Balanced scorecard. Disadvantages or misuse? Advantages and Disadvantages of the Balanced Scorecard Advantages and Disadvantages of the Universal Scorecard
V.N. Khomich, A.S. Antonchev
BALANCED SCORE: ADVANTAGES AND DISADVANTAGES
The concept of Balanced Scorecard and the possibility of its application by organizations to improve the efficiency of their business are considered. The proposed system is based on cause-and-effect relationships between strategic goals, their parameters and factors for obtaining planned results. Its main advantages and disadvantages are described.
Against the backdrop of a rapidly growing world economy, the world market for goods and services is becoming larger. Every company sooner or later faces the problem of increasing the efficiency of its business. In today's environment, trying to solve a problem by optimizing one business process alone will surely lead to failure. We need an integrated approach, a unified strategy for the development and improvement of business efficiency. Practice shows that the presence in the company of an effective system of strategic planning and management in most cases becomes the foundation for improving financial performance, improving the quality of managerial decisions, and adapting to changing external conditions. Also, the presence of such a system allows the organization to gain a sustainable competitive advantage in its business market segments.
In the early 90s. To manage the strategic development of the company, American scientists Robert Kaplan and David Norton developed the Balanced Scorecard technology (Balanced Scorecard - BSC). The balanced scorecard is a new tool that aims the company at a strategy of long-term success, translating the company's vision, its strategy into a set of interrelated balanced scorecards that evaluate the critical factors of not only the current, but also the future development of the organization. Thus, the idea of creating a strategic management system and evaluating its effectiveness is to transform the company's strategy into a system of interrelated and balanced indicators based on the company's goals.
The advantage of the BSC system over other systems of strategic planning and management at the enterprise is that it can be used to take into account not only the financial performance of the company, but also intangible assets, the share of which is increasing every day. R. Kaplan and D. Norton proposed a system based on cause-and-effect relationships between strategic goals, reflecting their parameters and factors for obtaining planned results. The authors consider the enterprise from the point of view of four aspects of its activity: the aspect of finance, training and development, business processes and the aspect of the market.
Aspect of finance. One of the main levels of building a BSC system is the financial indicators that the organization achieves in the course of its activities. Controlling financial indicators should create a reliable basis for further
th planning and development of the organization. The indicators of this block should objectively reflect the results of the chosen financial strategy and be criteria for evaluating the current activities of the company, in turn, the choice of a financial strategy should depend on the ratio of profitability and risk to invested capital, on the direction of investment and strategic goals. As a rule, as a typical goal within this aspect, there is an increase in the profitability of products and equity, net cash flow, and net profit.
Aspect of learning and development. This aspect should answer the question of how the organization should learn and develop in order to achieve its strategic goals. In today's business environment, the most valuable, unique and hard-to-renewable asset of an organization is human resources. Therefore, the policy in the field of personnel management of the organization should be aimed at identifying, creating and developing the knowledge infrastructure that will ensure the growth of value in the long term and the achievement of strategic goals.
Aspect of business processes. The indicators of this block should give managers an answer to the question of what business processes the organization should perform to meet the needs of the consumer, how well the company works, i.e. identify those business processes that need to be improved and developed to create a sustainable competitive advantage in the business segments defined by the company.
Market aspect. In today's conditions, a modern company should be, first of all, focused on the external environment, i.e. on their clients. Customers are the ones who bring profit to the company. Insufficient customer orientation will lead in the long run to the crisis of the organization, which will undoubtedly have a negative impact on all its activities. This block of indicators should include indicators of satisfaction, customer loyalty, market share in target segments, etc. Company managers must constantly monitor them and, if necessary, make timely management decisions to maintain them at an acceptable level for the organization.
Thus, the implementation of an integrated approach to the organization made it possible to combine strategic management with operational management, thereby providing an opportunity to control all business processes of the organization and make informed management decisions.
The result of the introduction of the BSC Robert Kaplan and David Norton see the creation of an organization focused on the implementation of the strategy:
1. Translating strategy into action. The system allows you to quickly translate the strategy to the level of specific activities, which allows you to maximize the focus on achieving the strategy.
2. Relationship of the organization with the strategy. The system allows to achieve synergy effect by directing the efforts of all departments of the company to achieve the strategy.
