Analysis of Balanced Scorecard's Impact on Organizational Performance

This report provides a comprehensive analysis of the Balanced Scorecard (BSC), a strategic management tool developed by Kaplan and Norton, and its significant role in enhancing organizational performance. The report explores the BSC's four perspectives: financial, customer, internal business processes, and learning and growth, highlighting how they provide a holistic view of an organization. It discusses how the BSC translates strategy into operational terms, aligns the organization, and measures performance through both financial and non-financial measures. The report emphasizes the BSC's ability to improve employee motivation, align incentives with strategies, and drive revenue growth. It also presents a case study of Infosys, illustrating the successful implementation of the BSC. Finally, the report concludes that the BSC is a valuable framework for organizations to formulate plans, measure performance, and achieve strategic objectives.

balance Scorecard

Introduction
Balanced Scorecard is considered as an important aspect of the management. A balanced
scorecard is a new approach to strategic management which was developed in 1990 by Robert
Kaplan or David Norton. On the basis of vagueness and weakness of previous management
approaches, balanced scorecard approach highlights clear prescriptions of the financial
perspective of a business organization (Kaplan, 1996). The main motive of this paper is to
investigate the role of the scorecard in enhancing and improving the performance of an
organization. Balanced scorecard mainly represents a central list of numbers which describe
every part of the organization's success like people, financials, suppliers, customers, and
operation. The represented number not only shows the important outcomes but also highlights
the various factors which influence these outcomes significantly.
The balanced scorecard is a popular management system which permits the organizations to
recognize their vision and strategy and interpret them into action. The balanced scorecard
provides feedback of both the internal business processes and the external business processes
(Kopecka, 2015). The Balanced Scorecard views the organization from four perspectives,
namely, perspective related to the business process, perspective related to the growth process,
different customer perspective, and financial perspective. All these perspectives are shown in the
following figure:
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Balanced Scorecard and Organizational Performance
The balanced scorecard is considered as a framework of performance management activities that
establish a suitable link between the day to day operations of a business organization and its
strategy. Balanced scorecard provides a holistic view of the organization which is designed on
the basis of organization objectives. The organizations can build balanced scorecard for
themselves after analyzing their strategic objectives which describe the whole functioning. The
organizations prescribe their four balanced scorecard perspectives, from which they can choose
different measures for fulfilling their predetermined objectives. These measures of the balanced
scorecard represent the quantitative indicators of an organization which indicates that how the
performance of a strategic objective can be fulfilled (Lueg, 2013).
The proper functioning of the organization can be supplemented by the balanced scorecard
approach. The use of non-traditional financial measures and the traditional financial measures
mainly focus on three other perspectives which are known as internal business processes,
customers’ perspective and learning and growth perspective can be preferred. The balanced
scorecard mainly helps the organization in fixing the compensation of the employees that will be
a motivating factor for the employees. This will play an important role in improving the
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performance of the organization. As per the research survey of Balanced Scorecard, it was found
that 72% of the respondents utilized the balanced scorecard or other variants. On the other hand,
16% are seriously considered the use of scorecard for compensation purpose (Kaplan, 2004). As
per the research conducted by the Ittner (2008), 25% of the firms of US utilize both non-financial
and financial measures in the annual bonus contracts of their chief executive officers, with the
weight placed on these measures by the firms’ strategic objectives. Calculation of financial
measures is not sufficient for improving the performance of the organization.
The organization needs to follow different aspects of the balanced scorecard for implementing it
in a significant manner. Balanced scorecard utilizes multiple signals of the agency for measuring
the financial measures of the organization. Utilization of balanced scorecard concept with its
theoretical work on performance evaluation provides most efficient means for the business
managers. Balanced scorecard is developed by the organizations to enhance their revenue by
improving its sales from existing customers. It offers comprehensive solutions to targeted
customers of a business organization. It helps achieve excellence in the performance of business
functions through continuous operations of business processes, and merge incentives and
rewards of the employees with the different strategies of the business.
The BSC has gained popularity as an efficient tool of the management that merges corporate
strategy of the organization with the actions and goals of the employees. During the 1980s,
accounting researcher explained the enhancing irrelevance or performance measurement
practices and traditional control. Kaplan and Norton introduced some principles which guide in
the implementation of the balanced scorecard in an organization effectively. Balanced scorecard
helps in measuring the performance of the organization by following ways:
 Translate strategy into operational terms:
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The balanced scorecard is not only considered as a tool of strategy formulation, but it
also helps the management in implementation of strategic decisions. Strategy
formulation is considered as an art or the description of the strategy. If the organization
wants to improve its performance, then it is necessary for an organization to link and to
reinforce all activities through its organizational strategies.
 Align the organization to the strategy:
As per the wor done by the Kaplan and Norton, it was shown that the successful
implementation of the balanced scorecard completely depends on the ability of the
