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Dubai

PPT On The Balanced Scorecard

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Published in: MS Office
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The balanced scorecard is a strategic performance measurement technique for communicating and continually reassessing performance against strategic aims. The ppt. shares some insight on the critical assumptions underlying the principles of the balanced scorecard developed by Kaplan and Norton.

Muhammed A / Dubai

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Qualification: ACCA,UAECA and Masters of Science in International Accounting and Finance

Teaches: ACCA, IGCSE/AS/AL, Accounts, Business Studies, Accountancy, Finance, Accounting

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  1. Topic: CA critical analysis of some of the Balanced Scorecard's assumptions." Balanced irF Scorecard Muhammed Azhar Baig
  2. ting pli55ior CRITICISM AGMSTTHE MEASURES BACKGROUND Financial measures are focused on their historic nature. They reveal great deal about the company's past information. Accounting numbers do not emphasize the elements which will lead to good or poor future financial results. Performance measures of accounting systems ignore the financial value of company's intangible assets. Accounting numbers are highly subjected to manipulation. Strategy plans remain remote from company's day to day operations leading to a gap between the strategy expressed and patterns of actions actually undertaken. These problems have led to the development of a large number of strategic measure tools that involve not only financial but also non financial measures such as, Balanced Scorecard.
  3. IS A BALANCED SCORECARD ' According to Kaplan and Norton (1996): a Able to align departmental ad personal goals to overall "A balanced scorecard is another model which integrates financial and non financial strategic measures. It is distinct from other strategic measurement systems in that contains outcomes measures and performances drivers of outcomes linked in a cause -and -effect relationship" Norton Kaplan & performance measurement system a feed forward perspec control system 8 leatning Growth a Relies on the concept developed by Porter (1980, 1985) which states the SCORECARDS essence of formulating a competitive strategy lies in relating a company to financial tive the competitive forces in the Internal processes industry in which it competes.
  4. THE FOUR PERSPECTIVES OF BSC The scorecard translates the vision and strategy of business unit in to objectives and measures in four different areas: How company wishes to be viewed by its shareholders Describe the businesses process that company needs to adapt in order to satisfy its shareholders and customers Financial Customer VISION & Internal Learning Business & Growth Process How company wishes to be viewed by its customers Involves changes and improvements which the company needs to realize to make the vision come true Source: Kaplan & Norton (1996)
  5. CAUSE-AND-EFFECT RELATIONSHIP Cause and Effect Hypothesis The crux of BSC is linking together of the measures of the four areas in casual chain which passes through all four perspectives. + The validity of the model relies on the assumption that cause and effect relationship exist between the areas of measurements suggested. Satisfied and loyal customers lead to increased revetwes. Inwroved processes lead to invroved products and services for custotners Skilled. credive ernployees question the status quo and work to improve business processes. Learnng and growth of employees is the foundation for innovation and creativity. Balanced Scorecard Perspectlves Results Customer S&isfaction Business Processes Learning & Growth
  6. ANALYSIS OF THE CAUSE-AND-EFFECT RELATIONSHIP Kaplan and Norton do not define the cause and effect relationship, but Hume's criteria of a cause and effect relationship are usually assumed within theory of science. (Edwards,1972) Logical relationships are part of the concepts of a language, but cause-and-effect relationships are part of structures of empirical world and can be shown empirically. Accounting models are based on logical arguments not empirical observations of company structures and relationships. On this basis, Kaplan and Norton's description of cause and effect relationship among the four perspective eems problematic. Secondly if a cause and effect relationship requires a time lag between cause and effect, it is problematic because such time dimension is not part of scorecard. Effect of the measures will take place at different points of time and one argument for not measuring at different points of time could be that the time lag between effort and its effect is short.
  7. ANALYSIS OF THE CAUSE-AND-EFFECT RELATIONSHIP (COMD) The relationship between measures on scorecard is ambiguously described in Kaplan and Norton (1996). The model suffers from lack of clarity. Kaplan and Norton (1996) state that if company deliver value and quality to its customers, then customer loyalty will rise and profits will roll in. However, they based this on Jones and Sasser (1995) Jones and Sasser assume a casual relationship exists between customer loyalty & profitability. They have found this trend in over 100 companies. However, they do not provide information on how strong the trend is and whether it holds true for all customers and firms. They ignore the kind of customer which is loyal (young , adult or elderly)
  8. ANALYSIS OF THE CAUSE-AND-EFFECT RELATIONSHIP (COMD) The influence between measures is not unidirectional instead its interdependent. So instead of cause and effect relationship, the relationship between areas is more likely to be interdependence Clearly Kaplan and Norton are theoretically unclear about arguing both for logical and casual relationship. They have different conception about cause and effect relationship. Or it might be assumed that they intend to refer to finality relationship where actions are performed because they are adapted according to the views and wishes of a person. Any particular means to achieve end results. There are indeed indications where Kaplan & Norton want to refer to or in some cases have assumed finality not causality. The idea of cause and effect is central the model. Giving up the assumptions of cause and effect relationship invalidates the model making it no different from any other model.
  9. SUGGESTIONS TO IMPROVE THE Bsc + Financial calculus is required for the purpose of assessing financial consequences of factors such as increased customer satisfaction + Instead of viewing the relationship as casual one there is a need to establish coherence between measurements. Focusing on whether the relevant phenomena match or compliment each other. If there is lack of coherence then conditions reaching the target are not optimal. + Carrying out coherence analysis at the strategic level and activity level to analyze the extent of coherence between resources and performance measures. + In order to construct coherent set of performance measures, resources and strategy should be decided in a coherent way. + A strategic dialogue with employees should take place to increase awareness and bridging differences of perceptions and understanding
  10. CONCLUSION Predicting future performance is a highly complex issue. Evaluation system, which does not integrate all relevant variables, cannot be expected to show valid results. Models are needed to broaden our understanding about how business performance is created and to this end MA research has to make its contribution.
  11. REFERENCES Edwards, P., 1972. 'The Encyclopedia of Philosophy', Volumes 1-8, U.S., Macmillian Publishing Co., Inc. and The Free Press. Jones, T. O. and Sasser, W. E., 1995. 'Why satisfied customers defect, Harvard Business Review,' November-December, 88-99. Kaplan, R. S. and Norton, D. P. , 1996a. 'The Balanced Scorecard — Translating Strategy into Action', Boston, Harvard Business School Press. Kaplan, R. S. and Norton, D. P. , 1996 b. 'Linking the balanced scorecard to strategy', California Management Review, Fall, 4, 53-79. Norrekilt, H. (2000). 'The balance on the balanced scorecard — a critical analysis of some of its assumptions', Management Accounting Research, 11, 65-88. Porter, M. E., 1980. 'Competitive Strategy: Techniques For Analyzing Industries and Competitors', New York, Free Press. Porter, M. E., 1985. 'Competitive Advantage: Creating and Sustaining Superior Performance', New York, Free Press.
  12. THANKYOU!!!

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