the financial and non-financial aspects of
the company’s business. It takes into account the qualitative metrics and addresses the
changes in the modern business world. It allows the companies to align their actions with
their strategic goals and objectives. This new tool measures the performance of company on
the basis of different perspectives as, internal process, customer, financial, and learning and
growth of the company. BSC helps the companies to take correct decisions regarding their
strategies as it includes both the lag and lead indicators. These indicators or parameters
completely align business’s activities with its objectives (Nair, 2004).
Summarising the differences
Traditional systems Balance Scorecard
Only financial aspects are covered. Both the financial and non-financial
aspects are considered.
Different metrics like profit margins,
ROA and ROE are preferred.
Both the qualitative and quantitative
matrices are considered including
customer, finance, internal process, and
learning & growth of company.
Failed in establishing a proper link
between strategic goals and daily
activities.
Do set a link between the activities and
company’s goals.
Only financial performance measures. Overall performance measures.
No perspectives are there and only Four different perspectives used as the

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financial measures are used. main criteria.
Part D
Suitability in the approaching the client
Rockwater Limited, being the worldwide leader in underwater engineering and construction
applied the BSC approach to its business in order to improve its performance and enhance its
overall growth. Norman Chambers was the CEO of the company in 1989, the year in which
the industry’s competitive world has changed dramatically.
In order to overcome its problems, the company applied Balance scorecard in its business and
formed a new vision statement which stated that it will provide high standards of quality and
safety to its clients. In order to implement this, the company has created strategy which
consists of five elements that are:
 Providing services according to the needs and expectations of the customers.
 High level of client satisfaction.
 Improving the standards of safety and becoming cost effective.
 High quality employees
 Realizing shareholder expectations
These elements are then converted in to the four perspectives of balance scorecard approach.
Rockwater Limited’s management and CEO can transform their vision and strategies into a
BSC approach which will appear like this: