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Entering into and running a business has always been a risky affair. Just overnight a business may be valued at millions of rupees or easily find themselves among one of the 9 in 10 start-ups that fail. Even well-established running businesses do not have it easy – Nokia and Blackberry being prime examples. There are just too many variables to take into account. The age old thinking of “the higher you invest, the greater are your returns”; simply does not work anymore. There is no sure-fire way to be successful. Balanced Scorecard helps connecting the scattered dots in an organization for an analysis to achieve targets!
The Balanced Scorecard has gone through various stages of development. Robert S. Kaplan and David P. Norton are usually associated with the concept of Balanced Scorecard since they published a paper on this topic in 1992 and 1993 which grew in popularity and further also published a book in 1996. According to them, the Company must ask itself the following 4 questions which ultimately form the balanced scorecard:
Thus the 4 perspectives covered in the above questions are: the financial perspective, the customer perspective, the internal business perspective and the learning and growth perspective. An illustrative set of ideal metrics for each of the perspectives are given below:
The first generation of the Balanced Scorecard covered the above 4 perspectives. The second generation included one major improvement and a key step to implement the balanced scorecard: Strategy Mapping.
Strategy Mapping refers to drawing out an action plan to achieve the organisational objectives/strategy. The above 4 perspectives are linked together with their respective action plans – how the entity intends to achieve the best financial growth, customer satisfaction, innovate and smoothen the running of the business internally. The third generation, however, gave a vision of what the end-result of such a strategy would be and this was called a Destination Statement.
The Destination Statement helps in getting an idea of what impact the strategy or goals would have on the organisation if it were actually achieved.
|Financial||To achieve short-term gains To achieve long-term stability in performance||Earnings Before Interest, Taxes, Depreciation and Amortisation Leverage Analysis like Debt-Equity Ratio Revenue earned per room|
|Customer||Focus on improving the experience of existing customers Expand reach and try to target new customers||Number of repeat customers Number of new customers Feedback forms filled by customers Number of complaints received from customers with regards to service|
|Internal business||Reduce waiting time for customers Reduce food shortages of popular dishes||Service rating of the hotel on popular websites Staff hours per guest Rating of food and reviews on blogs|
|Learning and Growth||To have qualified staff able to deal with most service requests that customers have To make the workspace more friendly for employees Adding new range of services||No. of staff training days Employee turnover/ retention No. of new schemes launched|
Balanced Scorecard is one of the most influential business ideas of the past 75 years and reputed brands like Volkswagen, Citibank, Philips, Thomas Reuters, Apple, etc. have been known to adopt the same. However, the Balanced Scorecard still has a few setbacks highlighted as below:
Every business needs to be constantly scanning its environment and adapting itself accordingly. In this technology-driven era, investing in intangibles is as important as investing in tangible assets. The customer’s opinion of the company could in itself be an asset if handled appropriately. There are many tools out there to analyse the quantitative aspects of the performance of an entity. However, the Balanced Scorecard is a strategic planning and management tool that lets managers keep track of the organisation’s progress keeping in mind the set goals and also measure its financial and non-financial performance.