Analysis: The Pioneer by Frederick McCubbin
The BSC Framework why it has been introduced
Historically, to determine the success of the companies, people use financial worth. The higher the financial results such as profitability, the better the firm is said to be performing. The traditional financial measures such as earnings per share (EPS), return on assets (ROA), return on investments (ROI), and many others were vastly used in numerous organisations as their performance measurement system.
However, these financial measures have been criticised as it is said that it only reflects the past data, encourages short-termism and may motivate manipulation of results. Chakravarthy, (1986) states that traditional measures only reflects past performances and for the long term benefit of the company, forward looking measures are required. Besides that, financial measures also do not take into account the other critical areas such as quality, flexibility and other areas that the company needs to excel in order to survive in the current competitive market.
In recent years, many management frameworks have been introduced such as Lynch and Cross (1991) “performance pyramid”, Fitzgerald & Moon (1996) “building blocks of performance measurement system”; Neely et al., (2002) “performance prism”; Kaplan and Norton’s (1992) “balanced scorecard” framework;, “six sigma” and “value for money” to have a wider view on the company’s needs to compete in the market.
Balanced Scorecard (hereafter known as BSC) is a performance measurement system that has been introduced to overcome the weaknesses of the traditional performance measurement systems. In the intense competition market, intangible assets of companies play a major role in creation of value for companies. (Nolan Norton Institute, 1991). Therefore, in order to improve the management of intangible assets, companies should incorporate measurement of intangible assets into the company’s performance measurement system (Kaplan, 2010). It was introduced as a performance
Historically, to determine the success of the companies, people use financial worth. The higher the financial results such as profitability, the better the firm is said to be performing. The traditional financial measures such as earnings per share (EPS), return on assets (ROA), return on investments (ROI), and many others were vastly used in numerous organisations as their performance measurement system.
However, these financial measures have been criticised as it is said that it only reflects the past data, encourages short-termism and may motivate manipulation of results. Chakravarthy, (1986) states that traditional measures only reflects past performances and for the long term benefit of the company, forward looking measures are required. Besides that, financial measures also do not take into account the other critical areas such as quality, flexibility and other areas that the company needs to excel in order to survive in the current competitive market.
In recent years, many management frameworks have been introduced such as Lynch and Cross (1991) “performance pyramid”, Fitzgerald & Moon (1996) “building blocks of performance measurement system”; Neely et al., (2002) “performance prism”; Kaplan and Norton’s (1992) “balanced scorecard” framework;, “six sigma” and “value for money” to have a wider view on the company’s needs to compete in the market.
Balanced Scorecard (hereafter known as BSC) is a performance measurement system that has been introduced to overcome the weaknesses of the traditional performance measurement systems. In the intense competition market, intangible assets of companies play a major role in creation of value for companies. (Nolan Norton Institute, 1991). Therefore, in order to improve the management of intangible assets, companies should incorporate measurement of intangible assets into the company’s performance measurement system (Kaplan, 2010). It was introduced as a performance