Dissatisfaction or problems with implementation very often are the drivers for new innovative ideas. This fact is also true regarding the measurement of the performance of companies. In the past, companies often faced the problem, that, although having a clear formulated vision and strategy, they were not able to transform these into operative goals and actions without losses. But especially in today’s highly competitive and fast changing world, a fast and effective translation of strategy into action is necessary and relevant for success. Additionally the used systems for controlling, that were to a large extend geared to the accounting data of the companies, did not match the modern expectations anymore.
Table of Content
1. Introduction
2. The Concept of the Balanced Scorecard
2.1 The four Perspectives
2.2 Derivation of Objectives and Measures
2.3 The Cause and Effect-Chain
2.4 The Strategic Management Process
3. The Case Wells Fargo Online Financial Services
3.1 The Problem
3.2 The Implementation of the Balanced Scorecard
4. Criticism on the Balanced Scorecard
5. Conclusion
1. Introduction
Dissatisfaction or problems with implementation very often are the drivers for new innovative ideas. This fact is also true regarding the measurement of the performance of companies. In the past, companies often faced the problem, that, although having a clear formulated vision and strategy, they were not able to transform these into operative goals and actions without losses. But especially in today’s highly competitive and fast changing world, a fast and effective translation of strategy into action is necessary and relevant for success. Additionally the used systems for controlling, that were to a large extend geared to the accounting data of the companies, did not match the modern expectations anymore.[1]
2. The Concept of the Balanced Scorecard
2.1 The four Perspectives
A fundamental feature of the balanced scorecard (BSC) is, as the name expresses, a balanced examination of different influencing factors, interests and goals. In order to achieve this multidimensional view, the developers of this concept, Robert Kaplan and David Norton, suggest the use of four perspectives:
The financial perspective is the classical one companies use to measure their performance: It is checked, whether the implemented strategies lead to the expected financial operating profits. In order to do so, the profitability, the development of the liquidity and other financial ratios are examined.[2]
The customers’ perspective relates to the classical external market-orientation used in marketing. Satisfied and happy customers have been realised to be a fundamental driver for success for companies nowadays. In order to measure the performance several measures, like changes in market share, number of customers added and lost etc. can be used.[3]
In the business process perspective the internal and increasingly also the external processes are reviewed in order to map the relevant value chains. Measurement categories can be the throughput time of orders, the customers served per employee etc.[4]
Kaplan and Norton agree on the fact, that the learning and growth is a key factor for success in a knowledge-based company.[5] This is why they include the relevant perspective in the measurement of performance. Standing in the centre of this perspective, the personal and organisational potential of the management and other employees as well as their flexibility concerning new tasks shall be measured. Ratios can be the rate of fluctuation, the number of training days per employee etc.[6][7]
illustration not visible in this excerpt
There is no optimal standardised BSC. Every BSC is individually arranged for a single company. If a company regards other perspectives as more suitable for its situation, they can be changed.[8]
2.2 Derivation of Objectives and Measures
The vision and strategy of a company are usually expressed in a very vague way. They can be seen as long-term goal. But to be able to measure, whether the company is on the right way to achieve this goal, they have to be concretised. In order to do so, strategic objectives are derived. In the next step measures are fixed to back and support these strategic objectives. In this way, the abstract strategy and vision of the company is translated into concrete guidelines for the different strategic business units.[9][10]
illustration not visible in this excerpt
2.3 The Cause and Effect-Chain
The aim of the BSC is not only to develop a new bound of ratios and looking at each of them independently. There is a special emphasis on the detection of relations between the objectives of the different perspectives.[11] As in the end the financial perspective will be relevant for the survival of the company, it is connected to the other perspectives by so-called cause and effect-chains. A cause and effect-chain shall uncover the essential drivers for the financial success of the company. By using these chains, the chosen indicators are put into direct relation with the company’s strategy and vision, and their impacts on the performance are visualised.[12]
[...]
[1] cp. Krause, H.-U., l.c., p.256/257
[2] cp. Grüning, M., l.c., p.25
[3] cp. Arveson, P., online publication
[4] cp. Krause, H.-U., p.264
[5] cp. Arveson, P., online publication
[6] cp. Krause, H-U., p.265
[7] cp. Ibid., p.258
[8] cp. Piser, M., p.150
[9] cp. Krause, H.-U., p.266
[10] own illustration
[11] cp. Piser, M., p.150
[12] cp. Grüning, M., p.26/27
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