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HCA 610 Discussion Purpose of a Balanced Scorecard

HCA 610 Discussion Purpose of a Balanced Scorecard

 

What is the purpose of a balanced scorecard? How is the balanced scorecard used to lead and manage an organization? How can the balanced scorecard be linked to organizational effectiveness as well as individual performance evaluation?

balanced scorecard is a strategy performance management tool – a well structured report, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.[1]

The phrase ‘balanced scorecard’ primarily refers to a performance management report used by a management team, and typically this team is focused on managing the implementation of a strategy or operational activities – in a recent survey[1] 62% of respondents

HCA 610 Discussion Purpose of a Balanced Scorecard

HCA 610 Discussion Purpose of a Balanced Scorecard

reported using Balanced Scorecard for strategy implementation management, 48% for operational management. Balanced Scorecard is also used by individuals to track personal performance, but this is uncommon – only 17% of respondents in the survey using Balanced Scorecard in this way, however it is clear from the same survey that a larger proportion (about 30%) use corporate Balanced Scorecard elements to inform personal goal setting and incentive calculations.

The critical characteristics that define a Balanced Scorecard are:[2]

  • its focus on the strategic agenda of the organization/coalition concerned;
  • a focused set of measurements to monitor performance against objectives;
  • a mix of financial and non-financial data items (originally divided into four “perspectives” – Financial, Customer, Internal Process, and Learning & Growth); and,
  • a portfolio of initiatives designed to impact performance of the measures/objectives.[3] this is just for information

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The characteristic feature of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a ‘target’ value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It is the method by which this ‘most relevant’ information is determined (i.e., the design processes used to select the content) that most differentiates the various versions of the tool in circulation. The balanced scorecard indirectly also provides a useful insight into an organisation’s strategy – by requiring general strategic statements (e.g. mission, vision) to be precipitated into more specific/tangible forms.[20]

The first versions of Kaplan and Norton’s interpretation of the balanced scorecard asserted that relevance should derive from the corporate strategy, and proposed design methods that focused on choosing measures and targets associated with the main activities required to implement the strategy. As the initial audience for this were the readers of the Harvard Business Review, the proposal was translated into a form that made sense to a typical reader of that journal – managers of US commercial businesses. Accordingly, initial designs were encouraged to measure three categories of non-financial measure in addition to financial outputs – those of “customer,” “internal business processes” and “learning and growth.” These categories were not so relevant to public sector or non-profit organisations,[21] or units within complex organizations (which might have high degrees of internal specialization), and much of the early literature on balanced scorecard focused on suggestions of alternative ‘perspectives’ that might have more relevance to these groups(e.g. Butler et al. (1997),[22] Ahn (2001),[23] Elefalke (2001),[24] Brignall (2002),[25] Irwin (2002),[26] Radnor et al. (2003)[27]).

Modern balanced scorecards have evolved since the initial ideas proposed in the late 1980s and early 1990s and are significantly improved – being both more flexible (to suit a wider range of organisational types) and more effective (as design methods have evolved to make them easier to design, and use).

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