Adoption of the Balanced Scorecard - Essay Example

?Running head: Balanced Scorecard Balanced Scorecard Insert Insert Grade Insert 12 March Balanced Scorecard Introduction The Balanced Scorecard was first developed in the early 1990s to solve organization and business measurement problems, although its use has evolved among companies into more important functionalities. Business and organizational operation environments have increasingly become complex, thus necessitating more complex applications rather than just measuring performance in this era of information. Although organizations measured their performance even before emergence of the balanced scorecard, they did not know how to implement new strategies. The balanced scorecard has evolved in its functionality to embrace translation of company strategies into action. The balance scorecard seeks to operationalize organizational strategy towards achieve desired outcomes. In this case, the balance scorecard ensures that the organization realizes its vision and mission through mobilization of resources and utilizing them in line with corporate objectives and goals, both short term and long term. Through the balanced scorecard, an organization can assess the current performance situation, as well as any feedback available from previous performance, and updating corporate strategies in such a manner that it effectively eliminates any bottlenecks available. This paper will discuss the adoption of Balanced Scorecard by contemporary organizations, and more specifically, the role of Balanced Scorecard in translating strategies to action as well as its role as a strategic management accounting technique. Translating Strategy into Action The Balanced Scorecard helps translate an organizations strategy and vision into a comprehensive set of measures and metrics to performance. This functionality puts into practice four perspectives of the Balanced Scorecard that include customer knowledge, financial measures, learning and growth, and internal organizational processes. This functionality particularly offers a balance between the company’s desired outcomes and their performance drivers, long term and short-term objectives, alongside objective outcomes. In addition, the balance scorecard has been used by managers as a revolutionary tool that enables them to mobilize their resources and strongholds to achieve the mission of the organization. The Balanced Scorecard appears as a management system that is applicable in channeling abilities, energies, advanced knowledge among its employees towards company objectives and long-term goals. The balanced score card is basically applicable in translating strategies put in place by companies into performance measures that are comprehensive to the targets and achievement needs of the organization as a whole with respects to the complex environments in which they operate (Kaplan &Norton, 1996, p.2). Use of Balanced Scorecard for Strategy translation application to action has been evident among senior executives in banking, insurance, retailing, and oil industries to streamline current performance and target their future performance needs. Strategy translation focuses on effective and efficient use of a company’s intangible assets to spearhead the long-term financial success and value creation of the company through financial and non-financial perspectives. Growth and learning regards individual employees and the entire organizational human resource alongside cross-departmental initiatives to identify efficient new processes that would enable the organizations to meet customer needs and objectives of shareholders (Holl & Bohm, 2005, p.15). The Balanced Scorecard is applicable as a learning system that is robust for testing the current situation, accessing situational feedback and updating ideal strategies fit for shortcomings of previous organizations functionality. However, strategy translation to action using the Balanced Scorecard is not completely ignorant of the steps that organizational managers use to build a tailored balanced scorecard. Rather than managing performance measurements and bottom line aspects, the Balanced Scorecard system enables companies to focus and stabilize their long-term performance with regards to the human resource, clients, internal processes, and development of new products. In specific terms, the Balanced Scorecard approach seeks to retain the company’s financial measures such as employed capital returns, economic value creation, and consequently, supplements rather than replace them with new measures. The new measures encompass customer value creation, internal processes enhancement, employee learning and training to create and enhance their capabilities, and need satisfaction for customers. A performance measure entails the translation of strategies into metrics that can be easily tracked to provide a strategy execution insight where accountability between employee and implementing officials is established throughout the company (Niven, 2006, p.60). The management system centerpiece has gone a long way to make the Balanced Scorecard resource fit for the collective comprehensive managerial ideals to complex environment in which an organization operates. This encompasses elements of seeking to gain clarity and consensus regarding strategic objectives and communicating them to business departments, operational units, teams and the entire human resource fraternity. It also seeks to align budgeting, strategic planning, and allocation of resources alongside obtaining information and relevant feedback concerning their implementations. More to providing comprehensive performance measures that a company needs to undertake with regards to the complex environment in which it operates in, the Balanced Scorecard also streamlines and defines performance measures to enable better understanding among employees for efficiency and effectiveness (Garrison, 2009, p.449). Management of corporate, government, and non-profit organizations has increasingly become complex, and thus, it compels managers to use more sophisticated approaches of measuring organizational performance and implementing strategies. Exclusively financial considerations of organization performance are no longer adequate for the present organizational needs; indeed, resource capabilities, relationships, and