What is Balanced Scorecard? What are the main aspects of Balanced Scorecard? How to write Good Balanced Scorecard analysis of a company?

Introduction

This paper provides a detailed account of and guidance to building Balanced Scorecard. It is intended to serve as a one-stop guide that answers every question that you may have about this important Strategic Management approach. The paper starts with describing the method and discusses in detail its various components with the help of diagram. It then, provides a practical guide to build a balanced scorecard using a seven step model. Examples are used where necessary to help explain the method. Links to further material and sources of information on this topic are also provided to help you learn more about Balanced Scorecard. After reading this paper, you should be able to apply the concepts and use the balanced scorecard method to analyse any organisation.

Balanced Scorecard is a concept that measures a company's activities in terms of its vision and strategies, to give managers a comprehensive view of the performance of a business. This new approach to strategic management was developed in the early 1990s by Dr Robert Kaplan (Harvard Business School) and Dr David Norton. A Balanced Scorecard enables organisations to clarify their vision and strategy, and translate them into action (Cobbold and Lawrie, 2002).

All professionals have their own methods of communication. Accountants do this with financial statements, engineers with building drawings and architects using physical models. For a long time, however, the strategic planners faced the dilemma of a way to communicate and convey the finished product – "the strategic plan" – to the end users. The traditional ways of presenting strategic plans, despite their nice covers, bar charts, well-written reports and professional layouts, have not been able to impact the people responsible for their execution. This resulted in poor execution of the strategic plan throughout the entire organisation. This situation is further compounded by the fact that, in most organisations, the strategic plan is normally devised by the upper management while the execution takes place at the lower level and is steered by the executives at tactical level (Kurtzman, 1997).

According to the Balanced Scorecard Collaborative (BSC, 2007), there are four reasons (Kaplan and Norton, 1992) for the failure of the strategic plan:

Few executives understand the strategies of the organisation below upper level management.
The objectives of most people are not linked to the strategy of the organisation
The organisational resources (e.g. time, energy and money) are often not allocated to those things that are critical to the organisation. Budgets, for example, are not always linked to the strategy.
Little time is spent by the management on strategy and too much on the short-term tactical decision making.

According to the survey by the Balanced Scorecard Collaborative only 5% of the workforce understands their company strategy; the incentives of only 25% of managers are linked to the strategy; over 60% of organisations do not link budgets to strategy; and 86% of executives spend less than one hour per month discussing strategy (Kurtzman, 1997).

A new way of communicating strategy was therefore required and this is the background from where the Balanced Scorecard emerged. Using this technique, the strategy is expressed in terms of measurements and targets to which employees can relate. The strategy thus reaches everyone in a language that makes sense and thus leads to much better execution of strategy (Cobbold and Lawrie, 2002). Today the Balanced Scorecard method is widely used by the leading players of the industry including AT&T, Canon, BMW, Siemens, United States' Postal Service and Lloyds TSB. According to the CEO of BMW, John Christman:

"The Balanced Scorecard links our objectives, initiatives, and metrics to our strategy while communicating our priorities to every member of our company. Today our BSC programme includes linkages to our project approval process, budgeting methodology, compensation system, technology initiatives, training programmes, and even our community involvement and charitable contribution efforts. Our results have been excellent with an uninterrupted history of growth and a successful strategy implementation that continues today, consistent with the first plans established over six years ago. Profits are up, return on assets is up, and assets have grown each year." (BMW, 2007)