Introduced by Norton and Kaplan in the year of 1992, Balanced Score Card (BSC) is a management tool used to balance the organizational strategies by creating a link between the activities related to finances, customers, internal business processes and learning aspects of the company. It addresses four major areas of any organization as
- Financial Perspective
- Customer Perspective
- Internal Business Perspective and
- Learning & Growth Perspective
Balanced Score Card is appreciated and adopted by many organizations, irrespective of the nature of the business activities, objectives or the strategies, as it helps to address both internal and external aspects under the above mentioned four broad categories. In addition, Balanced Score Card has following advantages as well.
- It presents the goals and objectives in a clearly identifiable manner
- It visualizes the how different goals are inter related
- It traces the organizational performance
- It provides an accurate feedback to the planning process etc.
However, there are certain criticisms for Balanced Score Card as well. The BSC is criticized for making organizations less dynamic because employees respond by serving only the hierarchic implemented indicators (Voelpel, et. al, 2006). According to Nørreklit 2003, and Paranjape, et.al, 2006, it primarily promotes top-down command and control.
The comment of Voelpel, et. al (2006) cannot be considered to be true in Balanced Score Card concept merely because the higher rankers would set the goals as they think appropriate for all the major perspectives and then communicate them to the employees and expect them to execute them. If we closely look at the concept, it is a continuous performance measurement process where performance is measured against the targets and then corrective actions are taken. It does not make the organizations less dynamic either as when it tries to achieve leaning and growth perspectives, it allows the organizations to implement what is timely right to achieve their targets in the timely reviews, as the initially set methods would no longer work when the certain time factors change. Through the continuous evaluation processes, the Balanced Score Card helps the organizations to communicate the results of the performance evaluations and thereby to make any corrective active actions rather than being glued to ‘hierarchic implemented indicators’.
Nørreklit (2003) argues that double-loop learning demands employees’ participation and more bottom-up communication to change indicators, but how this is to be realized using the BSC is unclear. Nørreklit (2003) and Paranjape, et.al, (2006) also argue that it primarily promotes top-down command and control and does not address employee and competitor perspectives. But in Balanced Score Card concept, the bottom up communication is already encouraged through the continuous and periodic performance evaluations. When the actual results are deviated from the expected, the top management would always contact the lower level management to gather the reasons for deviation. Thereby, not only the top down, but also the bottoms up communication opportunities are clearly provided by Balanced Score Card.
Also, under the customer perspective, it facilitates the organizations to consider the competitors before deciding what to give to customers and how to give. Further, it does not exclude employees from its scenery as under internal business perspective it concerns for how to develop processes by developing employees.
Hence, it can be clearly stated that Balanced Score Card is a broad concept that addresses all aspects of organization and facilitates all type of inter-management level communications by making organizations more dynamic to the changes.
Kaplan, S. & P., Norton (1996) The Balanced Scorecard – Translating strategy into action, Harvard Business School Press: Boston.
Nørreklit, H. (2003) ‘The BSC: What is the score? A rhetorical analysis of the BSC’, Accounting, Organizations and Society, 28 (6), pp. 591-619.
Paranjape, B., Rossiter, M. & V., Pantano (2006) ‘Performance measurement systems: Successes, failures and future – a review’, Measuring Business Excellence, 10 (3), pp. 4-14.
Voelpel, S., Leibold, M. & R., Eckhoff, (2006) ‘The tyranny of the BSC in the innovation economy’, Journal of Intellectual Capital, 7 (1), pp. 43-60.