The Balanced Scorecard (Kaplan & Norton, 1992) is a tool that helps businesses to align their strategic objectives with their resources and to maximize their intangible resources. Usually, organization budgets are allocated to functional silos. The link between budget and strategy gets lost somewhere under the cost headings of human resources or marketing or IT. However, in a Balanced Scorecard’s long term and cross functional approach, the budget is directly linked to a company’s strategy. The Balanced Scorecard approach generally comes from the top because that is where strategy originates. From there, it percolates and cascades into every nook and corner of the organization.
Kaplan and Norton (2010) argue that if companies are to improve the management of their intangible assets, they must integrate the measurement of intangible assets into their management systems (Kaplan, 2010). The value of an intangible asset depends critically on the context – the organization, the strategy, and other complementary assets – in which the intangible asset is deployed (Kaplan, 2010). Therefore, each company must create its own unique Balanced Scorecard.
This book has been devised to help organizations customize the Balanced Scorecard to fit their own organization structure and setting. This book on the Balanced Scorecard will help organizations capitalize on the many benefits bestowed by implementing the Balanced Scorecard. It will, at the same time, help companies to steer carefully through the transformation process by avoiding costly slip-ups during execution.
This book is ideal for students pursuing their under graduate or post-graduate in business studies or management. This book is also relevant to working management professionals who need tools for implementing management models in their place of work.
The need for the Balanced Scorecard arises from three things:
• Intangible assets which are crucial to success of an organization today
• The inability of financial tools to measure success
• The barriers to strategy execution.
The knowledge based business models of today, based on intangible assets, require measures of success that are more comprehensive than mere financial tools.
Financial measures emphasize functional silos and overlook the need for cross-functional collaboration which enables organization success. Also, financial measures in traditional organizations fail to inspire employees in their day-to-day work life. Financial measures are required however, and are a part of the Balanced Scorecard so that decisions are both efficient and effective.
Strategies fail because of certain barriers. One is the Vision barrier. If employees are going to work productively, they must know the strategy and the vision of the organization. This will enable them to work collaboratively with others in the organization. A focus on financial measures, excluding other measures, or a lack of focus on the larger perspective and resource barriers, could prevent the successful implementation of strategies. So will a failure to link budgets to strategies.
The Balanced Scorecard examines an organization from four perspectives: financial, customers, internal processes, and learning and growth. This is because financial performance is dependent on a series of cause and effect links that encompass all the other perspectives. For instance, increased revenues are dependent on customer satisfaction, which is in turn dependent on efficient transaction processes, supply chain processes, and operations. This in turn is driven by trained, satisfied, and motivated employees. When all the four perspectives of the Balanced Scorecard are working together the entire force of an organization is behind its strategy.
By reading this book you will understand why the Balanced Scorecard is so important in the current business environment, in which intangible assets are becoming more important than tangible assets for value creation. You will also see how employee training and communication is important so that the Balanced Scorecard becomes embedded in the DNA of the organization. You will learn about Strategy Maps, which are at the heart of the Balanced Scorecard. Effective reporting systems are very important and you will learn how they influence strategy implementation.