Advantages of BSC concept
Popularity
Balanced scorecard concept became very popular in a short period of time. It was realized in several thousands of companies. What makes BSC so popular among managers all over the world? Let’s try to find it out.
Balance of company’s activities
One of the most positive moments is proof that the only financial values do not show the overall performance of company. Balanced scorecard concept says that financial measurement is an important part of business performance measurement but just part of it. Those values are not able to show non material resources and investment directions like educational, business process optimization and others. The concept of balanced activities made it possible for managers to pay attention to other very important perspectives of business.
Imbanalced Scorecard
This is the age of information so even industrial companies need to use some other management concept than traditional finance-oriented ones. Companies more connected to information need BSC even more. Also such actions as directing most of company’s resources into financial growth sometimes made it possible for company to succeed in short term period but cause imbalanced scorecard and company’s falling into decay even down to failure in long term period. It becomes more and more useful and sometimes even vital for business to mobilize and use non-material informational resources. That is why much more effective ways of diversifying capital (financial, physical and mental) were realized in companies with BSC concept implemented.
Dashboard logic
Referring to balance of company’s activities the analogy with plane’s pilot could take its place. While piloting a plane all the values in dashboard needs to be under control in order not to crush. Certainly the aim on the front window should also be viewed all the time. The company might be even harder to “drive” thing but using the simple logic of dashboard it might be successfully performed. Always looking at company’s strategic goals management should also pay attention on values of key performance indicators in order to keep the scorecard balanced. Balanced scorecard aims to create such easy to use dashboard with exact up to time values for every panel.
New way of financial measurement
Balanced scorecard concept adds other activity’s directions but still considers financial perspective very important. Indicators for this perspectives was one of the most developed measurement instrument before BSC released but Kaplan and Norton had something to add even here. Their offer is leading indicators usage referring to financial perspective. Definitely leading indicators are indicators in economics and finance used to predict the future. The example of leading indicators could be stock prices (which often improve or worsen before a similar change in the economy) as well as the index of consumer expectations, building permits, money supply and others. Such indicators’ usage improves the role strategic planning and goals statement.
Exact forecasts
Kaplan and Norton researches prove that usage of indicators in all four perspectives might not only improve the company’s performance but also makes is possible to make much more exact forecasts of all the values including financial data. This stands for positive difference between efficiency leading economic indicators and lagging indicators for the period of time. It means that BSC proper usage might help in making better forecasts and manage investors’ waiting.
Strategy setting activity improving
As it is known BSC stands for precise goals statement. According to Kaplan and Norton, company’s strategy is directly linked to the practical tasks. While company implements balanced scorecard concept it faces all weaknesses it had before in the sphere of strategic management. Most of companies even form strategic departments in order to improve this activity. If it seems impossible to form a new department it might be found some other way for strategic problems to be solved. Anyway the success of BSC implementation depends on strategic activity effectiveness. Certainly effective strategic management helps not only to implement BSC but also:
- To understand the customer;
- To predict environmental reaction;
- To improve effectiveness of resource’s usage;
- To organize well performed coordination;
- To obtain senior management commitment;
- To obtain employee commitment;
- To estimate time requirements properly;
- To follow the plan;
- To manage changes;
- To organize regular, uninterrupted communications;
Precise goals
One more BSC advantage is precise goals forming. Having well organized strategic management process it is not so hard to translate the vision into operational goals. When the task is precise it helps specialists to start executing it right away without spending working time to ask any addition questions. Also specialists might cooperate with each other in order to reach some goals both within the only department and using cross departments cooperation. Well formulated goal gives specialist an opportunity to choose some new, original way to execute it and be noticed by management. With nowadays high level of education it might be very effective to give more freedom to employee concerning the way how to execute their tasks.
Long term success
Oppositely to old style industrial companies to which such factors as long term investments and non-material features (like customer relations development, business process optimization and others) were just wasting of money, balanced scorecard concept pays lots of attention to all perspectives. This concept might cause less profit in short term period (than old management theories) but is much more effective in long term.
For example such phenomenon as “brand loyalty” (which consists of a consumer’s commitment to repurchase or otherwise continue using the brand) can not appear without investments into marketing business activity (part of customer perspective in balanced scorecard concept). Also such feature as customer’s love can not be reached in short time – it usually needs years of effective work for customers to choose brand instead of competitor’s ones even if it is more expensive. Much more examples of non-material goods proper usage might be found but the current one is enough to show the logic. Certainly balanced scorecard concept does not consider short time goals unimportant but leaves it up to management to find balance in strategic planning and goals statement.
