THE CONCEPT OF BALANCED SCORECARD AS A STRATEGIC MANAGEMENT TOOL essay

The concept of Balanced Scorecard (BSC) was developed in the 90-es of the last century by R. Kaplan and D. Norton. At present it is widely used by American and European companies and organizations. In 1998 Kaplan and Norton organized in the city of Lincoln (Massachusetts, USA) Advisory Group BSC Collaborative, Inc., whose mission was to promote (for profit) distribution in the world of its conception, as well as analysis of lessons learned and its application. In early 1999, 27 organizations in the United States, Canada, Germany and Switzerland, using the balanced scorecard, were sent questionnaires, and 15 private and public organizations noted the benefits that provided a balanced system.

BSC has become a recognized tool for implementing the brand strategy. In particular, it can be used to check the current strategy for completeness, consistency, and relevance. Approximately half of surveyed firms used the system for revision of the old strategy. It is particularly convenient to use the balanced scorecard as a tool for strategic communication, and specifications in those cases where the strategy is formulated vaguely and carries political overtones. (Kaplan & Norton 1996) Very often it happens in public administration and nonprofit organizations.

The idea of ”‹”‹a balanced scorecard (BSC) meets the desires of management to gain a balanced set of monetary and nonmonetary indicators for in-house management purposes. The BSC system is aimed primarily to link the performance in monetary terms with operating indicators of such aspects of the company as customer satisfaction, internal business processes, innovative activity and measures to improve financial performance. Thus, it is designed to answer four key questions for organizations:
Ӣ how clients assess the organization(the aspect of the client);
Ӣ what processes can provide organization a unique position (intra-aspect);
Ӣ how to achieve further improvements (the aspect of innovation and learning);
Ӣ how to evaluate the company shareholders (financial aspect). (Kaplan & Norton 1996)

The answers to these questions depend on the goals that are “derived” from the company’s strategy, and then “transformed” into indicators of the performance management system. The BSC is multidimensional, covering the relationship between monetary and non-monetary measurements, strategic and operational levels of management, past and future results, as well as internal and external aspects of the organization’s activities.

As part of a balanced system it is necessary to distinguish between indicators that measure the results achieved, and indicators that reflect the processes which would produce these results. Both types of indicators should be linked with each other, so as to achieve the first (for example, a certain level of performance) it is necessary to implement the process, and this knowledge allows to make quantitative estimates. (Kaplan & Norton 2002)

In the process of its use, the balanced scorecard has evolved into a broad management system. Therefore, many see it as a blueprint of the whole process of operational management, which includes a number of subprocesses:
– transformation of long-term plans and strategies in the form of specific indicators of operational management;
– communication and reporting about the strategy to the lower levels of the hierarchy of organization’s management with the help of indicators;
– transformation strategies into plans, including budgets;
– development of feedback to test hypothesis. (Kaplan & Norton 2002)

As part of the organizational hierarchy, a balanced system must be implemented from the top and down: it is believed that the system should start working at the enterprise level, and then go to the levels of business units and even individual employees. (Kaplan and Norton 1996)

The introduction of BSC implies a broad restructuring of the entire process of organizational strategy.
In this regard, there are two important facts: first, implementation of a balanced scorecard is not a process of strategy development, and its realization, suggesting that the company has a clearly defined strategy; second, the new concept must be viewed not as a scorecard, but as an overarching system of management. Thus, the interaction between strategic and tactical levels is carried out in two directions. On the one hand, BSC (on the strategic level) gives the targets for the planning for the next calendar year, which provides annual tactical communication plans, long-term goals of the company; and on the other hand, strategic projects are under careful study of the annual plan and relate to the actual resources available. At the same time strategic plans are materialized and begin to be realized.