Limitations of balanced scorecard marko rillo tallinn technical university the objective of this article is to follow certain aspects of balanced scorecard that have proven problematic and have demonstrated that the initial model elaborated by kaplan and norton is not as flawless as during the last ten years the most authors have claimed. Despite the best intentions of those at the top, lofty. The balance on the balanced scorecard a critical analysis. Balanced scorecard, performance management tools, management control systems 1. Developed by robert kaplan and david norton, the balanced scorecard method translates an organisations. The use of the balanced scorecard has been subject to increasing scrutiny and criticism in academic literature. The longterm vision of a farm business is more likely to be achieved if the balanced scorecard is used in the strategic plan as it. Implementation of the balanced scorecard bsc in public sector organizations. The balanced scorecard is a managementthe balanced scorecard is a management tool that provides stakeholders with a comprehensive measure of how theof how the organization is progressing towards the achievement of its strategic goals. For example, a strategic objective to reduce the typical.
Another criticism is related to the balanced scorecard s efficiency for business planning, in the idea that it is just a list of metrics which does not offer a unified view or clear recommendations. The scorecard addresses the basic aim of financial profit by revealing the drivers to creating longterm performance through investment in such areas as employees, customers, partners and technology mccann, 2000. And while the bsc has been studied, evaluated, and proven for companies of all sizes, using the balanced scorecard in a small, 20person nonprofit organization is entirely different than using it in a large organization with over 10,000 employees. The balanced scorecard translates the organizational strategy into a linked set of measures which shape the longterm strategic objectives and the ways for attaining and obtaining feedback on those objectives kaplan and norton, 1996b. Pdf conceptual foundations of the balanced scorecard. Figure 1 the goal of the four areas is to be able to have measurable objectives within each area based on drivers that can be evaluated against one another to determine causeandeffect. Given the dynamic nature of business markets, organizations have witnessed a rapid change in their performance measurement systems in the last three decades with most of the performance. The balance scorecard is an assimilated strategic performance planning and management. Balanced scorecard is a set of criteria that allows managers a holistic view of the organization. They hoped to quickly manifest a meaningful suite of kpi that has everyone focusing on what matters most in fulfilling the mission, vision and goals. There has been much criticism of the balanced scorecard by organisations that have attempted to implement it. Financial data typically reflect an organizations past performance.
Balanced scorecard basics communicat business systems. The nhs performance assessment framework as a balanced. Limitations of balanced scorecard marko rillo tallinn. A critique of the balanced scorecard as a performance. One major criticism of the balanced scorecard is that it encourages an internal focus. The balanced scorecard focuses on factors that create longterm value traditional financial reports look backward reflect only the past.
To help overcome this problem, you should always start with an external focus the view of your organizations supersystem. This is not as much an indictment of the principle as it is the way companies put the principle into practice. It balances financial measures with performance measures and objectives related to all other parts of the organisation. The real power of a properly developed balanced scorecard is that it links the performance measures to the organisations strategy. Introduction kaplan and norton developed the concept of the balanced scorecard bsc in 1992. Most traditional management systems focus on the financial performance of an organization. The balanced scorecard bsc is a successful management framework that has been around more than 25 years. The balanced scorecard was born mainly in response. The limits of the balanced scorecard ivo hristov, antonio chirico department of management and law, university of roma tor vergata, rome, italy abstract our research focuses on the limits of the balanced scorecard. Stakeholder theory and balanced scorecard to improve is strategy development in public sector leif skiftenes flak and willy dertz agder university college, norway leif. A critique of the balanced scorecard as a performance measurement tool. The four areas that encompass the balanced scorecard approach are financial, customer, internal process, and learninggrowth as shown in figure 1.
The bsc framework is based on the balance between leading and lagging indicators, which can respectively be thought of as the drivers and outcomes of your company goals. The following paragraphs attempt to clarify some of these issues. For example, consider the linkages in the service management profit chain. The balanced scorecard has always attracted criticism from a variety of sources. Balanced scorecard, might conjure up an initial impression of a table of measurements or key performance indicators, it is in fact a process comprising of a number of carefully interlinked steps.
Using a survey research method, this study examines the extent to which. Research has shown that organisations that use a balanced scorecard approach tend to outperform organisations without a formal approach to strategic performance management. Kaplan and norton, 1992 is the best known model of integrated and balanced multidimensional performance measurement mdpm, butbrignall and modell 2000 argued that differing power imbalances. The balanced scorecard is a strategic management system for establishing and communicating an organizations vision, mission, and strategy to stakeholders and employees, and for aligning daytoday work to the strategy the balanced scorecard provides a framework for planning and measuring strategy as viewed from different. The balanced scorecard retains traditional financial measures. Stakeholder theory and balanced scorecard to improve is. Kaplan and norton developed the concept of the balanced scorecard bsc in 1992.
