THE EMERGENCE OF BALANCED SCORE CARD:

Prior to 1980s many academics and consultants became concerned that too much emphasis was
being put on financial and accounting measures of performance. Management accounting
systems had been perfected to produce detailed cost breakdowns and extensive variance
reports. It was realized that these systems were not useful for managing a business under the
circumstances resulted out of the emergence of global competitive environment during 1980s.

Product quality, delivery schedules, reliability, after-sales service, customer satisfaction became
key competitive variables. But none of these were measured by the traditional performance
measurement systems.

During 1980s much greater emphasis was given to incorporating non-financial performance
measures as mentioned above, into the management reporting system as they provided
feedback on variables that are required to compete successfully in a global economic
environment. But a proliferation of performance measures emerged and has resulted I confusion
when some of the measured conflicted with each other and it was possible to enhance one
measure at the expensing another.

The need to link financial and non-financial measures of performance and identifying key
performance measures led to the emergence of “Balanced Score Card” approach developed by
Norton and Kaplan (1992) in the U.S. The Balanced score card is defined as “an approach to the
provision of information to management to assist strategic policy formulation and achievement. It
emphasized the need to provide the user with a set of information, which addresses all relevant
areas of performance in an objective and unbiased fashion”.

Kaplan and Norton identified our perspectives representing the important facets of the
organization. These were:

1. Financial perspective (how do we look to shareholders)

2. Customer perspective (how the customer see us)
3. Internal business perspective (what we excel at?)
4. Innovation & Learning perspective (can we continue to improve and create value)

The idea behind the four perspectives represents a balanced view of any organization and by
creating measures under each of these headings all the important areas of business would be
covered. It is important to note that the balanced score card itself is just a frame work and it
doesn’t say what the specific measures should be. It is a matter for people within the organization
to decide upon. The set of measures for each organization or even sections with the organization
will be different. Much of the success of score card depends on how the measured are agreed,
the way they are implemented and how they are acted upon. So the process of designing a score
card is as important as the score card itself.

FEATURES OF A GOOD BALANCED SCORE CARD:

1. It tells the story of a company’s strategy, articulating a sequence of cause and effect
relationships.
2. It helps to communicate the strategy to all members of the organization by translating the
strategy into coherent and linked set of understandable and measurable operation
targets.
3. A balanced score card emphasizes non-financial measures as a part of program to
achieve future financial performance
4. The balanced score card limits the number of measures identifying only the most critical
areas. The purpose in to focus manager’s attention on measures that most affect the
implementation of strategy.
 5. The balanced score card highlights less than optimal trade offs that managers may make
when they fail to consider operational and financial measures together.

Comments & suggestions required

Regards
Krishna saladi
+91 98481 04265
saladikrishna@yahoo.com