´COMPARISON BETWEEN TRADITIONAL PERFORMANCE
MEASUREMENT AND BALANCE SCORE CARD
´ ACCOUNTING FOR MANAGERIAL DECISIONS
´ TRADITIONAL PERFORMANCE MEASUREMENT
´ IT IS CONCERNED ONLY WITH THE MEASUREMENT OF
FINANCIAL PERFORMANCE
´ SOLELY FOCUS ONLY ON THE BASIS OF INTERNAL
ACCOUNTING REPORTS SUCH AS PROFITABILITY,REVENUE,RETURN ON ASSETS AND ECONOMIC
VALUE ADDED ETC.
´ THESE MEASURE ARE KNOW AS LAG INDICATORS AS THEY
REFLECT PAST FINANCIAL PERFORMANCE.
´ TRADITIONAL PERFORMANCE MEASURE WHICH MAINLY
FOCUSES ON FINANCIAL MEASURES ARE NOT SUFFICIENT AND APPROPRIATE IN THIS
DYNAMIC AND CHANGING ENVIRONMENT.
´ LIMITATION OF TRADITIONAL PERFORMANCE
MEASUREMENT
A. DECISIONS ARE
FOR INCREASING SHORT TERM PROFITS BY SACRIFICING LONG TERM VALUE
CREATION. COST REDUCTION CAN IMPROVED BY SACRIFICING QUALITY
B.
.IN THE CHANGING SCENARIO,THESE MEASURES DO NOT
MEASURE THE INTANGIBLE ASSETS AND HISTORICAL
C.
ARE NOT LINKED TO ORGANIZATIONAL STRATEGY
BECAUSE STRATEGY IS LINKED WITH ACHIEVING LONG TERM GOALS.
D.
IT MEASURE PAST PERFORMANCE BUT NOT THINKING TO
LINK IT WITH IMPROVING FUTURE RESULT
E.
IT DOES NOT ADDRESS INTENSIVE COMPETITIVE RIVALRY AND IGNORE THE NEED OF FLEXIBILITY OF THE ORGANIZATION
F.
IN MODERN ENVIRONMENT PERFORMANCE MEASUREMENT SYSTEM SHOULD BE ALIGNED WITH SHORT TERM ACTIONS WITH LONG RUN GOALS SUCH AS CUSTOMER RELATIONSHIP,EMPLOYEE AND ORGANIZATIONAL CAPABILITY ARE CRITICAL FOR
SUCCESS
´ BALANCE SCORE CARD
´ THE NEED FOR AN APPROPRIATE MIX OF SHORT TERM
AND LONG TERM FINANCIAL AND NON FINANCIAL PERFORMANCE MEASURES LED TO A
SYSTEMATIC APPROACH TO PERFORMANCE MEASUREMENT KNOWN AS THE BALANCE SCORE
CARD.IT ADDRESSES THE WEAKNESSES OF THE TRADITIONAL FINANCIAL PERFORMANCE MEASUREMENT.
´ ADDED STRATEGIC NON FINANCIAL PERFORMANCE
METRIC TO TRADITIONAL FINANCIAL METRIC PROVIDING A BALANCED VIEW OF AN ORGANIZATIONAL PERFORMANCE.
´ IT SHOWS THE CHANGES IN THE MODERN COMPETITIVE
ENVIRONMENT BY TAKING INTO ACCOUNT THE INTANGIBLE ASSETS THAT HAVE MAJOR SOURCE
OF COMPETITIVE ADVANTAGE.
´ DEVELOPED BY DR. ROBERT KAPLAN AND DAVID NORTON
´ IT IS A MGMT. SYSTEM ENABLE ORGANIZATION TO
CLARIFY THEIR VISION AND STRATEGY AND TRANSLATE THEM INTO ACTION.
´ BALANCED SCORECARD IS A SET OF FINANCIAL AND NON FINANCIAL MEASURES RELATING
TO COMPANY’S CRITICAL SUCCESS FACTORS. IT IS A TOOL OF MGMT. WHICH HELPS
COMPANIES TO ASSESS OVERALL PERFORMANCE, IMPROVE OPERATIONAL PERFORMANCE,
ENABLE MGMT. TO INTRODUCE AND IMPLEMENT BETTER PLANS FOR IMPROVEMENT.
