The Balanced Score Card (BSC)
The Balanced Score Card is a framework introduced by Norton and Kaplan in 1992 to facilitate the companies with balancing different major and influential perspectives in both external and internal contexts. It concerns for four major perspectives and those perspectives are as follows;
- Financial Perspective
- Internal business perspective
- Customer perspective
- Learning and growth perspective
Defining Balanced Score Card
Since the introduction in 1992, the Balanced Score Card has been widely used by many organizations for its capability of enabling the companies to better manage the strategy implementation via continuous measuring of performance against the targets.
Balanced Score Card has been defined by many scholars in different manners and following are some of them.
The balanced score card is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals (Balanced Score Card Institute 2016).
A balanced score card is a performance metric used in strategic management to identify and improve various internal functions of a business and their resulting external outcomes. It is used to measure and provide feedback to organizations (Investopedia 2016).
A strategic planning and management system used to align business activities to the vision statement of an organization (Business Balls 2013).
Potential value of a Balanced Score Card to Anthony’s Orchard – Specific ways that the introduction of a Balanced Score Card can contribute to the organization.
A Balanced Score Card tries to address the following questions under its four perspectives;
- Financial Perspective – How should the company appear to its shareholders? / Creating value to shareholders
- Customer Perspective – How should the company appear to its customers? / Creating value to customers
- Learning and Growth Perspective – How will the company sustain its ability to change and improve? / Creating value through innovation
- Internal Business Processes Perspective – What business processes must the company excel at? / Creating value through the business process of the company
Anthony’s Orchard is a company involved in selling apples and apple related products to the customers. A comprehensive potential Balanced Score Card can add value to Anthony’s Orchard Company in the following ways;
It improves the processes of the company
One major aspect of the Balanced Score Card is concerning for the development of the business processes of the organization. Under the Business Process perspective, the Balanced Score Card framework encourages the company to evaluate in an in depth analysis that what would the areas that the company should excel at in order to create value. In other words, it asks the company to determine the best organizational business processes to gain maximum desired output. Thereby, it helps to improve the processes of the company.
It eases the clear communication
Balanced Score Card concept is much more valued among organizations for its ability to better visualize the organizational goals in a manner that is clearly identifiable by both internal and external parties. It also encompasses the identification of the interconnection and relationship of different goals and objectives of the organization. Hence, Balanced Score Card is useful for the Anthony’s Orchard as it can clearly demonstrate and communicate its goals and objectives to its all stakeholders, both internal and external.
It motivates the employees
When the employees know what is expected from them and when, they often tend to work in efficiency rather than just being said to certain works on daily basis without being aware of what is expected at the end by all those daily activities. As Balanced Score Card visualizes the destinations the organization wishes to reach and when, the employees can be made more efficient and motivated towards the organizational goals.
It monitors the progress of the organization
The Balanced Score Card is not a one time process, nor done in an ad hoc manner. It is, once implemented, a continuous process of measuring the organizational performance against the performance targets set at the beginning (or amended as they came by subject to certain inevitable factors). Thereby it helps the responsible parties to determine whether the organization is running in the correct path in the correct pace in the correct direction. If there seems to be any deviations, Balanced Score Card signals the top management of the organization to rectify the deviations as appropriate.
It gains the company a competitive advantage over the competitors
As the Balanced Score Card concerns for customers, business processes, innovation and financials of the company, it helps to recognize the most sought after intentions of the customers, the most effective and least costly ways of conducting operations, the innovative products that would be difficult to be imitated at least in the short run and the better and effective use of the company financials to well maintain the financial health of the organization respectively. Through these, the company can go for gaining competitive advantages over its rivals easily either under the cost leadership strategy or differentiation strategy.
A sample Balanced Score Card for Anthony’s Orchard Company
|Financial||Increase Revenue||Revenue in each market||Increase by 15% per year||Finding new markets or market segments|
|Net Profit||Increase by 3% per year||Adopting TQM method in the organization|
|Customer||Enhance customer satisfaction||Customer retention||Maintain a customer retention rate of >90%||Review the customer satisfaction via independent 3rd party surveys|
|New customer acquisition||Acquire new customers amounting to >10% of the previous year total customers||Maintain and timely update the Acquisition Guide|
|Internal Business Process||Reduce the costs|
|Process automation||Automate 75% of the entire processes by 2020.||Introduce state-of-the-art equipment to the organization|
|Wastage as a % of total output||Limit wastage up to 5% of total output of the final product||Introduce efficient methods of production|
Replace the unskilled labour with developed equipment
|Learning & Growth||Improve organizational knowledge and skills||No. of employees scoring more than 75% at the annual performance evaluation||80% of the employees exceeding the 75% mark level||Periodic training and development programmes|
Introducing new plantation and manufacturing technology
|Technology training index||Efficiency of 85%|
Balanced Score Card Institute 2016, ‘Balanced Scorecard Basics’. Available at http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard
Business Balls 2013, ‘Balanced Score Card’. Available at http://www.businessballs.com/balanced_scorecard.htm
Kaplan, RS & Norton, DP 1992, ‘The Balanced Scorecard – Measures That Drive Performance’, Harvard Business Review, 1: 71–79.
Kaplan, RS & Norton, DP 1996, ‘The Balanced Scorecard: Translating Strategy into Action’, Harvard Business School Press, Boston.