3. Implementation of the strategy by all employees. The system allows you to direct the efforts of all employees to implement the strategy using a system of communications, motivation.
4. Strategic management in real time. The system allows you to link the budget and strategy, with the help of information and analytical systems to constantly manage the process, conduct strategic training.
5. Mobilization. The system creates motives for the effective work of all employees, which is supported by top management through the creation of a strategic management system and direct management.
In essence, the BSC becomes a single core, uniting the vital operations of the company.
This integration allows corporate users to apply balanced scorecards to manage ever-shrinking production cycles and keep the company competitive at a high level.
Along with the obvious advantages, you can see a number of disadvantages of this system:
No evaluation tool;
The principle of responsibility for the overall result is not implemented;
The principle of conflict resolution has not been implemented;
The concept is focused on asset management, not on their financing.
But still, with all its shortcomings, this concept is very popular and effective among leading world and Russian enterprises. But at the same time, one must always remember that, in principle, it is impossible to manage either the results or the processes. You can manage people who solve the corresponding tasks.
Summing up, it can be noted that the transformation of strategic goals through intermediate parameters (standards of business processes) allows solving the main problem of organizing an effective business - the integration of strategic and operational levels of management.
LITERATURE
1. BSC and EVA® - competitors or allies? Access mode - http://www.cfm.ru/management/controlling/bsc_eva.shtml
2. Erokhin V.G. Developing an effective business - balanced scorecard. Access mode - http://www.balancedscorecard.ru/bsc846.htm
3. Kaplan R., Norton D. Strategy-oriented organization: TRANS. from English. M.: Olimp-Business, 2004. 416 p.
BSC has a number of advantages: - provides the management of the enterprise with a complete picture of the business; - allows you to prevent the occurrence of critical situations; - facilitates interaction at all organizational levels and gives an understanding of the strategic goals to all participants in the production process; - provides strategic feedback and training; - helps to transform the huge amount of data obtained from a variety of enterprise information systems into information that is understandable.
Usage example
The Kaplan-Norton BSC technique is used by both small businesses, non-profit organizations, and entire cities. An example of a successful long-term implementation of the SSP method is the city of Charlotte in the state of North Carolina (USA) At the beginning of the draft strategy, the goals that the city of Charlotte intends to achieve are indicated here:
To be America's safest big city
The most prosperous city for each of its inhabitants
Become a city of impressive skyscrapers
The first city to integrate space use and transport alternatives
Be an eco-city.
CSP in the course of the company's activities
The balanced scorecard in practice includes the main factors of the company's activities:
operational and financial efficiency.
Fact management. This concept involves the constant collection of information of various types: about customers, suppliers, products and services provided, operations, costs and profits, market conditions, competitive comparisons, employees.
Based on this analysis, it is possible to determine trends, development prospects for the company, carry out planning, evaluate the company's performance, compare the company's performance with its competitors or with industry averages.
3. Customer service.
These metrics should be recorded and reviewed regularly to see if the organization is achieving its strategic goals. For the best achievement of goals, it is assumed that each employee has a personal scorecard and personal goals based on these indicators that he needs to achieve.
The main aspects (prospects) in the balanced scorecard
In the balanced scorecard, the organization is usually considered from the point of view of four perspectives (aspects). According to each of these perspectives, quantitative indicators are developed, data are collected and analyzed: 1) The prospect of learning and development. Employee training contributes to the development of corporate culture. In any company, educated people are the main resource. The development and improvement of knowledge and qualifications is especially important in an environment of rapid technological change, when it is not possible to hire new technically trained employees, and this also prevents the “brain drain” from the company. 2) Business process perspective. This refers to internal business processes. These indicators help to determine the customer orientation of the company. Such work cannot be entrusted to external specialists, because it requires a clear understanding of all business processes of the organization. 3) Customer perspective. It implies customer orientation and customer satisfaction in any area. Even if the current financial situation is quite good, it is necessary to constantly analyze the types of customers, processes, products or services, their compliance with customer expectations in order to ensure customer loyalty in the future. 4) Financial perspective. It is about providing timely and clear data on capital, processing and maintaining financial data. For a more accurate understanding of financial performance, additional financial metrics such as risk assessment and cost-benefit comparisons should also be considered.
