Importance Of The Balanced Scorecard
I – Importance of the Balanced Scorecard
The Kaplan and Norton article builds upon the concept of Balanced Scorecard as introduced by Kaplan and Atkinson. The core concept highlighted by both articles is the elemental role of the Balanced Scorecard in the information age. Pure financial measures of performance may have been adequate in the industrial era where central to the organizational identity were easily measurable tangible assets such as plant and machinery. However, in the information age, most of the organization’s most valuable assets might be intangible, such as employee competency [such as Goldman Sachs investment bankers] or customer loyalty built through advertising or personalized service. To fully take account of these assets and how they drive company performance, a more comprehensive measure is required.
II – Components of the Balanced Scorecard
The four components of the Balanced Scorecard, i.e. Financial Perspective, Customer Perspective, Internal Processes Perspective, and Learning and Growth, are described in detail in both articles. Both articles present strategy models. Kaplan and Norton present a detailed strategy map that demonstrates how each component of the Balanced Scorecard can be brought into alignment with the ultimate objective: increasing shareholder value [for profit-seeking enterprises]. While both articles present similar ideas about the Customer Perspective [considered integral by both sets of authors] and the Learning & Growth Perspective, Kaplan and Norton goes into much greater detail about the Financial Perspective. Kaplan and Norton delineate between the Revenue Growth Strategy and the Productivity Strategy and how they reinforce each other to drive financial performance. While Kaplan and Atkinson limit their commentary on financial measures to providing generic examples of appropriate ratios, such as Return on Capital Employed, they lay greater emphasis on the Internal Operations Perspective and the
The Kaplan and Norton article builds upon the concept of Balanced Scorecard as introduced by Kaplan and Atkinson. The core concept highlighted by both articles is the elemental role of the Balanced Scorecard in the information age. Pure financial measures of performance may have been adequate in the industrial era where central to the organizational identity were easily measurable tangible assets such as plant and machinery. However, in the information age, most of the organization’s most valuable assets might be intangible, such as employee competency [such as Goldman Sachs investment bankers] or customer loyalty built through advertising or personalized service. To fully take account of these assets and how they drive company performance, a more comprehensive measure is required.
II – Components of the Balanced Scorecard
The four components of the Balanced Scorecard, i.e. Financial Perspective, Customer Perspective, Internal Processes Perspective, and Learning and Growth, are described in detail in both articles. Both articles present strategy models. Kaplan and Norton present a detailed strategy map that demonstrates how each component of the Balanced Scorecard can be brought into alignment with the ultimate objective: increasing shareholder value [for profit-seeking enterprises]. While both articles present similar ideas about the Customer Perspective [considered integral by both sets of authors] and the Learning & Growth Perspective, Kaplan and Norton goes into much greater detail about the Financial Perspective. Kaplan and Norton delineate between the Revenue Growth Strategy and the Productivity Strategy and how they reinforce each other to drive financial performance. While Kaplan and Atkinson limit their commentary on financial measures to providing generic examples of appropriate ratios, such as Return on Capital Employed, they lay greater emphasis on the Internal Operations Perspective and the
References: Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part I The Balanced Scorecard: Measuring Total Business Unit Performance