Introduction
The balance scorecard method is performance management tool that combines financial metrics with non-financial metrics. It uses four aspects – financial metrics, internal business processes, continuous learning and growth, and employee satisfaction to determine whether the organization is achieving its strategic goals or not. This paper discusses some of the advantages of the balanced scorecard method. It will also discuss some of the criticisms, and conclude why it is better. (Norreklit, 2000, 67)
One of the main benefits of using the balanced scorecard method is that it combine quantitative measures with qualitative measures. The four aspects of the company performance give a balanced view as to how the company is performing. It gives a clear picture whether the company is achieving its objectives or not. For example, if we measure the company’s performance through traditional measures that only focus on the financial side of the business, it may show the company as growing. However, that growth may have come at the cost of unsatisfied employees. For instance, a factory owner may make his employees work overtime to achieve his current level of growth. But his employees are dissatisfied which implies that it may not be able to sustain that level of growth. This red flag is clearly identified in the Balance Scorecard method, as we are able to see the level of employee satisfaction along with financial profitability. (Kaplan & Norton, 1996, p. 77)
Another advantage of the balanced scorecard method is that the company can make a direct connection between its business objectives and whether it is achieving them. For instance, if a company has the objective of growing its business, it cannot only use its profits as the only metric. Customer satisfaction also plays a huge role. Therefore, by using the balanced scorecard method, a company is better able to link its business objectives with its strategy. (Kaplan & Norton, 1996, p. 79)
The third advantage of the balanced scorecard method is performance appraisal. As a performance appraisal tool, the balance scorecard method rewards those people that are actually adding value. The actions which create the highest value for the company can be rewarded through the balanced scorecard method. For instance, a company can reward employees that bring in the highest number of customer satisfaction ratings. (Kaplan & Norton, 1996, p. 80)
The fourth and the last advantage of the balanced scorecard method is that it serves as a strategic control. Through the balanced scorecard method, managers are able to determine which set of activities they need to monitor. In today’s age of Big Data, companies can monitor almost anything. However, the balance scorecard method provide a holistic framework through which managers are able to determine what actually needs to be monitored. (Kaplan & Norton, 1996, p. 81)
However, there are a few people that criticize the balanced scorecard framework. One of the criticisms against it is that it doesn’t provide a unified bottom line in the end. It is just a list of metrics. However, I believe that these metrics still do a good job in guiding the strategic direction of the company. Another criticism against the balance scorecard method is that it fails to take into account all the stakeholders. It ignores the government and the public. I agree that the balance scorecard method only focuses on the financial stakeholders as they are the most important stakeholders and should have more say in the decision-making of the top management. Norreklit, 2000, 70)
In conclusion, there is not one perfect tool to measure the performance of the company. This paper shows that the balance scorecard method provides a good way to companies to look at their financial and non-financial goals to measure their performance.
References
Kaplan, R. S. and D. P. Norton. 1996. The Balanced Scorecard: Translating Strategy into Action Boston: Harvard Business School Press
Norreklit, H. (2000). The balance on the balanced scorecard a critical analysis of some of its assumptions. Management Accounting Research, 11(1), pp.65-88.
