BALANCED SCORE CARD

Subhajit Das 1201045

Balanced Scorecard (BSC) was developed in the early 1990's by Robert Kaplan and David Norton. The system arose from a concern that most indicators of performance used by business were financially oriented and imbalanced.

The balanced scorecard is a management system (not only a measurement system) that complements financial measures with operational ones which are the drivers of successful performance. The balanced scorecard offers a focussed approach to business planning and communication of plans through organisations.

The system suggests that we view the organisation from four perspectives, and develop metrics, collect data and analyse them relative to each of these perspectives:

1. The Learning and Growth Perspective This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement.

2. The Business Process Perspective refers to internal business processes. Metrics based on this perspective allow managers to know how well their business is running, and whether its products and services conform to customer requirements and aligned to government policy and strategy.

3. The Customer Perspective includes indicators of customer focus and customer satisfaction. Poor performance from this perspective is a leading indicator of future decline, even though the current financial picture may look good.

4. The Financial Perspective Traditional timely and accurate financial data continues to be important part of the model and will also incorporate risk assessment and cost-benefit data.

Why businesses need a balanced scorecard Traditional financial measures are one-dimensional. By definition, they only look at the financial aspects of a business. Traditional financial measures are historical. They tell us nothing about what may happen to the business in the future. There are many examples of businesses that have achieved rising profits, as measured by historical financial results, at the same time as there were underlying problems. Eventually the problems have led to a downturn or even a business failure. Conventional financial statements do not explain variances from the expected outturn. Why did things go wrong? There are not necessarily any clues in the figures

themselves. To understand the problems, some other perspectives on the business are needed other than the purely financial.

Financial measures can be manipulated. There are several notorious examples of where preparers of financial statements have deliberately set out to mislead

Balanced Scorecard is a systematic approach to performance measurement that translates an organizations strategy into clear objectives, measures, and targets. The Balanced Scorecard integrates an appropriate mix of short- and long-term financial and non-financial performance measures used across the organization, based on the organizations strategy.

The four measurement perspectives in the Balanced Scorecard are (1) financial, (2) customer, (3) process, and (4) learning and growth.

Increasingly, in order to succeed, organizations are relying on competitive advantage created from their intangible assets, such as loyal customers, highquality operating and innovation processes, employee skills and motivation, data bases and information systems, and organization culture. The growing importance of intangible assets complements the growing interest in the Balanced Scorecard because the Balanced Scorecard helps organizations measure, and therefore, manage the performance of their intangible, knowledge-based, assets. With the Balanced Scorecard measurement system, companies continue to track financial results but they also monitor, with nonfinancial measures, whether they are building or destroying their capabilitieswith customers, processes, employees, and systemsand how the company is managing intangible assets to create future growth and profitability. The Balanced Scorecard provides a framework for describing how intangible and tangible assets (such as property, plant, equipment, and inventory) will be combined to create value for the organization.

The two essential components of a good strategy are (1) a clear statement of the company's advantage in the competitive marketplacewhat it does or plans to do differently, better, or uniquely compared to competitors; and (2) the scope for the strategywhere the company intends to compete most aggressively, such as

targeted customer segments, technologies employed, geographic locations served ,or product line breadth.

Clear strategy is vital for an organization for the following reasons. First, it creates a competitive advantage by positioning the company in its external environment where its internal resources and capabilities deliver something to its customers better than or different from its competitors. Second, having a clear strategy provides clear guidance for where internal resources should be allocated and enables all organizational units and employees to make decisions and implement policies that are consistent with achieving and sustaining the companys competitive advantage in the marketplace.