7.1.
Organizational Performance using (The Balanced Scorecard):

The
Balanced Scorecard is a philosophy and management approach first intended in
the Harvard Business Review by Robert S. Kaplan & David P. Norton (1995).
The most recent version of this theory and management approach exists in Kaplan
& Norton’s book, The Strategy-Focused Organization (Knapp, 2001).

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previously,
the majority businesses relied essentially on financial accounting measures as
the fundamental groundwork for measuring organizational performance, but currently
organizations recognize that a balanced analysis of both financial and
operational measures are considered necessary for successful organizational
control. Organizational performance defined as “the capability of an
organization to achieve its goals and objectives by optimum utiliza­tion of
resources” (Nayak & Sahoo, 2015).

Kaplan
and Norton (1996) defined the balanced scorecard “measures to interpret an
organization’s mission and strategy into an inclusive set of performance
measures that provides the structure for a strategic measurement and management
system”.  The Balanced Scorecard is
“an inclusive management control system that balances conventional financial
measures with operational measures relating to a company’s critical success
factor” (Daft, 2004, 449).

A balanced scorecard contains four key perspectives: financial
performance, customer service, internal business processes, and the
organizational potential and capabilities for learning and growth (Kaplan &
Norton, 1998). 

Within these four areas, managers
identify key performance indicator the organization will track. The Balanced
Scorecard is derived from three general management concepts: Measurement and
Goal Setting; Communication, Motivation and Human Relations; and Business
Strategy. The
balanced scorecard helps managers focus on the key strategic measures that
define the success of a particular organization over time and communicate them
clearly throughout the organization. The scorecard has become the core
management control system for many organizations today (Daft, 2004, 450).

de Barros and Wanderley (2016) stated that BSC afford four main
aspects: (1) a technique combining financial and non-financial performance
measures; (2) an organized technique into four perspectives: financial,
customers, internal processes, learning and growth (BSC categorization); (3) a
classification centered on cause-and-effect relationships between measures
linking the four perspectives; and (4) a system focusing on strategic
communications and their implementation. They propose, in their article, that
the accuracy in the way in which the BSC is adapted in an organization can be
evaluated with the four basic properties of BSC as the basis.

Natarajan and Vijayalakshmi (2016) defined Balanced Scorecard as a
performance management instrument for judging the activity of both tangible and
intangible benefits of an association. It assists management move away from
financially biased measurement to a more balanced manner that associates the
four perspectives of the organizational success: financial, customer, internal
process, learning and growth. This perspective has developed from a
multi-system performance measurement strategy to a complex management and
control system.

Balanced Scorecard is a forecasting tool and organizational
technique that is extensively used in corporations, commerce, government and
nonprofit organizations to support business activities to organizational
strategy, extend internal and external communications, and verify
organizational performance alongside strategic objectives. It was initiated by
Dr. Robert Kaplan and David Norton as a Harvard performance measurement
construction that inserted non-financial performance measures to traditional financial
measures; to provide executives and administrators a supplementary “balanced”
sight of organizational performance. While the idiom “balanced performance
card” in the early 1990s, the root of this sort of tactic is deep and
include the pioneering effort of GE on performance measurement reports in the
1950s and the efforts of French Process Engineers
(Narayanamma & Lalitha, 2016).

Narayanamma and Lalitha (2016) stated that Kaplan and Norton
illustrated the renewal in the Balanced Scorecard as: “Balanced Scorecard
still keeps traditional financial measures, but these financial metrics tell
past consequences, an appropriate story for industrial companies where
investments in long-term capabilities and customer relationships were not vital
to success, These financial measures are insufficient to conduct and appraise
the situation which companies must do to generate future significance by
investing in customers, suppliers, staffs, processes, technology and
innovation. ”

Asgari,
Haeri, and Jafari (2017) explored that Balanced Scorecard has been initially
established by Kaplan and Norton since 1992. This pattern can assess
organizational functions from different views, financial and non-financial
perspectives. They have proposed a strategic drawing to enable executives to
understand how performance in each dimension follows a hierarchical structure
where improvements in learning and growth conclude in a better internal process
and enhanced value intentions to customers, resulting in concluding financial performance.

Yancy (2017) declared that businesses retain several alternatives
for measuring and describing organizational performance, embracing
uncomplicated key performance indicators (KPIs), performance indicators, and
various business examining instruments. On the other hand, the most common
performance measurement technique in the last 2 decades has been Kaplan and
Balanced Scorecard Norton (BSC).

Measurements consist of such things as employee retention, business
process improvements and the introduction of new products. The components of
the scorecard are considered in an integrative approach so that they emphasize
one another and link short- term measures with long- term strategic goals
(Daft, 2004, 450).

7.1.1. The financial perspective:

This perspective
demonstrates an apprehension that the organization’s actions contribute to
improving short and long- term financial performance. It includes traditional
measures such as net income and return on investment (ROI) (Young, 1998).

 Financial
Perspective conveyed to organization’s profit and is measured instinctively
through return on investment, return on capital employed and economic value
added (Abran and Buglione, 2003).   

(Knapp, 2001) defined
the financial perspective as “the readily measurable economic consequences of
actions already taken”. Financial perspective also spotlights on preferential financial
consequences, such as return on investment, operating income, residual income,
inventory turnover, and revenue growth (Atkison, Kaplan & Young, 2007,
395).

 

 

7.1.2.     
Customer
perspective: 

This
perspective encloses measures that recognize the consumer and market fragments
in which the business unit will struggle and the measures of the business
unit’s performance in these targeted segments (Kaplan & Norton, 1996). 

Customer
service- viewpoint concentrates on convention customer needs, including product
design, order taking, delivery, and post-sales services. Measures for this
perspective concentrate on issues that associate to customer satisfaction, such
as: customer retention, market share, lead time, defects, and customer
complaints (Atkison, Kaplan & Young, 2007, 395).

Daft (2004,
449) showed customer service indicators measure such things as how customers
view the organization, as well as customer retention and satisfaction.

7.1.3. Internal
Business Process:

This perspective measures the vital internal processes in which the
organization must do tremendously well (Kaplan & Norton, 1996). Young (1998)
mentioned that business process indicators converge on production and operating
statistics, such as order accomplishment or cost per order.

Internal Business Process perspective showed as series of methods and
practices used inside the business to manufacture and deliver products. The
internal business process perspective identifies the significant operating,
innovation, post-sales service. Measures for this perspective deals with factors
such as: cycle time, new products, technological prerequisites, order response time, and capability exploitation (Atkison,
Kaplan & Young, 2007, 395).

7.1.4.
Learning & Growth:

This perspective measures the infrastructure that the organization must
construct to construct long-term growth and upgrading (Kaplan & Norton,
1996). Learning and growth perspective concentrates on the new strategies,
continuous improvement, employee developing and learning. Measures for this
perspective deal with factors such as: employee skills, industry leadership,
new patents, and organizational learning. The concluding component looks at the
organization’s capability for learning and growth, focusing on how well resources
human assets are being managed for the company’s future (Young, 1998).