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The Balanced Scorecard: Real or Just a Mirror

Free «The Balanced Scorecard: Real or Just a Mirror» Essay Sample

Introduction

The basic idea of the method of a balanced scorecard is in displaying the system of indicators in a structured and concise manner with the aim to obtain analytical results in a significant managerial practice. The classic version of this method includes the connection of various interconnected blocks guiding the decision-making process in some direction. Though the approach is dedicated to the reflection of the major or priority activities of a company, obtaining these results is characterized by the employment of different approaches and cultural relations. Different perspectives of using this method result in a varying understanding of the specific indicators and modify its target orientation.

Overview of the Balanced Scorecard

The use of the balanced scorecard (BS) is presupposed by the basic needs of the business and its analytical functions. The traditional method of a company evaluation is that it analyzes the dynamics of economic and financial indicators. Modern conditions of the intense competition do not allow responding to internal and external changes in the market environment flexibly and quickly. In addition, there is a risk of making an excessive focus on the increasing profits, which diverts the attention from innovations, HR, social accountability, and other aspects of the company. It leads to the reduction in the market share, growth losses, and eventual collapse of a company. To avoid these risks, the business falls back upon the BS system.

The BS is based on the usage and analysis of the key indicators of a company’s performance. As the method exploits a variety of indicators, they still do not belong to the arbitrary set as they form a balanced system, target strategic objectives of a company, and belong to a logical chain of indicators grouped according to certain pre-outlined criteria (Tayler 2010). Conceptual provisions of the balanced scorecard are present in the management arsenal of the leading companies from many countries. They value the advantages of this method, which is based on the interconnectedness of the key indicators of a company’s performance (Kaplan & Norton 2006). As the results of any business are reflected in their financial reports, all the indicators relate to them either through intermediate factors or directly. In this way, the BS performs a thorough analysis of the internal relationships of a company, monitors any changes and their effects, and develops possible ways to influence them.

The BS was used to implement a strategy, which is the most difficult task, rather than just to develop a strategic plan (Kaplan & Norton 1996). Therefore, the current choice of and efficient technology for the development and implementation of the strategy is u front in any company, in any country. There are a lot of the approaches and methods proposed for implementing the plan; thus, any of them could be the object of the critical evaluation in the individual managerial practice.

The balanced scorecard appeared in the early 1990s as a result of a scientific study conducted by KPMG, a consulting firm, and supervised by Norton and Kaplan. This study is focused on a relatively limited problem of obtaining a list of indicators that determine the business success. The further development of a new tool, originally intended for the business performance’s evaluation, was in its utilization as a means to control the implementation of any strategy. Thus, the BS set both analytical and strategic locations.

From the management standpoint, this system offers a simple method for developing and implementing strategies, as well as provides a logical sequence for each particular case. Moreover, each participant to the BS system becomes controlled by the qualitative and quantitative indicators of achievement during the strategic plan introduction (De Geuser, Mooraj & Oyon 2009). Structural peculiarities of the method vary depending on the priorities and the specifics of a company. The method involves several dozen of specific metrics, which are related to the above components. Detailed indicators, grouped according to these characteristics, streamlined the interconnection and interdependence of the economic phenomena in a company (Chavan 2009).

Literature Review

Norton and Kaplan founded the BS as a single and complex backbone idea that seemed to be universal and fruitful. The essence of this system is that the company that sets the goal of the strategic development should be aware of that the achievement of these strategic objectives and benefits in the modern economy is possible upon the introduction of innovations. Innovative aspects of the company’s performance shape its strategic reserve including personnel skills, the content of corporate knowledge, and perfection of organizational processes. The organizational excellence pushes internal processes to a qualitatively higher level. First of all, it is reflected in the fact that the basic processes of the company’s internal environment acquired a customer-oriented character. Similarly to the provisions of the opinion of the model’s designers, such changes can be perceived differently in the management practice. In addition, it increases he customer satisfaction, transforms the performance results into a financial and economic success, reduces risks, and stabilizes the financial and information flows. However, not all approaches to the use of the method preserve the original structural and functional features.

