Balance Scorecard

During year 1992, Robert S. Kaplan and David P. Norton had publicizing a series of journal articles about Balance Scorecard (BSC) in the Harvard Business Review caused a lot of attention for their method, and led to their business bestseller book which had published in 1996, “The Balance Scorecard: Translating Strategy into Action”.
Kaplan and Norton (1996) define Balanced Scorecard as a strategic planning and management system used to align business activities to the vision statement in managing the business better at every level. Before implementing of balance scorecard, an organization must know and understand what is the organization’s mission statement and strategic plan or vision. Four perspectives are needed to translate an organization’s vision and strategy into implementation, those are:
i) Financial perspective
ii) Customer perspective
iii) Business process perspective
iv) Learning and growth perspective

According to Dinesh and Palmer (1998); McAdam and O’Neill (1999), in order to balance the non-financial and financial issues, BSC had develop four perspectives to be the core idea. This balance can be achieved by balancing between financial and non financial issues, and short-term and long-term goals (Hepworth, 1998).

1 Financial Perspective
The financial perspective is to determine or examine on an organization’s execution and implementation of its strategies are contributing to the lower-line improvement of the organization. This means its had cover the short-term and long-term strategic objectives of the organization. Thus it was merging the intangible output of the strategy into traditional financial terms. There are three stages had been described by Kaplan and Norton (1996):
i) Rapid growth,
ii) Sustain, and
iii) Harvest
In measurement of the growth stage of an organization, it need to clearly stated out the financial objectives which evaluate from the development and growth of the organization which will lead to increased in sales volumes, acquisition of new market share, growth in revenue etc. On the other hand, in sustain stage will be portray by evaluate the effectiveness of the organization to manage its operations and costs. Ways to manage the operations and costs id through calculating the return on investment, the return on capital employed, etc. Lastly, cash flow analysis with measures such payback periods and revenue will be examine in harvest stage. The most common financial measures which had been used are economic value added (EVA), revenue growth, costs, profit margins, cash flow, net operating income etc.

2 Customer Perspective
In this perspective, it is concern about customer satisfaction and thus generate more sales from the most profitable customer groups. The measurement is about an organization value that is delivered to the customer which may involve time, quality, performance and service. Besides that, cost and the outcomes that will affect this value proposition need to be included. Value proposition is refer to customer satisfaction, markets share and etc. The value proposition core judgments is refer to operational excellence, customer intimacy or product leadership while maintaining threshold levels at value delivered to the customer and costs (Kaplan et al., 1996).

3 Internal Process Perspective
Processes that create and deliver the customer value proposition are the issues concern about in internal process perspective. In this section, all the activities and key processes required by the organization to excel at providing the value expected by the customers will be focus on both in productively and efficiently. Moreover, for providing such value expected, organization need to incorporate innovative process development in order to stimulate improvement on short-term and long-term objective. Kaplan and Norton (1996) proposed to used certain clusters that group similar value creating processes in an organization to identify the measures that correspond to the internal process perspective. Those clusters for the internal process perspective are:
i) Operations management
ii) Customer management
iii) Innovation, and
iv) Regulatory & social
Operations management is emphasize on improving asset utilization, supply chain management and so on, however, customer management is emphasizing on expanding and deepening relations. Innovation is emphasizing on new products and services. Finally, regulatory and social emphasize on establishing good relations with the external stakeholders.

4 Learning and Growth Perspective
Learning and growth perspective mainly focus on the internal skills and capabilities that are required to support the value-creating internal processes. This perspective is the foundation of any strategy and focuses on the intangible assets of an organization. Areas that concerned on are human capital, information capital, organization capital of the organization. Jobs, systems and the climate of an organization relate to Kaplan and Norton (1996) claim. Those are the infrastructure that is needed in order to enable ambitious objectives in the other three perspectives to be achieved. This perspective is contributing to long-term success and will require certain expenditures that may decrease short-term financial results.

Review of Pass Studies
At the core of the BSC is the idea that organizations should develop strategies that are balanced. This balance is achieved by balancing between financial and non-financial issues, and short-term and long-term goals (Hepworth, 1998). Amaratunga (2001) point out that the use of the BSC itself will not guarantee success. Instead, they argue that the strength of the BSC is in the process of building it that is supposed to involve members of the organization. Besides that, Braam and Nijssen (2004) had done a survey of the BSC show that some studies found evidence that the BSC did lead to improved performance. Evidence from a study of 66 Australian firms show that use of the BSC lead to improved performance. Some more, besides firms in Australia, the BSC had also been adopted by companies in Europe and United States (Braam & Nijssen, 2004; Malmi, 2001; Speckbacher et al.,2003).

Davis (1996) found out that BSC program requires getting at all levels involved in setting performance measures. Thus, difficulty in studying BSC implementation is that there is no consensus on what the BSC is about (Davis, 1996; Speckbacher et. al. 2003). Altinkemer (1998) argue that the introduction of management technique needs to be seen as a change management process. Futher more, there is few main factors due to failure of BSC are:
i) The information system is Not sufficiently developed to manage the information requirement of performance management;
ii) Lack of leadership and resistance to change;
iii) The initiative did not use state of the art performance improvement method; (d) Perceived lack of benefit;
iv) Concerns about personal consequences of performance measurements (Bourne et al., 2002).
Although there are many critique of BSC, but it also had bring a lot of benefits to some company. The below are the expected benefits from Kaplan and Norton (1996):
i) Balances strategy with financial and non financial issues enables the organization to ensure that the internal capabilities and activities of the organization are aligned with the external objectives of the strategy.
ii) Would derived understanding from the short term and long term issues through strategic outcome and the drivers of these outcomes.
iii) BSC provides management with the measures that can be used to steer the organization towards its strategic objectives.
iv) Strategy map and scorecard enable the organization to communicate the essence of its strategy more effectively.
v) Process of involving managers in an iterative process creates feedback that enables the testing of the strategy’s business hypothesis.

BSC combines important practices and concepts from various aspects and information into a single performance measurement for the purpose of improving financial performance. Manila and Selto (2001) investigate that the effectiveness of the BSC in combining strategic objectives and serving as a management control purpose. They figure out evidence was there is an indirect relationship between BSC’s management control function and improved performance on BSC measures. However, they found out in the large manufacturing organization managers perceived improved performance on the BSC would lead to improved efficiency and profitability.
Another study has investigated directly the relationship between improved financial performance and the implementation of a BSC. Banker et al (2000) testing the association between improved financial performance and non financial measure in a hotel industry where a new incentive program included an emphasis on customer satisfaction. They figure out that there is a relationship between customer satisfaction and future financial performance that suggests the implementation of the new incentive program positively impacted targeted non financial measure and ultimately improved financial performance for the hotels on the new incentive program.