Balanced Scorecard – A New Direction in Management Accounting

Organisations have moved a long way from using historical data alone to analyse the performance of a business.

The problem with budgets and traditional performance measures such as profit, gross margin etc is twofold. Firstly they are traditional measures and don’t indicate what actions need to be addressed to correct problems. The second is they are not aligned with the strategic objectives of a business.

The balanced scorecard was developed in the US in the 1990’s and is now used by 46% of major businesses. We consider it should be used by all businesses seeking to grow and develop beyond their current situation.

The balanced scorecard supplements traditional financial measures with criteria that measures performance from three additional perspectives – customers, internal business processes and learning and growth.

With a balanced scorecard, financial measures are no longer the sole indicators of a company’s performance.

The balanced scorecard becomes an integral part of the business planning and development. It empowers individuals and business units. The balanced scorecard links strategic objectives to short term actions with four key processes.

Translating the vision

Many businesses set out with a simple strategy such as “becoming number 1 supplier”. In reality such simple statements do not translate into operational terms that provide useful guides to action. For employees to act on words in vision and strategy statements, the goals must be expressed as an integrated set of objectives and measures that describe the short/medium and long term drivers of success.

Communicating and linking

The second process lets managers communicate strategy up and down the organisation. This way departments and individuals can be evaluated using scorecards.

Business planning

This process allows companies to integrate business and financial plans. Management often attempts diverse and numerous strategies that are not integrated with the overall strategic vision of the organisation. With the adoption of a scorecard, management can only undertake initiatives that move the business towards its strategic objectives.

Feedback and learning

With the use of a balanced scorecard a company can monitor short term results from four perspectives: financial, customers, internal business processes and learning and growth. Strategies can be modified through real-time learning.

Call us today at The Capstone Group to see how we can work with your organisation to develop a balanced scorecard that will move your business to the next level.

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