A Critical Evaluation Of The Balanced Scorecard Accounting Essay

A Critical Evaluation Of The Balanced Scorecard Accounting EssayIn 1992, Kaplan and Norton first published a paper roughly the Balanced ScorecardBSC. It was a huge success and BSC soon became very popular all over the world. Before BSC emerged, organizations usually put on traditional methods of surgery evaluation focused mainly on fiscal measures such(prenominal) as ROCE, sales and profits. BSC translates an organizations mission and strategy into a comprehensive cook of knead measures that provides the textile for a strategical measurement and management system. The scorecard measures organizational performance across four linked perspectives financial, customer, internal business process, and chequering and growth (Kaplan and Norton, 1996).In recent years, a number of multi-national organizations assimilate introduced BSC as part of their management control systems. The purpose of this paper is to give a critical evaluation of the BSC as a performance management tool in multi-national organizations.The paper is structured as follows the next part gives both(prenominal) reasons of multi-national organizations using BSC and the advantages of using it. The second is near some limitations of using BSC and the reason why it is non suitable for some organizations. One specific example is given for both parts. The last part is the closing curtain of this paper.BSC has been widely used in multi-national organizations in the past 15 years. It obviously has some benefits to these organizations. Here are some of the advantages of BSC and they are too reasons that make so many organizations adopt BSC.Firstly, each perspective of BSC requires the identification of a number of cultures, and suitable measures. This means that BSC evoke provide strong support to the decision do of the organization. In the world which is full of competition, its very meaning(a) for an organization to identify what is most strategic. Each goal and each measure of the BSC i s closely related to the strategic target of the organization. The organization push aside make strategic decisions based on the BSC. Multi-national organizations are often very adult, they need simplified and concentrated target for the altogether organization to keep themselves competitive. Otherwise, the connection between different departments will become weak and the organization will finally fall apart.Secondly, BSC guards against sub-optimisation, so that improvement in one commonwealth is not achieved at the write off of another. Teamwork is a very important part of corporate culture. BSC combines different divisions of an organization and that enables managers to consider what different departments functions are. In traditional methods of performance evaluation, managers however focus on financial figures. This can lead to decisions that make one department improve its performance on the expense of another. This is quite important to multi-national organizations. A m ulti-national organization has many departments and one of the managers tasks is to coordinate these departments and make the most use of each department. If one department improve its performance on the expense of another, there will be serious problems for the organization.Thirdly, BSC brings together many of the different elements of a companys business and strategy into a single report. This can make decision making process more(prenominal) efficient. All of the four perspectives of BSC are key elements to the success of an organization. BSC provides a report of the combination of the four perspectives and it can save duration for managers who are making decisions. It also enables managers to minimise information overload by limiting the number of measures used. Nowadays, organizations seldom get bothered because of wishing of information, on the contrary, they often have to deal with more information than what they really need. This happens more often on multi-national orga nizations. Many multi-national organizations hire professionals as consultants and when these consultants provide suggestions, there will usually be an increase in the sources of information. This will thereby increase the pressure of dealing with information. BSC can help managers concentrate on only a few key factors, so that they can minimise information overload and make the right decision at the same time.Fourthly, BSC challenges managers to look at organizations in new ways and to talk to stakeholders about the issues which really matter. It can also inspire employees to work harder. Traditional methods of performance evaluation stress what managers demand employees do and then evaluate the result. Theyre about the control of results. BSC, on the other hand, stresses target management. It encourages employees to reach the target creatively. Top managers dont manage anything themselves. The BSC lets people who know the area best make the best decision and the task for top ma nagers is to combine all these together and ready a target for the organization as a whole. Managers dont have to look at the detailed information, they just need to set targets and make decisions for the organization as a whole. This can be quite important to multi-national organizations because they usually have departments all over the world, its impossible for top managers to look into every detail in every department and shareholders need the most important information to make decisions. So BSC turns out to be a very veracious tool for multi-national organizations.However, BSC is not suitable for every organization in the world. It also has some limitations.Firstly, BSC is to complicated for some organizations. Organizations have to increase the number and breadth of performance measures when the adopt BSC. Many organizations find it complex for evaluating business units performance because BSC has large number of performance measures across several perspectives. (Kraus, K. a nd Lind, J., 2010) If an organization wants to adopt BSC, it has to establish clear and real cause-and-effect relationships between different measures. Its much easier than done in reality, even off Kaplan and Norton admitted it (Kaplan and Norton, 1996). This process of establishing