intangible assets increasingly determine organization prospects to success. The Balanced Scorecard has gone a long way in assisting businesses to translate their strategy plans from ideas to actions alongside achieving long-term objectives and obtaining feedback regarding strategy implementation. In general terms, the Balanced Scorecard seeks to translate and clarify an organization’s strategy and vision to communicate and link metrics with strategic objectives, to plan, set organization-wide targets, and align strategic initiatives for the organization. More so, translation basically involves conversion of strategic themes into initiatives, targets, metrics, and measures using tactical Action Plan (Person, 2008). Managerial Accounting Techniques The Balanced Scorecard as a managerial accounting technique alludes to performance measurement and translation of corporate strategies into actions with respect to financial aspects among accounts managers in collaborations to chief executives. Future organization performance measurement uses the Balance Scorecard approach as a means of linking measures of performance and translating strategy into measures and objectives that are organized into non-financial and financial perspectives. The balance scorecard managerial accounting technique is applicable in steadily implementing strategies through reflecting the degree with which goals are attained in performance measurement and compensation. However, the Balanced Scorecard has no specification with respect to the form of managerial accounting techniques that are applicable, and necessitates firms to set their targets and define measures that reveal their achievement. Strategic management accounting techniques range from financial to non-financial performances, both of which are managerial aspects that apply the use of Balanced Scorecard to enhance managerial control abilities. Managerial control abilities rely on functionalities such as trend improvement, industry and competitor averaging, target monitoring and best practice benchmarking among other managerial control functionalities. Strategic management accounting aspects seek to put in place such controls in their accounting practices to enable the organization to focus on long term goals. However, managerial accounting techniques serve as a vital driver towards achieving both the short-term control needs and the long-term aspects as communicated by strategies. In using the Balanced Scorecard as a managerial accounting technique, specific financial strategy themes are translated into operational goals, after which they are communicated and linked with specific performance needs. Organizational planning and index setting is also carried out alongside feedback applications, learning and capability enhancement, after which, strategies are adjusted accordingly (Collier & Ampomah, 2008, p.60). The Balanced Scorecard is generally divided into the scorecard and the Strategy Map, which seek to interrogate what service values need to be provided to an organization’s customers, and how strategies and resource capabilities need to be improved for better performance. On the other hand, the Balanced Scorecard shows the index of performance that represents the status of an organization’s achievement and the specific target levels of each performance aspect. The concept of Balanced Scorecard may be aligned to more simple or complex organizational environment. A simple environment example includes the use of a Balanced Scorecard for library services, where the approach perspectives include the following. These include how well the library services meet the needs its customers; how well are finances of a library are managed to achieve its financial goals; how effective the library's processes function and how to develop the organization’s human resource to meet future organizational goals. The simple environment such as the library may put in place different targets and measures for each of the Balanced Scorecard perspectives. The library’s performance will therefore be termed as successful or progressive, with further performance needs being required with regards to strategies and plans put in place. However, this is in consideration of the fact that responses to managerial decisions cannot be acquired in the short run and therefore necessitates the use of the Balanced Scorecard to give an insight performance and further needs. The management accounting system applies the use of a Balanced Scorecard as a modern accounting technique to assist the managerial functions to have an insight of the new business and operational situation in order to enable them to put in place necessary innovations to the problems (Khajavi & Nazemi, 2010, p.320). The modern corporate environment and strategic managerial aspects as well as competition in globalized markets have increasingly become complex. This has necessitated the need for application of sophisticated measurement tools to ensure that business strategies are effectively implemented. In this case, the balanced scorecard comes in handy, as it is capable of providing both financial and non-financial measurements, and communicating the organization’s performance measurements in order for the employees to understand what is required of them in streamlining the organization’s performance. The balanced scorecard can also be used as a managerial accounting technique to improve financial management of an organization, more so by linking financial measures with financial management strategies, with organizational objectives in mind. Generally, an organization seeks to maximize shareholders’ wealth, and this can only be achieved through translating specific strategic financial goals into operational goals, which thus calls for an effective strategic managerial accounting measurement and implementation techniques. The Balanced Scorecard applications have presented a wide range of strategic managerial functionalities with regards to both theoretical and real world applications, which have equally proved to be efficient and effective. However, many organizations have not benefited from the balanced scorecard due to failure to implement relevant measures and even achieve the desirable impact. Successful Balanced Scorecard strategy translation relies on a number of critical activities such as strategy