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The initial idea of the BS was the evaluation of the business performance that would enable a company base its strategy on this measurement. Such actions would provide them with additional awareness of the relevance of the original measures and processes (Kaplan and Norton 1995). The founders of the method confirmed that they were guided by the assumption that the measurement was integrated in the management practice and the companies’ performance. Therefore, the outlined strategic goals should be transformed into measures of the business performance. In addition, Kaplan and Norton (1995) noted that the BS focused the managerial attention on the ongoing and future success. If comparing, convenient financial indicators reflected the past performance of a company and resulted in developing ordinary financial statements. According to this ability of the BS, businesses may adapt the metrics to the mission, strategies, corporate culture, and technology inherent in the conceptual basis of any company (Kaplan 2008). Different countries applied own measurements of performance while others have borrowed the core BS practices.

National Dimensions

A certain reluctance of the French companies and scientific community relates to their prior practice of exploitation of the so-called tableau de bord (Bourguignon et al. 2004). The followers of this approach confirmed that they used to apply another method to the performance measurement that was different from the American one. Likewise, Bourguignon et al. focus on the comparison of the BS and the tableau de bord, as well as on the identification of their points of contact and divergence, representation of a radical difference between the business ideologies of France and the US that resulted in a certain social order. At the same level, as the French researchers did, the author distinguished different roles of the managerial practice in both countries due to various social needs and appropriate focus.

Based on the study of literature, the author indicates that the tableau de bord has been the method applied in the French business for the last 50 years. This measurement focuses on the operational and global overview of the business performance guided by responsible individuals. Action variables are perceived as a structural part of the French approach being shaped by possible objectives. Their implementation depends on the introduction of corresponding action variables developed in the action plans.

Nevertheless, the study of evidence from the literature attests that the French users and contributors reject the financial measurements of the BS and choose more physical metrics of the performance measurement. In contrast to the BS, the tableau de bord includes social measures in a typical range of measures of the companies’ performance along with the customer and process-oriented indicators (Bourguignon et al. 2004). Similarly to the BS, the French metrics also includes the translation of the strategies and vision for measures and goals. Both of them target to match the top managerial decisions and appropriate actions of other employees. In addition, the similarities also refer to almost the same hierarchy of the processes and selectivity that allows avoiding extra data (Bourguignon et al. 2004). On the other hand, the BS does not provide the subjectivity that is inherent in the development of the tableau de bord that proclaims it as being the way of conceiving any strategy introduced by a manager within a certain environment. In the contrast to the BS, the French concept is determined as being a more complicated tool for the business performance measurement.

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Another aspect of the cultural dimension is associated with the implementation of the BS in the Chinese business practice. In line with the Western practitioners, this practical approach was implemented much later than in the U.S. companies. Zeng and Luo (2013) used a gradual and logical sequence of facts for attesting the successful implementation of the BS in China. The authors adopted an empirical approach to the identification of critical perception of the BS in the West and wide popularity of the measurement in China as the developing countries were interested in and imported the suitable managerial practices and approaches. The scientists assumed that the Western estimation of the BS was fulfilled with the emergence of limitations of this approach, such as the ambiguous term of action, complicated strategic control, a common bias of the measure, static nature, among many other issues.

When the Chinese companies faced the BS, they experienced certain complexities and obstacles, which were highlighted by Zeng and Luo (2013). The Western approach was rather different and did not experience a significant cultural influence of the Chinese management practices and people’s behaviour (Zeng and Luo, 2013). Unlike the U.S. values and patterns, Confucianism, low individualism, and other cultural and organizational peculiarities of the Asian business contradict the American way of decision-making. Therefore, the authors even provided an inner outline of the recommended ways for the Western companies to overcome these problems and obstacles.

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According to Zeng and Luo (2013), examination of the Chinese character in employees, enhancement of the organizational structure, and adaptation of the BS to the Chinese management are mentioned can resolve some significant differences between the cultures. China would follow the improved and aligned managerial method to measure the ongoing performance and strategy implementation in order to facilitate the market success in both the local and international markets.