relationships may take years to complete. Therefore, many organizations find it hard to adopt BSC. And some organizations which do adopt BSC just simplify it by reduce measures and some even focus on financial measures only, just like what they do in traditional methods.Secondly, BSC may result in employees paying caution to the areas measured. Since BSC outlines what the organizations strategy and all the areas that will be measured, employees will start paying attention to these areas so that they can get naughty reward through good performance in these areas. Theyll ignore areas that wont be assessed because they wont get reward from these areas. And this can become a weak point of the organizati on. The use of BSC requires a change in the orientation of the employees. Managers have to think about customers, internal business process and learning and growth as well as financial perspective, which means managers have to know more than just financial figures. Other employees, at the same time, are also forced to look at the organizations goal instead of their own production or sales goals. This requires that all of the employees must have a higher education than they had in traditional methods.Thirdly, BSC may be too restrictive and also may not be able to cope with a fast changing business environment. The market is changing quick nowadays and it takes time to construct a BSC system in the organization. Important elements for an organization change everyday. And new elements arise everyday. Its quite possible that one element is very important when the organizations decides to adopt BSC and becomes not important at all when BSC is finally established.Fourthly, some organizat ions may face capital market pressure. Most organizations, specially multi-national organizations, raise fund from the capital market. Capital market influence managers decisions a lot. Managers know what they say and do may affect the stock price and they know that usually analysts are only interested in financial measures. This leads to organizations focus on income and revenues because this is what theyre measured on externally (Kraus, K. and Lind, J., 2010).Finally, BSC may have a high cost. BSC requires an organization to think from and set target in financial perspective, customer perspective, business process and learning and growth perspective. This require not only orphic understanding of the overall strategy of the organization, but also the separation of the strategy into different departments. The organization needs to set proper goals and measures for each department. And employees need to learn about BSC to make sure the system will work. Information of each departme nt and each perspective of the BSC needs to be collected. Establishing BSC consumes a lot of time and resources. Even established, BSC can cost a lot. It needs continuous collection of information. And there is a learning and growth perspective in BSC, which can be quite expensive. So many organizations may abandon BSC just because of the high cost.Lets take Coca-Cola, the famous multi-national company based in America, as an example. Coca-Cola Beverage attach to in Sweden (CCBS) adopts BSC in the company. CCBS took the advice of Kaplan and Norton. It decided to measure its performance from financial perspective, customers, internal business process, and learning and growth. The top managers had a three-day meeting to discuss about it. They set a long-term target for the company (about 3 years). They also described the market conditions at that time. Then they decided an overall target for the company and set measures for different systems and programs.The top managers tried to kee p each perspective of the BSC balanced. In order to do that, CCBS used a step-by-step way. First of all, the managers set some financial measures related to the overall strategy, set financial targets on these measures and then reached these targets in a proper way. The second step was to repeat the same process in the customers perspective. The question was how our customers will respond if we plan to reach our financial target. The third step was to identify the internal business process. The managers asked themselves some questions do we have enough creativity? Are we willing to change ourselves in order to make the company change in a proper way? by and by this process, CCBS was able to make sure that each perspective was balanced and all the measures would lead the company to the same direction. But they did think that it was necessary to repeat these move several times before they became totally balanced.CCBS didnt put emphasis on business plans or budgets. It didnt see BSC as something can be unchanged. On the contrary, it considered every problem in a changeable way and made modifications every year. This may be the main reason that made BSC adoption in CCBS such a success.Some other subsidiaries of Coca-Cola are also establishing BSC in recent years. However, Coca-Cola didnt ask all of its subsidiaries to adopt BSC as a tool of performance measurement. divers(prenominal) companies may have different conditions and different management. Since all the laws and economic environment in different countries are distinct and the adoption of BSC requires good management, BSC may not be suitable for some companies.Take companies in china as an example. The stock market in China is not as mature as it is in European countries. Many investors in the stock market dont have enough economic background and they usually rely on analysts. However, analysts only dole out about financial figures. This leads to some companies consider BSC as useless. And in some com panies which do use BSC, managers often ignore the real core of BSC. They usually use BSC to measure performance of employees and decide their wages only and they dont realize that BSC is actually about the companys overall strategy. So BSC is not suitable for most companies in China right now. BSC adoption needs a more mature market and managers who really understand what BSC is.In conclusion, BSC has many benefits and it can help organizations become more competitive. But it also has some limitations and it doesnt work in some countries and in some businesses. It is not suitable for every organization.