organization to rely on consistent strategic alignment. The organization can efficiently
utilize the balanced scorecard by communicating and developing a number of strategic
themes. These themes allow the organization to focus and balance conflicting short-and-
long term priorities. The strategic themes reveal what is happening internally in the
organization to achieve strategic outcomes, and deliver a mode of segmenting the
formulated strategy into projects or general categories.
Kaplan and Norton have formulated a set of measures which enables the managers of the
organization to have a comprehensive view of the organization’s performance. Balanced
scorecard helps the managers in identifying the relevant information by using the four
perspectives. Some of the perspectives have been discussed ahead.
Financial perspective: In this, the leadership team of the organization firstly formulates their
objective regarding the financial target of the newly formulated strategy. One of the examples
can be when the organization wants to double the capital employed to 13% within the next two
years from its current depressed level of 7%. Balanced scorecard helps that organization in
fulfilling its objective by utilizing the two financial levers which are growth and productivity.
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The productivity of the organization is improved through two elements which are asset intensity
and cost reduction. These elements of the organization can be calculated by using Balanced
Scorecard. Thus the financial perspectives combine measures and objectives for both revenue
growth and productivity.
Customer Perspective: Through using the customer perspective the organization segments its
target consumers in different categories. This success can be achieved through studying the
market share of the organizations. Balanced scorecard helps in strengthening distributor and
dealer relationships by creating win-win partnerships.
Process Perspective: Balanced scorecard helps the organizations in the management of business
operations to improve quality, efficiency, and responsiveness. Management of the customers for
generating profit (Black, 2014), and Develop innovation strategies for building new products and
services.
Learning and Growth perspective: Balanced Scorecard helps the organization in enhancing the
skills and motivation level of the employees which done through implementing information
technology and aligning employees to work on those strategies. The areas that can be improved
by using Balanced Scorecard are development of skills and core competencies, empower and
engage employees, and provide access to strategic information.
Balanced scorecard also helps in formulating different communication strategies for an
organization which serves as a device for management control (Jovanović, 2012). There is an
indirect relationship between the improved performance of the balanced scorecard or the
management control functions. Balanced scorecard contributes more for improving the
performance which improve profitability and efficiency of an organization.
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One of the examples of the successful implementation of BSC is in relation to the Infosys.
Infosys was founded in India in 1981. During 2000, the organization decided to expand its
portfolio of IT services beyond Traditional IT outsourcing. This was done by partnering with
global clients to transform their businesses by launching various advanced technology, IT
services and products. The organization has efficiently done this by utilizing the balanced
scorecard. Now the organization had more than $60 million worth. Infosys utilize skilled IT
labor for fulfilling its strategic objectives (Gupta, 2014). Till 2008 the organization had only 18
clients but now it is generating above 500 million revenues from its more than 100 clients. The
organization is engaged in providing multiple services for many years. Now the organization is
not only recognized as an IT body shop but also known as trusted transformational IT
organization. Executives of the Infosys formulated a balanced scorecard framework by which the
organization formulates, monitor and communicate its strategy to its different business partners.
The CEO of the organization gives the credit of its success to its efficient balanced scorecard
system.
The balanced scorecard allows the management of the organization to promote different strategic
changes constantly through stretched goals. Till 2003, the organization had significantly steered
the transformation of itself through various evolution stages utilizing the Balanced Scorecard.
The organization continuously moves on by facing different strategic challenges while
implementing the changes in the business processes. All these challenges require the better
execution of strategies by the management of the organization (Hoque, 2014). These strategies of
the organization are enforced by comprehensively using the Balanced Scorecard system.
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Conclusion
After studying all this, we can conclude that the balanced scorecard has been utilized by the
various business organizations to a larger extent. It is mostly utilized as a performance
framework and strategy in public and private business organizations. The findings of the study
concluded that there are some organizations whose operational culture permitted the
management to understand the concept of Balance Scorecard and utilize it in an efficient manner
for the success of the organization. The organizations which are not following the balanced
scorecard concept finds hard to achievable objectives, hard to measure performance and
formation of inappropriate goals and targets of the organizations. Balanced scorecard helps the
management of the organization to formulate various plans and strategies for implementing these
plans efficiently (Keyes, 2016). As per the strategic map of the balanced scorecard, Kaplan and
Norton suggested that non-profit organization and the government should put the citizen and
customers at the top of their strategic map. This should be done by the organizations because this
structure does not provide any profits to them. If the organizations want to survive for a longer
period, it is necessary for them to improve their financial position. Finally, it can be said that the
financial resources which are obtained by the organizations through private and public funding
should be managed efficiently and this could be done by using balanced scorecard concept
efficiently in the organizations.
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