The Concept of the Balanced Scorecard - Essay Example

Kaplan and Norton describe the innovation of the balanced scorecard as follows: “The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial-age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.” (Kaplan, Norton, 1996). So, the process of Balance Scorecard planning helps to identify specific procedures and processes required at different levels of the organization. The organization's strategic, tactical, and operational goals and plans must be con­sistent and mutually supportive.

There are four primary cells in the Balance Scorecard: financial, customer, process, and people/learning. In each cell, the company should identify the key drivers that help translate strategic goals into operational accounting issues. Each of those goals would also have a set of metrics. For example, under customer met­rics, a company might look at growth rate.

(b) Using the balanced scorecard system allows the food retailer industry to measure success in fulfilling its vision by cus­tomer satisfaction, team member excellence, return on capital investment, improvement in the state of the environment, and local and larger community support. In this very case, the balanced scorecard will help to link strategic and operational planning in the food retailer industry (Kaplan, Norton, 1996). The financial information needed for a balanced scorecard approach includes market value, annual profits, stock appreciation, etc. From the customer perspective, the company will need data for annual expansion, brand expansion, identification of the target customers and their needs, etc. The business process perspective needs information about retail skills and customer service, empowerment, market situation, etc.

In the food retailer industry, all cash-flow calculations are made based on the estimated useful life of the investment, which is defined as the time interval that is expected to elapse between the time of acquisition or commencement and the time at which the combined forces of obsolescence and deterioration will justify the retirement of the asset or project. The useful life of the investment may be shortened by market changes which will diminish its earnings. For Revenue Growth, the previous year's performance is reviewed, and strategies are updated. Each business unit is asked to develop a position on each issue as a prelude to strategic planning. As for the return on equity, it will show how much profit a company generates with the money shareholders have invested in the company. Using the balanced scorecard will help to identify cross-business issues that are used to revise the strategic plan. In general, all the balance scorecard accounting measures must be about keeping the score and motivating management and the firm to do better.