“Two Decades of the Balanced Scorecard” by Coe and Letza

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Table of Contents

Introduction
Two Decades of the Balanced Scorecard: A Critical Analysis
Pros and Cons of the Balanced Scorecard
Conclusion
References

Introduction

A balanced scorecard (BSC) is a performance management framework developed in the early 1990s (Bible, Kerr & Zanini 2006). It is used to monitor staff activities and the effects of their deeds. A BSC plan includes financial and non-financial data used to monitor performance. In addition, it focuses on the primary agenda of the corporation. Since its development, BSC has undergone various developments.

In this paper, the author will provide a report on an article about BSC. The article is written by Coe and Letza (2014). In the report, an analysis of the performance measurement tool and its development over the years will be provided. In addition, the pros and cons of BSC design and implementation will be discussed.

Two Decades of the Balanced Scorecard: A Critical Analysis

Inception and Development of the Scorecard

In the article, Coe and Letza (2014) state that the BSC was developed primarily because the existing financial measures did not produce the results sought by most companies at the time. Kaplan and Norton, the scholars behind the tool, realized that organizational value was no longer influenced by tangible assets. Intangible resources were the major drivers. In addition, they noted that most managers were not familiar with the impact of measurements on business strategy. To come up with a clear performance target, administrators needed a balanced presentation of both financial and operational measures (Lawrie & Cobbold 2004). Consequently, the scorecard was developed. The management tool entailed four viewpoints that brought together the performance of all employees. They included financial, customer, internal business, and innovation standpoints.

When the scorecard was first developed, most managers found it was effective. In spite of this, the tool had various defects. Initially, it entailed inserting 4-5 measures into four boxes (Bible et al. 2006). The major problem emerged when deciding the measures to place in each box and order of placement. According to Coe and Letza (2014), the entire process was vague. In addition, it was unclear how the strategy was connected to inserting measures in boxes. As a result, managers ended up setting incoherent measures and goals (Haksever et al. 1999).

Improvements and modifications of the original scorecard started in 1996 (Coe & Letza 2014). The revised version allowed administrators to associate long term premeditated goals with short term accomplishments (Lawrie & Cobbold 2004). The news aspects of the tool also enabled employees to view the company’s plans. In addition, they could see how their efforts influenced the attainment of organizational goals. Consequently, the scorecard evolved from a simple to a complex tool.

Modernization of the Scorecard

The BSC has undergone through three generations. The switch from the first to the second generation positioned the tool as a device for supporting premeditated control (Coe & Letza 2014). The third generation included new features to provide improved functionality and planned significance.

The major enhancement in the card was the feature of the destination statement. The declarations were made at the end of the design procedure. Their main purpose was to encourage managers to examine the effects of the selected strategic goals on the organization (Bogetoft 2013). As a result, administrators could identify possible discrepancies in the profile of set objectives. Another key modification involved getting rid of the four inflexible perspective labels that were initially used. They were replaced with two new ones (Fitzsimmons & Fitzsimmons 2007). The two are activity and outcome. In spite of the changes, the primary principles of the scorecard were retained.

A Modern Case Study of the Balanced Scorecard

Currently, the third generation BSCs are designed and implemented by 2GC. The firm majors in premeditated performance assessment affecting modern businesses. It separates the scorecard into three components (Lawrie & Cobbold 2004). They include destination statement, strategic linkage model, and measures and targets (Coe & Letza 2014). The destination statement explains future goals. The period set for achieving the objectives is usually 3-5 years. The component provides details on how the company will look like after this period (Johnston & Clark 2005).

The strategic linkage model is next. It entails dispersing the selected goals into four categories. The two lower perspectives contain goals linked to the most important activities, such as productivity. The upper perceptions include objectives associated with the expected results of the activities carried out. Measures and targets monitor the initially set goals. The targets act as unique projects with a set start and end dates (Coe & Letza 2014).

The Future of the Balanced Scorecard

In their article, Coe and Letza (2014) state that changes on the scorecard are in line with technological innovations. The modifications allow for customization and computerisation (Bogetoft 2013). Currently, there are four performance measurement cards. Each has its unique design and mode of implementation. However, the strategic performance management scorecard is most preferred.

Pros and Cons of the Balanced Scorecard

Pros

The primary aspects of a BSC allow managers to have a precise picture of the entire company’s performance (Lawrie & Cobbold 2004). Compared to the traditional approaches, the management tool provides the administrator with a full picture of whether the set goals are being met or not. It helps managers to look at the immediate future objectives. When setbacks arise, the suggestions made only target the current problems. However, with the use of scorecards, managers can evaluate short, medium, and long term goals at a glimpse (Coe & Letza 2014).

Cons

The use of a scorecard as a strategic planning tool can be costly and time-consuming. Its correct use requires a complete understanding of the processes (Bogetoft 2013). At times, organizations hire an external consultant. In addition, costs are incurred in purchasing software and maintenance. The effectiveness of a scorecard is determined by the value of information inserted in the specific zones. The tool can only work if the correct elements are selected. Incomplete information results in undesired outcomes (Coe & Letza 2014).

Conclusion

The article by Coe and Letza (2014) provides information on BSC and its development over the years. Modifications have been made to various aspects of the tool. The major improvements can be attributed to the weaknesses of the earlier designs. Today’s scorecards are highly advanced compared to the original ones. However, more improvements are needed.

References

Bible, L, Kerr, S & Zanini, M 2006, ‘The balanced scorecard: here and back’, Management Accounting Quarterly, vol. 7 no. 4, pp.18-23.

Bogetoft, P 2013, Performance benchmarking: measuring and managing performance, Springer, New York.

Coe, N & Letza, S 2014, ‘Two decades of the balanced scorecard: a review of developments’, Poznan University of Economics Review, vol. 14 no. 1, pp. 63-75.

Fitzsimmons, J & Fitzsimmons, M 2007, Service management: operations, strategy, information technology, 6th edn, McGraw-Hill, New York.

Haksever, C, Render, B, Russell, R & Murdick, R 1999, Service management and operations, 2nd edn, Prentice Hall, New Jersey.

Johnston, R & Clark, G 2005, Service operations management: improving service delivery, 2nd edn, Prentice Hall, New York.

Lawrie, G & Cobbold, I 2004, ‘Third-generation balanced scorecard: evolution of an effective control tool’, International Journal of Productivity & Performance Management, vol. 53 no. 7, pp. 611-623.

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