Traditional approach to performance appraisal relies on financial information and uses historical data to assess the current situation. However, financial indicators only partially respond to the information needs of the managers, who have to take into consideration also other factors, such as customer satisfaction, company strategy for future development etc. That is why many organizations have adopted a more complex model for strategic planning and control, the balanced scorecard.
Balanced Scorecard was developed in the beginning of the nineties to provide companies with a more comprehensive tool to assess their performance. It considers several financial and non-financial key performance indicators that show how well the company is doing at the moment and what should be done in order to stay in-line with the overall business strategy. Balanced Scorecard usually views performance from four main perspectives: financial, internal business, customer perspective and learning & development. The first one helps to understand how much value the company is creating for its shareholders. Customer view helps to understand how the firm is perceived by its clients. Internal business indicators show what processes within the organization require specific focus, and what should be done to enhance operational efficiency and improve the workflow. Learning & Growth perspective focuses on how well the company is investing into the future by leveraging the learnings from the present and encouraging growth.
Although balanced scorecard is more complex than traditional performance appraisal mechanisms, it is also more comprehensive and offers a better view into the way the company is executing its strategy. It also looks at a broader range of performance indicators, that is why it makes it easier for the company to adapt to the competitive and continuously changing marketplace. It helps organizations to become better on all fronts, and not only to reward its shareholders, but also to deliver superior value to its customers, to improve internal efficiency and to create an environment that supports future development and growth.
Responses to Postings
Response 1
The posting shows a good overview of the balanced scorecard tool, and provides some analysis of the way a balanced scorecard can be used by companies to keep track of company performance. The posting also outlines the benefits of the balanced scorecard in comparison to more traditional methods, thus showing how useful it can be for organizations.
The posting, however, could have benefitted from a more in-depth examination of the scorecard advantages. Thus, it could be very interesting to discuss the implications of the fact that the scorecard encourages managers to set goals in four different areas and to measure company performance accordingly. The fact that the balanced scorecard helps to reduce resource suboptimization is also a very interesting point. However, it is hard to understand from the posting how exactly the scorecard contributes to more efficient resource allocation. Moreover, the discussion of the of the scorecard’s advantages does not answer which approach is more useful for the company and helps to remain competitive in the contemporary marketplace. Another point to improve in the posting is the consistency of the information provided. The author takes for granted that readers have prior knowledge about the balanced scorecard . For example, in the second paragraph it is mentioned that the performance is measured “in each of the four areas”, but there is no reference in the text to what those areas actually are.
Response 2
The posting provides a very detailed analysis of the balanced scorecard management system and gives a comprehensive overview of its main advantages over more traditional financial measures. It also includes a discussion of the value that a balanced scorecard approach can have for the company, which operates in a dynamic and competitive contemporary marketplace. The way the posting describes the topic really helps to understand the subject matter.
The use of references also adds value to the text, as it shows the work that has been done to create this piece and gives readers an opportunity to look for more detailed information in the source itself, in case they are particularly interested in the balanced scorecard approach. Perhaps to make the posting even more interesting and easy-to-read, it could be useful to include some real-world examples of how balanced scorecards are currently used in organizations. However, even without this the posting gives all the information necessary to understand what the balanced scorecard is and how it can be used by organizations to keep their performance under control.
References
Jackson, Steve, Roby Sawyers, and J. Gregory Jenkins. Managerial Accounting: A Focus on Ethical Decision Making. 5th ed. Mason, OH: South-Western, Cengage Learning, 2009. Print.