Yakovlev Vadim Yurievich, Assistant Professor, Department of Economics of Production, Kazan State Financial and Economic Institute, Russia
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Sources:
1. Kaplan R. S., Norton D. P. The Balanced Scorecard Translating Strategy Action. – Cambridge Mass. - 1996.
2. Kaplan R. S., Norton D. P. Using the Balanced Scorecard as a Strategic Management System // Harvard Business Review. – 1996, Vol. 74. - N 1. - P. 75 - 85.
3. Implementation of a balanced scorecard / Horvarth and Partners; per. with him. - 2nd ed. - M. : Alpina Business Books, 2006. - 478 p.
4. Herving R. Fridag, Walter Schmidt. Balanced Scorecard: Implementation Guide. - M. : Omega - L, 2006. - 267 p.
5. Balanced scorecard. Practical guide to use: Per. from English. - M. : Williams Publishing House, 2006. - 304 p.
The balanced scorecard is not only a system for measuring the effectiveness of a company's activities, but also a management system that allows you to clearly formulate a strategy and plans for the future and implement them. The organization in the SSP is considered from the point of view of four perspectives: 1. Training and development. 2. Business processes. 3. Clients. 4. Finance. It is generally accepted that the criteria for any activity are financial indicators. Speaking about the positive side of the system, it is impossible not to note that the system convinced managers that non-financial indicators are also important for the organization. After all, financial indicators do not reflect intangible resources, and especially knowledge-based resources. In the balanced scorecard, financial indicators are preserved, but they are supplemented with indicators that reflect the factors affecting financial performance. The client component of the BSC shows the results of activities in the market segment. It includes key performance indicators for the implementation of the strategy. This component includes: 1. Customer satisfaction; 2. Attracting new customers; 3. Volume and share of the target market segment. This component allows managers to formulate a strategy aimed at consumers and the target market segment. Indicators of the component of internal business processes are aimed at assessing the internal processes on which the satisfaction of customer needs and the achievement of the financial objectives of the organization depend. The fourth pillar of the balanced scorecard defines the infrastructure that needs to be built to ensure long-term growth and improvement. The component of personnel training and development is a set of criteria: 1. Job satisfaction; 2. Staff turnover; 3. Training and advanced training. The balanced scorecard, with the help of a set of components, translates the company's strategy into goals and objectives. As with any system, the SSP has certain advantages and disadvantages. The advantages of the system include: 1. Not only financial indicators are taken into account, but also non-tangible assets. 2. Reduces the occurrence of critical situations. With the help of the BSC, it is possible to avoid crises, such as, for example, bankruptcy. 3. Understanding of strategic goals by all employees of the company. 4. Translation of strategy into goals and actions. The system allows you to translate the strategy into specific activities. 5. Allows you to fully link the company's strategy with the operational business. 6. Covers all the most important aspects of the enterprise. 7. Presentation of a complete picture of the business for management. Also, the balanced scorecard has its negative sides: 1. The system cannot be adapted to any conditions. She is not universal. A system may be ideally suited to one industry, country, or organization, but will not work under certain conditions. Therefore, the BSC must be developed for a specific object. 2. When developing and implementing a balanced scorecard, you must be careful with data confidentiality. After all, in order for employees to understand the strategy, it is necessary to reveal to them all the mechanisms of work. And this can lead to information leakage. 3. Impossibility to adequately measure the effects of the implementation of the system. 4. Temporary rejection of the system by some employees of the organization. 5. The principle of responsibility for the overall result has not been implemented. 6. The problem of assessing important key components. 7. The complexity of developing and implementing a balanced scorecard. 8. Blurring of introduction. Usually, the implementation in the first stage is quick and easy. However, subsequent implementation is very difficult and takes a lot of time. The use of a balanced scorecard has both positive and negative aspects. But, despite the negative aspects, the balanced scorecard will be useful to all enterprises. BSC is the best tool for implementing the company's strategy.
We will tell you how to determine the development paths using a balanced scorecard, evaluate the performance of the company. We will share tips, documents and cheat sheets.
From the article you will learn:
Related materials:
What is a balanced scorecard
The Balanced Scorecard (BSC) was developed in the early 1990s. Harvard Business School professor Robert Kaplan and president of consulting firm Renaissance Solutions David Norton worked on it. They created a model that was later refined by other experts.