dissemination, which communicates the strategy with regards to specifications in system performance. Accounting measures are also designed by core task teams to avoid behaviors that are uneconomic and poorly thought, since this would only create counter productive activities. After designing the accounting measures, they are operationalised through programming and automation. In addition to the critical activities of implementations, it is also important to get the buy-in, where skills to change strategic managerial accounting are needed to align the new needs and create the buy in. This entails all stakeholders of an organization and particularly the accounting staff accepting the new system, understanding it and aligning it with respect organizational structure and intended financial reward. According to Inform World (1999, p.77) rapid, knowledgeable, and measurable translation of managerial accounting strategies are achieved through the use of the Balanced Scorecard over and above aligning actions in line with organizational structure with regards to hidden knowledge and assets in the organization. Accounting managers generally use the Balanced Scorecard as a managerial accounting technique to improve financial management of an organization both in the long run and the short run. Different financial targets have varying complexity levels, although low-level financial goals may be achieved in the short-run unlike high target levels, which may be achieved in the long run. Executives apply the Balanced Scorecard approach to focus on all differential and varying targets as well as new targets. Managerial accounting techniques necessitate the need for financial performance measurements irrespective of the short run and long run variations. With the balanced scorecard, managers can clearly subscribe to prevailing performance and determine an organizational performance prospects, strategies, and corrective measures to be undertaken. With performance measurement information, managers can accurately disseminate duties to varying staff level in order to enhance communication and efficiency in achieving specific objectives. Measurement of financial returns and general organization financial performance go a long way in streamlining strategies and activities towards goals and mission. Managers have the mandate of translating specific strategies into tangible and practical solutions that would lead the organization towards achieving its desired financial goals with regards to shareholder needs. Managerial accounting techniques have shifted their focus and functionality on the use of Balanced Scorecard with regards to translation of specific organizational strategic accounting themes into innovative aspects of strategic management and resource utilization (Roslender & Hart, 2010, p.6). The Balanced Scorecard plays a big role as a strategic management accounting techniques that enables non-financial and financial measures to be communicated to the entire human resource. Organizational goals are achieved through strategy techniques from the top executives to the bottom line staff who implement desired and intended practices as communicate from the management level. Practicing accountants rely on strategic management accounting techniques communicated to them from the executives as decision makers regarding strategies. Performance measures with regards to strategic management are applicable at all levels of the organizations performance functionality. Success of application of the balanced scorecard approach as a strategic management accounting technique depends how well the measures are communicated to the practicing accountants and general organizational staff. However, it has been found that communication implies different levels of understanding among an organization’s staff with respect to their professionalism and capabilities. It is evident that short-term measures and strategy functionalities are understood by both the executive members and frontline employees and thus communication will go a long way in enhancing achievement of goals. On the other hand, strategic functionalities that pertain to the log run are often understood by the executives only. Organization’s long run success in this case depends on functions of the executives and how well they lead their staff towards long run goals. Conclusion The use of the Balanced Scorecard among executives and employees responsible for managerial functions enables organizations to achieve superior performance. The managerial approach enables controls systems and functions to measure the level at which organizations functional units seeks to improve their productivity. Productivity relates to creating current and future client value, enhancing capabilities of internal processes, investing in human resource ability enhancement alongside general performance improvement with respect to organizational goals. From the above discussion, it is important to note that the Balanced Scorecard plays a great role in translating corporate strategies to action through replacing the traditional measurement techniques with modern measurement techniques that allow organizations to link their strategies with desired outcomes. The Balanced Scorecard is generally use as a revolutionary tool to modern day advancements and complexities. Modern needs basically preclude multidimensional approach that incorporates non-financial and financial factors to measure and streamline corporate performance. Reference List Collier, P.M., & Agyei-Ampomah, S., 2008. CIMA Official Learning System Management Accounting Risk and Control Strategy. Elsevier Ltd. Garrison. 2009. Managerial Accounting. New Delhi: Tata McGraw-Hill Companies, Inc. Holl, R., & Bohm, S., 2005. Zero Base Budgeting Using the Balanced Scorecard. Berlin: GRIN Verlag. Inform World. 1999. Inform World. Inform World Media Group Inc. Kaplan, R.S., & Norton, D.P., 1996. The Balanced Scorecard: Translating Strategy into Action. Harvard College. Khajavi, S. & Nazemi, A. 2010. Innovation in Management Accounting: The Needs of World-Class Firms. International Journal of Academic Research, Vol. 2 Issue 5, p320-330. Niven, P.R., 2006. Balanced Scorecard Step by Step: Maximizing Performance and Maintaining Results. John Wiley & Sons. Person, R., 2008. 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