The Management Processes
The balanced scorecard lets companies introduce four new management processes that, separately and together, contribute to the linkage of long term strategic objectives with short term actions. The first new process is; Translating the Vision, this process helps managers build a consensus around the organizations vision and strategy. What the organization hopes to achieve in the future must be translated to employees and must link with the strategic objectives the organization has identified.
The second process is; Communicating and Linking, this process lets managers communicate their strategy up and down the organization and link it to departmental and individual objectives; it basically involves communicating and educating, setting goals and linking rewards to performance measures, Therefore, helping to ensure that employees understand the long term strategy, the relations among the various strategic objectives and the association between the employees’ actions and the chosen strategic goals.
The third process is; Business Planning, this process enables companies to integrate their business and financial plans, mainly by setting targets, aligning strategic initiatives, allocating resources and establishing milestones. This is possible because the balance scorecard takes into consideration the vision of the firm which encompasses the firm’s objectives. By having everything clearly stated for the employees it
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Lastly the fourth process is; Feedback and Learning, this process gives companies the capacity for what we call strategic learning, it involves articulating the shared vision, supplying strategic feedback and facilitating strategy review and learning. Because the balance Scorecard incorporates non-financial indicators of the drivers of strategic and financial success, it is able to provide firms strategic feedback and promote learning through the monitoring of short-term strategic results, thereby, allowing firms to adjust or change objectives or strategies they see don’t form a perfect fit before financial results turn down.
(Kaplan and Norton, 1996:75-77),(Itter. C. D,Lacker. D. F. ,Meyer. M. W. ,1997:37-42) A balanced scorecard enables a company to align its management processes and focuses the entire organization on implementing long term strategy. It provides a framework for managing the implementation of strategy while also allowing the strategy itself to evolve itself in response to changes in the company’s competitive markets, and technological environment (Kaplan and Norton, 1996:85).
According to Kaplan and Norton (1993:134) the balanced scorecard is much more than a measurement exercise, it is also a management system that motivates breakthrough improvements in such critical areas as product, process, customer, and market development. Balance Scorecard Limitations Even though balance scorecards have been widely accepted by academics and practitioners, several limitations exist. The first is that it is a top-down approach only hence the interactions between top management team and working level employees are limited.
Secondly, balance scorecards did not provide an opportunity to develop, communicate and implement strategy in a corporate setting. It does not have a formal implementation methodology. Therefore this lack of formal implemented methodology and subjective measures often leads to focusing on short-term financial measures (Chiang and Lin, 2009:3). Balance scorecards are also said to lack a single focus for accountability for example a comprehensive index to summarise the interaction between these leading and lagging measures of performance.
While the balance scorecards states what measures to look at, it does not state how to look at them or their relative importance to the environment (Chiang and Lin, 2009:3). Conclusion However, although balance scorecards has its limitations it is recognised for its resource deployment and improving internal process. Enhancing the quality of a firm’s controlling system in various ways is another advantage of the balance scorecards (Chiang and Lin, 2009:4).
The balance scorecards is able to minimise information overload by limiting the number of measures used but also to develop the scorecard by linking to key success factors (Chiang and Lin, 2009:4). This helps the organisation develop systems that are strategy-supportive to keep it on track with regards to pursuing its strategy. On the other hand balance scorecards are said to fail because the metrics are poorly defined (Schneiderman, 2004:7).
Improvement goals are negotiated rather than based on stakeholder requirements, fundamental process limits and improvement process capabilities (Schneiderman, 2004:7). The other reason why they fail is because there is no deployment system that breaks high level goals down to the sub-process level where actual improvement activities reside (Schneiderman, 2004:7). The balanced scorecard can serve as the focal point for the organization’s efforts, defining and communicating priorities to managers, employees, investors, even customers (Kaplan and Norton, 1993:135).