Measurement of Corporate Performance through Balanced Scorecard : an Overview

In the present era of emerging intense global competition, organizations’ are facing increasingly knowledgeable and demanding customers and activist shareholders which have changed the competitive environment from competition based on ability to invest in and manage physical assets to competition based on knowledge and the ability to exploit intangible and soft assets. In this changed business paradigm relying on only the financial measures, which are considered as the indicators of short-run performance, to measure the corporate performance is puzzling and often misleading. A Balanced Scorecard added three additional perspectives covering operating aspects of an organization which exhibits not only the current position of the enterprise but also how it is progressing. But due to some practical difficulties in its development and implementation, the concept developed by Robert S. Kaplan and David P. Norton has not widely accepted and its popularity has not yet peaked. Performance is the final result of all activities. In evaluating performance the emphasis is on assessing the current behaviour of the organization in respect to its efficiency and effectiveness. The appropriate performance measurement tool should be I. Relevant to the strategic goals of the organization and accountable to the individuals concerned. II. Focus on measurable outputs, III. Verifiable. Corporate Performance Management (CPM) is discussed from two points (a) Operational CPM and (b) Analytical CPM. Operational CPM addresses the business process needs of executives and financial managers. Analytical CPM * Senior Lecturer, Dept. of Commerce with Farm Management, Vidyasagar University, Medinipur – 721102, W. B. ** Lecturer, Dept. of Commerce, Mugberia Gangadhar Mahavidyalaya, Midnapore (E). Samir Ghosh & Subrata Mukherjee Vidyasagar University Journal of Commerce 61 addresses the reporting and analysis needs of executives, managers and staff through all levels of an organization, as well as vendors, suppliers and partners. There are a number of performance measurement tools, which could be clubbed into two broad groups like i) Traditional measures and ii) Non traditional measures. Traditional measures which indicate the financial strengths, weaknesses, opportunities and threats are Return on Investment (ROI), Residual Income (RI), Earning Per Share (EPS), Dividend Yield, Price Earning Ratio, Growth in Sales, Market Capitalization etc. But it is found that some users of financial statements are interested on non-financial performances of the corporate bodies beside financial performances. In such cases some non-traditional measurement tools are to be used like Economic Value Added, Balanced Scorecard etc. The concept of Balanced Scorecard is too much relevant in the present era of emerging intense global competition where the organizations are facing increasingly knowledgeable and demanding customers and activist shareholders which has changed the competitive environment from competition based on ability to invest in and manage physical (or tangible) assets to competition based on knowledge and the ability to exploit intangible and soft assets (like human capital, information systems, intellectual capital, brand development, research and development etc.). In this changed business paradigms, the Balanced Scorecard throws an insight into an organization’s performance by integrating financial measures with other key performance indicators around customer perspectives, internal business processes and organizational growth, learning and innovation, and enables organizations to track short-term financial and operating results while monitoring progress for future growth, development and success. The remaining part of this article consists of : Concept of the Balanced Scorecard, Rationality behind the Balanced Scorecard, evaluation of the Balanced Scorecard and Conclusion. Concept of Balanced Scorecard The concept of ‘Balanced Scorecard’ was first introduced in the journal “Harvard Business Review” (January-February, 1992) by Robert S. Kaplan and David P. Norton. The basic idea behind the introduction of the Balanced Scorecard was that the traditional financial measures (like ROI, EPS etc.) alone MEASUREMENT OF CORPORATE PERFORMANCE THROUGH BALANCED SCORECARD Vidyasagar University Journal of Commerce 62 cannot provide a clear and comprehensive performance target or focus attention on all the critical areas of the business that bear significant impact on its longterm survival, growth and development, rather it requires a balanced presentation of financial as well as operational measures. The Balanced Scorecard is an organizational framework for implementing and managing strategy at all levels of an enterprise by linking objectives, initiatives and measures to an organization’s strategy. The Balanced Scorecard is a strategic management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. When fully deployed, the Balanced Scorecard transforms strategic planning from an academic exercise into the nerve centre of an enterprise. The scorecard provides an enterprise view of an organization’s overall performance. The scorecard integrates financial measures like ROI, RI, Dividend yield, EPS etc. with other key performance indicators around customer perspectives, internal business processes and organizational growth, learning and innovation. Balanced Scorecard Cause Effect Hypothesis 1. Knowledge & skills of employees is the foundation of all innovation and improvements. 2. Skilled and empowered employees will improve the ways they work. 3. Improved work processes will lead to increased customer satisfaction. 4. Increased customer satisfaction will lead to better financial results. The above perspectives answer accordingly to the following four basic questions: 1. How do customers see us ? 2. What must we excel at ? 3. Can we continue to improve and create value ? 4. How do we look to shareholders ? Learning & Growth