The use of balanced scorecard since its inception, has found varied application by virtue of the techniques proficiency in combining financial and non-financial measures of business routine in to a single scorecard. The four basic tenets of such measures are customer satisfaction, internal business environment, business innovation and finance. Effective management is that which successfully executes excellent strategy in the short and long-term range of the business process to attain optimal achievement of objectives. Successful scorecards help establish the link between business performance to the gains and penalties, which in effect assure management of progressive excellence.
Effective management using balanced scorecards
Strategic management calls for accurate identification of all possible variables incidental to business decision process, and the informed utilization of such facts in the formulation of activities and events in the business process. Scorecards have proven invaluable, as a strategic mechanism of attaining measurable progress particularly with regard to budgeting, efficient resource allocation and determination of critical success factors.
Communicating with and educating workers is an on going process in organizations. A broad based communication process facilitates employees with all relevant critical objectives to be met within a time frame. Balanced scorecards hence facilitate a feedback system entailing the process progress and suggest timely remedy to identified inefficiencies. It is noteworthy that as the embodiment of unit strategy, balanced scorecard is useful in quantifying and communicating competitive strategies geared to the business success (Norton, pg 38- 42).
Business performance is often crammed with quantitative and qualitative dynamic processes ever changing with time and situations. A flexible response mechanism hence enables management to systematically control the process while at the same time implementing tactical objectives. RADAR logic (Results, Approach, Deployment, Assessment and Review) entails a scoring methodology that suits many consumer oriented businesses. Periodic evaluation of the performance measuring system is important in light of the ever changing business circumstances. Continuous review of the system ensures functionality and adaptability of the system. Such PMS (Performance Measurement System) are evaluated against the three basic rudiments as; direction, process and measures.
In large-scale manufacturing process, product quality and standard maintenance is a prominent factor in a market regime of rising standards and stiff completion. Firms have to strike optimal productive paths that reduce costs frontiers as well as increase revenues. Common causes of variations and special causes of variation in final product characteristics
Formulation of hypothesis to address emerging difficulties naturally arises from the business process within an effective BSC scheme other than carry diagnosis when in suspicion of faults in the process. To this end it is efficient as the practice mitigates the otherwise undetectable faults in the business process. Proper utilization of support tools as trends analysis tools, relationships analysis tools and regular checking of consistency within the PMS communication lead to early detection of any deficiencies and faults that often have adverse business consequences.
A cause-effect relation obviously persists among the dynamic financial and non-financial variables incident upon the performance of businesses. Performance measurement mechanisms that evaluate their interplay are absolutely relevant for strategic management in business. As numerous case studies show, strategic statistical approaches and tools are becoming possible with increasing advancements in technology. In particular information and telecommunication technology impact on management and performance measurement is paramount. Various software and hardware are available that allow and enable the measurement of various qualitative and quantities variables incident upon the prospect of optimal business performance. The holistic view of balanced scorecards in practice involves their utilization in performance improvement process other than an IT- propelled control system.
The primary managerial functions of revenue growth and cost reduction allow adequate functionality of the BSC approaches in the long-term which is adequately satisfactory for any business organizations. Data representation largely depend on visualization, however, statistical measurement models currently in use as BSC, real substantial progress in practice is achievable at comparatively minimal costs. There are minimal lags between the scorecard model and contemporary economic theories.
Kaplan, R S and Norton, D. P, Putting the Balanced Scorecard to Work, Harvard Business Review, 1993.
Norton, D. P. Balanced Scorecard: Manipulating Strategy into Action, Boston: Harvard Business School Publishing, 1996.
Marshall W. Meyer, Performance improvement using the balanced scorecard, Cambridge University Press, 2002.
Activity based information has developed from the mid 1920s to the current prominence in management parlance due to the rapid advancements in information and telecommunication technology as well as statistical methodologies. Organizations thrive in variedly dynamic circumstances calling upon management often to pan, organize and evaluate events or activities on a continual basis. Relevant statistical measures of process progress and deviations are hence invaluable in such feat.
Various quality improvement approaches are in use as Six Sigma, Total Quality management (TQM) and Zero defect among others. They derive prominence from the fact that process information, when well determined and utilized in management, lead to the sustenance of quality benchmarks and hence product in the market place. Excellent products lead to profitability (Joseph, pg 26).
Use of activity-based information in effective business management
Product and service quality have a direct correlation with the balance sheet items of successful companies, the maintenance and improvement of quality at optimal costs, with widening business scopes the world over, there arises a need for impartial standardization of commodities. Different levels of quality enforcement applications exist in different companies with ISO-certification. Efforts to integrate laterally and vertically companies, government agencies and the third sector would not be easy. This indicates an urgent need to ratify and integrate quality enforcement agencies for the sake of ethical business practice (Demy, pg 6).
The use of balanced score cards as an approach in the strategic planning process of management has developed over time among other statistical approaches. It particularly fuses financial and non-financial measure s of performance in a single scorecard yielding a holistic snapshot view of business performance entailing business processes, decisions and results. It is particularly useful in producing timely feedback for business control and evaluation.
Organizations benefit from the use of balanced score cards on the basis that it enables a framework for incorporating intangible and intellectual capital perspectives that were conventionally unavailable, facilitates use of non-financial initiatives in furthering excellence, closes the void between overall strategy and employee operations, enables a lucid conceptualization of the intricate relations that exist between customers, their expectations and performance inadequacies. In addition, evaluation and review of business performance can be performed on a continuous basis as part and parcel of the strategic planning process.
Managerial environment for the application of this approach matters in the sense it is based on the manipulation of the specific success factors under credible communication systems and committed top management. Moreover, the approach embraces a long-term strategic view of business excellence and sustainability as well as embraces the traditional financial measures of profitability.
The balanced scorecard is occasionally put into action after considering four perspectives, which include; customer, financial, domestic business, and the knowledge and growth perspectives. In strategic management, other tools are available within the framework as economic value added approach, activity based costing, quality management, customer value analysis and action-profit linkage model approaches. Others include supply chain management and new product development approaches.
Throughout the business cycle, there arises objectives arrived at in the strategic planning process that require gradual qualitative and quantitative monitoring, that have a huge bearing on the balance sheet, such are most effectively monitored by the statistical process control. They yield a scale through which to gauge progress and compare production outputs against budgets and long-term prospects (John, pg 14).
Quality management practice after the invention of the statistical process control techniques in the 1920s have undergone rapid growth and achieved great prominence as part of the management discipline. Various operational measures that are precise and strategic have been adopted by business organizations to ease process evaluation and cut costs associated with often indeterminate process anomalies. Activity based information facilitates communication efficiency between departments, and along the hierarchical structure of organization enabling proper human resource utilization. Moreover, the incentive based remuneration well geared often achieves rewards in the retention, planning and rate of turnover of employees.
The internal processes can be geared to attain optimal efficiency using scorecards by establishing key objectives for each particular segment, value maximizing and establishing links of rewards to performance.
It is possible to engineer best efficiency of time and product quality thus optimum customer satisfaction due to its determination of common causes of variations or bottlenecks and utility in configuring requisite benchmarks. Since its inception in the 1920s, the techniques of (S.P.C) have gone through various developments that ensure product standardization chiefly in the manufacturing sector and lately in the service sectors is manageable with great precision.
John S, O. Statistical Process Control, London: Butterworth-Heinemann, 2003.
Joseph A. & William B. Breakthrough Methods, McGraw-Hill Publishing Company, 2005.
Demy S. Statistical Process Control in Quality Assurance, NAECON Publication, 1989.