Comparative Significance of the Four Perspectives of Balanced Scorecard

The history of the performance measurement is as old as the history of the business organizations. Performance measurement has been there in its orthodox form where emphasis was laid upon financial measures such as return on investment, earning per share, net profit rate etc. As the financial measures were profit oriented, these were thought to be short term measures. An organization may be financially sound for the time being because of its monopoly or it may enhance its current profit by reducing research and development expenses. Under each of the situations, the organization may be in trouble in the days to come especially in the competitive environment. Later on, in 1980s, magnitude of performance was shifted to the non financial measures such as customer satisfaction, delivery period, number of complaints etc. The tools introduced were Total Quality Management, Six Sigma, Baldrige Award, CAMELS Rating System etc. Now the existence of financial and non financial measurers at a time resulted in confusion because the management can enhance one measure at the cost of other. We can reduce the training, research and development cost to improve the current profitability. On the other hand, we can spend more on non financial variables to have the future benefits but it would reduce the current profitability. Thus the balance between the financial and non financial measures was inevitable.