The Balanced Scorecard (BSC) is equipped with automation and design methods and has feedback elements. By tracking a small amount of data, the system is highly efficient. It is used as a strategic performance management tool. It allows you to standardize the reporting form in order to quickly track the execution or non-performance of tasks by employees.
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Strategic activity can also be monitored through key performance indicators, in the English version - Key Performance Indicator. KPI is the characteristics of the processes, the work of each employee. In this context, they are considered part of the balanced scorecard.
Questionnaire for auditing the KPI system
Aspects of the balanced scorecard
Management managers view the balanced scorecard from four perspectives. In accordance with each of them, quantitative and qualitative indicators are developed, data are collected, analyzed.
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perspective |
Why work in this direction |
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Education and development |
The development, improvement of knowledge, skills and qualifications is important in the context of technological changes, when it is impossible to hire new employees with high qualifications. Training contributes to the growth of labor efficiency, the quality of services, etc. It helps to develop corporate culture, improve the image of the organization. |
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Business processes |
With the help of indicators determine the customer orientation of the organization. The analysis is performed only by full-time employees who know the company from the inside. Outsourcing the work to third-party experts is irrational. |
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Clients |
Collect information about processes, services, products, customers. This contributes to the growth of the company, and timely eliminated shortcomings increase customer loyalty. |
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Financial side |
In the course of work, risks are assessed, costs and results are compared. |
How the Balanced Scorecard works
The BSC methodology brings the strategy to the level of the organization's operations. The correct application of the methodology helps:
- Set the parameters of strategic goals: KPI indicators with numerical values, cause-and-effect relationships between goals and strategic indicators, deadlines for achieving tasks.
- Distribute responsibility for achieving strategic goals among officials.
- Identify effective tools to achieve results.
The development of a balanced scorecard begins with the compilation of a strategic map. It reflects the cause-and-effect relationships between the tasks that are needed to achieve the result. The target result is determined in several perspective sections: clients, finances, personnel development, business processes.
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For each task, key indicators are defined that measure the effectiveness of the solution. They must be sufficient in order to achieve results in a timely manner.
Applying a balanced scorecard requires significant resources. The development of the BSC in the presence of a specialized unit in the organization takes more than two months. This requires quality control of the results. Labor intensity, complexity of development repels management from applying the methodology.
Who can use the balanced scorecard based on strategic goals
The Kaplan and Norton methodology is used by both small firms, non-profit companies, and entire cities. Make a development plan it will turn out if you correctly analyze the state of the company and the processes in it today. Only after that, managers start from the current values, determine the goals and ways to achieve them.
A balanced performance scorecard may include the following objectives:
- financial policy : aggressive growth of the company and profitability of sales, increase in the value of the organization.
- Consumer Policy: popular models or services, creating a well-known brand, long-term cooperation with customers.
- Domestic politics: maintaining the quality of goods or services at a high level, beneficial cooperation with suppliers.
- Politics of learning and growth: highly qualified personnel, advanced technologies, implementation of management systems.
When compiling the BSC, one should not set unattainable goals. For example, "become the largest company in 2 months." The goal must be real, otherwise there is no point in investing effort, time and money.
Advantages and disadvantages of the balanced scorecard
The introduction of a balanced scorecard is not always rational. You must consider not only the advantages of using the SSP, but also the disadvantages. If you do not know how to correctly implement and use the system, its effectiveness will decrease or tend to zero.
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Advantages |
Flaws |
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Why do you need a BSC in a company?
The system of balanced performance indicators includes the main factors of the organization's activity: operational, financial efficiency, management process. The concept involves the collection of information of various types: about suppliers, customers, products, services provided, costs and profits. Based on it, changes are introduced to bring the company to a new level.
Based on the analysis, you will be able to determine trends, prospects for the development of the company, carry out planning, evaluate performance. It also makes it easier for you to compare your organization's performance against its competitors or against industry averages.
Record the received data, analyze it regularly to understand whether the company achieves strategic goals. To achieve the desired results, develop a personal system of balanced scorecards and personal goals. With employees who showed poor results, conduct individual work, send them to training.
