Balance Scorecard (bsc)

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The implementation of BSC as a performance measurement tool is quite common in real life. As one of the top 100 financial institutions in the US, First Commonwealth Financial Corporation (FCFC) uses BSC in its operation. FCFC was a bank holding company and it was transformed into one bank in 2000 when BSC was recommended to measure the company’s performance (Merchant and Van der Stede, 2012). The chairman of FCFC, Trimarchi, thought that the BSC could make everyone contribute to the implementation of company strategy once the strategy was understood (Merchant and Van der Stede, 2012). In April 2002, the eighth draft of BSC was finally approved and conducted. In the financial perspective, FCFC’s objective was becoming a world-class sales organization and the measures used were revenue growth and strategic investment (Merchant and Van der Stede, 2012). The objectives under the customer category were client acquisition and retention, measured by service quality (Merchant and Van der Stede, 2012). The company aimed to enhance business under the internal process perspective by measuring capabilities of enhancing channels (Merchant and Van der Stede, 2012). For FCFC, employees were the greatest source, therefore, it tried to improve employees’ ability under learning and growing perspective and measured the competencies growth and leadership expertise development (Merchant and Van der Stede, 2012). While conducting BSC, the support division in the FCFC accepted the approach and the concept of BSC was acknowledged by different levels of the company quickly (Merchant and Van der Stede, 2012). John Glass, head of the Growth Division, said that it was a considerable development because a common measurement tool, which is much more efficient than before, was deployed rather than different tools for different division (Merchant and Van der Stede, 2012). Additionally, other than using BSC in the operation, it was also used to measure the performance of the board of directors to improve the corporate governance (Kaplan and Nagel, 2004).

Described as one of the best performance measurement tools, the most obvious strength of BSC is its combination. It overcomes the insufficiency of financial-based traditional performance measurement and becomes multidimensional, providing kinds of Key Performance Indicators (Awadallah and Allam, 2015). Evidence of financial performance is from the past and considers no current risks or opportunities a company is facing, making it a lagging indicator which is unable to forecast the future economic value (Awadallah and Allam, 2015). Meanwhile, the new reality indicates that intangible assets has become more significant than physical assets (Gomes and Romao, 2014). With the three additional perspectives indicating future trends, BSC can value intangible assets as well (Gomes and Romao, 2014). Additionally, although the standard BSC has four perspectives, different dominant perspectives can be chosen according to companies’ specialty to get a more direct guidance (Mooraj et al, 1999). For example, measurement of companies in technology industry may be dominated by learning and growing perspective.

When Kaplan and Norton first proposed the concept of BSC, they asserted that its main advantage was the assistance to implement business strategy (Awadallah and Allam, 2015). Its boundary control system element translates organizations’ vision and strategy into a list of goals and related measures which can be evaluated (Geense, 2005). This process helps the top managers get a quick but comprehensive view of the company’s operation and measure results (U.S. office of personal management, 2016). The employees can also understand the core values of the organization and be notified about their roles in fulfilling the organization’s mission, advancing the achievement and increasing the interaction among different levels in the organization (Mooraj et al, 1999). Except for these two most significant advantages of BSC, there are also minor strengths. For example, BSC is easy to understand and implement. It also helps to figure out the appropriate customer groups to target at and their special requirement, which is critical for any business (Vallely, 2016).

While it is efficient for some organizations to implement BSC as a performance measurement tool, it is inevitably that some companies may find the method not effective (Merchant and Van der Stede, 2012). Firstly, although BSC has considered the influence from customers and shareholders, some other stakeholders should also be included, such as employees and suppliers (Gomes and Romao, 2014). More additional perspectives need to be included to measure their interests (Kaplan and Norton, 1996). For example, for jewelry dealers, the supplier relationship has great effect of the financial results and its perspective should be added to BSC. At the mean time, too many measures means diluted importance of individual measure, making employees pay not enough attention on each one (Merchant and Van der Stede, 2012).

Using cause-and-effect as a base for BSC is also criticized. The cause-and-effect relationship is defined that activities have precedence order and are logically independent while can be connected causally (Rillo, 2004). The flaw of this relationship is material since invalid assumptions will lead to abnormal organization behavior because of improper information (Gomes and Romao, 2014). Another difficulty to implement BSC is how to weight the importance of each performance factors (Merchant and Van der Stede, 2012). On one hand, different factors interact and there are tradeoffs between them (Merchant and Van der Stede, 2012). For instance, although production output can be increased when workers work hard, their productivity decreased when they are tired. How to balance between the labor efficiency and production output is difficult. On the other hand, the margin payoff resulted from one factor keeps decreasing (Merchant and Van der Stede, 2012). For example, when company has invested enough in improving the customer satisfaction, further investment may be ineffective since few addition will be generated after the satisfaction is beyond one certain point (Merchant and Van der Stede, 2012).

From the above analysis, it can be seen that BSC appeared to overcome the weaknesses of the traditional financial-oriented performance measurement tool and its prominence was caused by its strengths over the financial measurements. The four perspectives of BSC result in its advantages and adaption to the real world. However, it still has limitations and company should try to avoid them during implementing.

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Appendix 1: Reference list

Awadallah, E. and Allam, A. (2015) A critique of the