This is used as a tactical tool and an organization technique. It is generally used in every organization to bring into line the company’s performance towards its objectives and vision. This scorecard is also used to develop communication and response between the management and employees for monitoring the goals of the organization. As the name suggests, it is designed not only to evaluate the performance of an organization but also to evaluate other aspects like customers problems, augmentation of learning tools etc.
Let us understand the basics of Balanced Scorecard.
The Balanced Scorecard is divided into four main components. An organization is considered to be successful if it strikes a balance between the four. Each component represents different aspects of the company for it to operate at best possible capability. Let’s discuss the four components one by one:
- Financial Component: It consists mainly of cost, concerned in terms of return on investment and operating costs of the company.
- Customer Component: It measures the point of customer contentment, their retention and share of the market held by the organization.
- Business Process Component: Measures related to quality and cost that relate to the business process are included here.
- Growth and Learning component: This component includes knowledge management, customer happiness and retention of employees.
These components are inter-related and cannot be used as a single function. To achieve the business goals and objectives now-a-days, the organization has to combine one or more of these components. The four components must be measured with the following factors:
- Objectives: the organization’s objectives such as market share and profitability.
- Measures: on the basis of the above objectives certain measures will be in place to oversee its progress.
- Targets: this can be for the whole organization or department-wise, to achieve the measures that are set.
- Initiative: they can be called as the various actions taken to meet the objectives.
The status of Balanced Scorecard increased as time went by. The organizations started using it as a strategic tool that could be used across the departments in the company. The management got a better and broader view of its objectives and also to gauge its performance in terms of magnitude. The main reason for an organization to fail as a whole is because of its lack of understanding and adherence to the set objectives. Hence the Balance Score Card helps the management in dividing these objectives and making them easier to understand and also for its employees. Since it is a strategic tool, it plays an important role in learning and feedback that are related to the performance of the organization.
Why should an organization implement Balanced Score Card? The need for implementing it arises due to the following:
- Augmented focus on business strategy and its result.
- Improved managerial presentation through dimensions.
- Bring into line the manpower to meet managerial objectives on a daily basis.
- Target the main components for potential performance.
- Level of communication is improved towards the organization’s vision.
- It prioritizes the work as per time when they are required to be completed.
The Balanced Scorecard sets a balance between the mechanism and the vision of the organization. It helps the management in tracking the performance of the company; therefore it is called as a management tool.