´
CONCEPT
´ ACCORDING TO KAPLAN AND NORTON, “ THE BALANCE
SCORE CARD RETAINS TRADITIONAL FINANCIAL MEASURES. BUT FINANCIAL MEASURES TELL
THE STORY OF PAST EVENTS, AN ADEQUATE STORY FOR INDUSTRIAL AGE COMPANIES FOR
WHICH INVESTMENTS IN LONG TERM CAPABILITIES AND CUSTOMER RELATIONSHIP WERE NOT
CRITICAL FOR SUCCESS. THESE FINANCIAL MEASURES ARE ADEQUATE, HOWEVER FOR
GUIDING AND EVALUATING THE JOURNEY THAT INFORMATION AGE COMPANIES MUST MAKE TO
CREATE FUTURES VALUE THROUGH INVESTMENT IN
CUSTOMERS,SUPPLIERS,EMPLOYEES,PROCESSES,TECHNOLOGY AND INNOVATION.
´ FEATURES
1.
IT IS TOP DOWN REFLECTION OF THE COMPANY’S
MISSION AND STRATEGY
2.
IT IS FORWARD LOOKING. ADDRESSES PRESENT AND
PAST ISSUES
3.
INTEGRATION OF EXTERNAL AND INTERNAL MEASURES
´
COMPONENT OF BALANCE SCORE CARD
´ A WELL DESIGNED BALANCE SCORECARD IS A
COMBINATION OF FINANCIAL MEASURES OF PAST PERFORMANCE ALONG WITH FIRM’S
MEASURES OF FUTURE PERFORMANCE. THE OBJECTIVES AND MEASURES OF AN ORGANIZATION
BALANCE SCORE CARD ARE DERIVED FROM FIRM’S VISION AND STRATEGY. THE MAIN
PURPOSE IS TO PROVIDE A FRAMEWORK FOR
TRANSLATION OF FIRM’S STRATEGIC OBJECTIVES INTO A SET OF PERFORMANCE MEASURES,
´ COMPONENTS OF BALANCE SCORE CARD ARE :
1.
FINANCIAL PERSPECTIVE
2.
THE CUSTOMER PERSPECTIVE
3.
THE BUSINESS PROCESS PERSPECTIVE
4.
LEARNING AND GROWTH PERSPECTIVE
·
THE FINANCIAL PERSPECTIVE
1.
VIEWS OF OWNERS, INVESTORS AND LENDERS
2.
MEASUREMENT OF THE RESULTS
·
THE CUSTOMER PERSPECTIVE
A.
HOW THE BUSINESS IS VIEWED BY THE CUSTOMER
B.
MEASUREMENT AND REFLECTION OF CUSTOMER
SATISFACTION
·
THE BUSINESS PROCESS PERSPECTIVE
1.
RELATED TO INTERNAL WORKING OF THE
ORGANIZATION
2.
FOCUS ATTENTION ON THE PERFORMANCE OF
THE KEY INTERNAL PROCESS
3.
VIEWED FROM DIFFERENT ANGLES ,THE
PERFORMANCE OF EACH SPECIFIC PROCESS
·
THE LEARNING AND GROWTH PERSPECTIVE
1.
MEASURE OF POTENTIAL FUTURE PERFORMANCE
2.
EFFORTS TO CONTINUOUSLY IMPROVEMENT
3.
IMPROVEMENT IN THE SYSTEM STRUCTURES
4.
TRAINING INITIATIVES
´
SUPERIORITY OF
BALANCE SCORECARD OVER TRADITIONAL MEASURES
1)
COMPREHENSIVE PICTURE OF OPERATIONS OF THE BUSINESS
2)
FOCUSED ON STRATEGIC IMPERATIVE AND CREATION OF VALUE
3)
INTEGRATION OF FINANCIAL AND NON FINANCIAL PERFORMANCE
4)
BETTER COMMUNICATION OF BUSINESS GOALS AND STRATEGIES
5)
PRESENTS HIERARCHICAL,LINKED AND MULTI PERSPECTIVE MEASUREMENT SYSTEM
6)
TOOL FOR IDENTIFICATION OF VALUE DRIVERS
7)
STRATEGIC FEED BACK AND LEARNING