The balanced scorecard bsc was applied to case study farms during both the. One of the most widespread tools is the balanced scorecard bsc. Weaknesses, strengths, and its ability as performance management system versus other performance management systems milad abdelnabi salem 1 school of technology and logistic management, college of business, university utara malaysia sintok, 06010 kedah, malaysia. Research balanced scorecard in indian includes research. The paper uses the following structure for organizing the origin and subsequent development of the balanced scorecard. In fact, when there is a lack of ceo, senior executive. Our research focuses on the limits of the balanced scorecard. Disadvantages of the balanced scorecard it can be an overwhelming framework. Researching balanced scorecard issues in organizations uow. Innovative performance measurement and management control system ondrej zizlavsky1 abstract the paper presents an overview of studies that have described the emergence of innovative performance measurement systems. Ce document est gratuit et disponible en telechargement libre sur le site. Abstract my thesis paper discussed about a critical analysis of balanced scorecard as a performance measurement tool. The methodology of balanced scorecard has been developed to allow an efficient integration of many variables that must be considered when measuring the performance of companies.
Why the balanced scorecard is not a kpi measurement tool. According to those who support the balanced scorecard, the financial approach is unbalanced and has major limitations. Introduction the balanced scorecard is a strategic management tool that aims to clarify strategy and to translate it into action. Pdf a critique of the balanced scorecard as a performance. The paper concluded that although the criticisms of bsc, it has many advantages versus other performance systems. Throughout the entire process of building and implementing a balanced scorecard. The balanced scorecard has wellknown implementation problems. The balanced scorecard, referred to as the bsc, is a framework to implement and manage strategy.
This system provides feedback on internal business processes and external. The purpose of this paper is to explore the limitations of, and implications for, the performance assessment framework paf as a balanced scorecard approach in the nhs. What are disadvantages of using balanced scorecard. The balanced scorecard measures that drive performance january february 1992 putting the balanced scorecard to work september october 1993 using the balanced scorecard as a strategic management system january february 1996 alignment and communicatio n acceptance and acclaim. Conceptual foundations of the balanced scorecard 3.
Balanced scorecard in indian companies manoj anand, b s sahay, and subhashish saha there has been growing criticism of financial measures in performance evaluation system in post reform india as they are historic in nature and lack futuristic outlook. Pdf given the dynamic nature of business markets, organizations have witnessed a rapid change in their performance measurement systems. The balanced scorecard bsc is a business framework used for tracking and managing an organizations strategy. Finally, the balanced scorecard appears to have been a global success, and has attracted extensive interest in many large companies. Within a decade since its emergence, a majority of the fortune companies was implementing the bsc. Balanced scorecard is a strategy performance management tool a semistandard structured report, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions. A social and environmental critique stan brignall aston business school, uk abstract the balanced scorecard bsc. A study of most important swedish firms found that 27% of those included had already implemented the bsc and 61% expect to have the bsc within two years kald and nilsson, 2000.
One of the most vehement balanced scorecard criticisms was addressed by the danish researcher hanne norreklit, for which the site dedicates one of its sections. It can be difficult to keep everyone on the same page. Traditional performance measurement systems place special emphasis on. My experiences as a balanced scorecard practitioner with a large canadian company taught me that tremendous results are possible with the tool, but to attain. Translating strategy into action is considered to be a major contribution to the development of performance management, as their work has changed the way performance is measured. It thus aims to contribute to reducing the problems involved in using only financial measures.
Using the balanced scorecard as a strategic management. Balanced scorecard, bsc, performance management, performance measurement 1. This suggests that the balanced scorecard design and implementation process is entirely subjective, without a solid actuarially or economic basis. David norton and i introduced the balanced scorecard in a 1992 harvard business. Despite the widespread adoption, a growing body of scholarship finds limitations in the bsc, particularly in its concept, application, and practice.
It links a vision to strategic objectives, measures, targets, and initiatives. Kaplan and norton describe the innovation of the balanced scorecard as follows. The study focused on examining how kenyatta university implements their strategies and how the balanced scorecard is adopted as a tool for measuring effectiveness of strategy. Like a laser beam, strategy now has a clear path to everyone in the organization. Kaplan and norton, developers of the balanced scorecard management system. In the almost 20 years that have passed since its publishing, the balanced scorecard system has. Although kaplan and norton suggested that the balanced scorecard can be adapted for strategic performance.
The impact of strategy and causal links lichen yu sujatha perera susan crowe abstract many of the claimed benefits of the balanced scorecard bsc rely on the linkage of its performance measures to strategy and on causal relations among its measures. The criticism has, in part, focused on their historic nature, which ensures that they reveal a great deal about the. Pdf a critical analysis of balanced scorecard as a. It is dedicated to the issue of potential implementation of balanced scorecard as a strategic management. The objective was to overcome the inadequacies of the traditional financialbased performance measurement tools.
The aim of the work is to provide a basis for indepth study on the limits of the balanced scorecard. Definition and concept an approach to the provision of information to the management to assist with. Effectiveness of the introduction balanced scorecard. Balanced scorecard is a management system that enables organizations to translate the vision and strategy into action.
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