Critics of the Balanced Scorecard

Along the cultural dimensions, there are also local practical disputes invoked by the corporate business functioning. Thus, the empirical study of Wiersma (2009), internal implications critically revealed by Norreklit (2000), and influence on the ultimate corporate control traced by Kraus and Lind (2010) actualized the research of the domestic conditions method.

The spread of the BS in other areas of the business performance was confirmed by the adoption of this system and the attempts to identify the purposes of its utilization. In the empirical research, the role of the BS information system was verified in the survey that engaged more than 200 managers of 19 firms, in which the approach was implemented. Norreklit (2000) used factor analysis in order to determine whether the managerial practice of these companies exploited the BS for making and rationalizing proper decisions, for coordinating the entrepreneurial coordination, and implementing self-monitoring. These purposes enabled the author to detect the method among other managerial toolsets. In a like manner, this position actually coincides with the existing provisions of Norton and Kaplan focusing the BS on a direct destination for managerial spheres of knowledge.

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The identification of these grouped purposes was prolonged with the selection of special drivers appropriately to the mentioned purposes. The drivers are the style of measurement and control, as well as new information receptiveness (Norreklit 2000). The author agrees with the view of other scientists that the BS can be easily implemented in the managerial practice as a common tool for measuring the managerial performance and as an integral part of the HR compositional element identified by Kaplan and Norton (1995).

Unlike the founders of the model, Norrecklit pays significant importance to the BS application, especially its combined character including both non-financial and financial metrics. This feature made this system attractive for determining the outcome measurement and appropriate drivers. Norrecklit (2000) emphasized that the BS belongs to both the toolset of strategic management and the composition of the system of strategic control. The approach of Norrecklit (2000) is devoted to the clarification of the existence and measurement of that cause-and-effect interdependence, which links all areas of the common measurement. In line with Kaplan and Norton, the author researched the extent, to which the ongoing metrics corresponds with a strategy. Moreover, the improvements of the BS are considered in the study as the final point of assumptions. The standpoint of the scientists corresponds to the implications made by the founders of the method.

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Similar to Norrecklit, other researchers paid attention to the issue of the BS perception on different stages of the strategic management. Consequently, its application covers the aspects of the final phase of any managerial performance. Therefore, it is obvious that the scientific circles have questioned the role and contribution of the BS to the common and specific control over different corporate business units (Kraus and Lind 2010). Unlike other analytical findings, this research relied on the application of empirical methods that allows determining that the specified type of the BS used in the corporate environment slightly influences its control system. The financial element of the BS’s composition was driven mostly by the external market pressures and the manager’s intention to achieve simplicity. These results focused on the financial control and appropriate motivation of the employees.

Evidence from Case Study

The true proof of the exploitation of the BS in the real corporate environment is provided by the research conducted by Kraus and Lind (2010). They applied gradual research design in order to examine the performance of 15 Sweden corporations with the aim to investigate the role of the BS in the corporate control achievement. The study was based on the surveys’ data collected during the interviews with the managers of different levels. More than a half of these companies had adapted the BS to their needs. This fact confirmed the popularity of the method in the large European companies with the similar mode of conduct and internal processes.

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Unlike in the utilization of the BS in their internal environment, the managers and corporate executors demonstrated only a general understanding of the concept. Their surface knowledge of the detailed composition of the BS is supported by the factual figures in the findings of the study. All BSs of the selected companies, which used this approach in their business practice, include financial parameters. Appropriate measures were available in the procedure. Many of these corporations admitted a strong influence of the BS’s application on the financial performance and essential control measures taken after obtaining the findings of the BS while non-financial metrics was not widely updated. The results of this study recognized the financial profile of the used BS.

Conclusion

Companies switched to the regular management and set a noble goal to become process- and customer-oriented, follow the goal to implement a strategic management system, in which the BS would be a backbone link between the basic business areas. The results showed that the French and American managers use a similar system of the business activities assessment while Chinese managers will be successful with the appropriate adaptation of the Western methodology to their cultural peculiarities of doing business. Many companies have an own idea of the use and effectiveness of the BS that affects its adaptation and flexible display of the performance results.

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