Benefits of the BSC
According to Kaplan and Norton, the main proponents of BSC has widespread beneficial values upon implementation of BSC for corporations (Kaplan, R. S., and Norton, D. P.,1992; Kaplan, R. S., and Norton, D. P.,2002). During the initial inception of the BSC, the fundamental benefits were assisting corporations in development and implementation of effective business strategies (Kaplan, R. S., and Norton, D. P.,1992). Madsen and Stenheim further that regardless of the a significant body of scholarship condemning or remaining sceptical of the BSC clear-cut association between BSC and corporation performance, widespread utilisation of the framework portrays that there are certain advantageous values. Whether this may be regarded as perceived or real, thousands of corporations have executed it.
Kaplan and Norton assert that BSC benefits are resultant of overcoming the inadequacies of the traditional financial-based performance measurement tools. “The traditional performance measurement methods such as the return on investment, net present value, internal rate of return, and payback period focused exclusively on financial metrics” (Kaplan, R. S., and Norton, D. P.,1992; Kaplan, R. S., and Norton, D. P.,2002). Firstly, financial metrics took into account historic measurements of performance, with these conclusions informing upon future business strategies. Thus, historic performance doesn’t account for variations in dynamics of business environment, alongside the risks corporations lose out upon from potentially lucrative transpiring prospects. Therefore, just based on financial metrics, senior management would find difficulties in evaluating the organisations performance, whereby, performance of organisation may deteriorate as a result of inability to account for changing nature of business environment, thus, not being adaptable. Hence, the 3 additional metrics of BSC enables critical evaluation for senior management, alongside incorporating a strategy map, which enables for enhancing building and communication strategy, based upon the cause-and-effect affiliations amongst different strategic objectives. Thus, “Second, financial measures are periodic performance measures since they are quarterly, semi-annual, or annual performance measures. Periodic measures means an organisation has to wait for a certain period to elapse to evaluate or to develop strategies to improve performance. Since the current business environment (including budgets and their roles) changes from time to time, periodic measures become less effective in evaluating and remedying performance”(Kaplan, R. S., and Norton, D. P.,1992; Kaplan, R. S., and Norton, D. P.,2002). Thus, overcoming these two pertinent inadequacies enables senior management to analyse and evaluate performance of organisation with three additional performance metrics, looking upon the past, present and future performance.
Conceptual and practice limitations
“The persistence of problems encountered during implementation, high rates of implementation failure and considerable variations in both interpretation and practice of the BSC demonstrates serious limitations in concept and in practice” (Pessanha, D. S., and Prochnik, V.(2006). “It is expected at the second decade since conception, the concept of the BSC would have matured and its application easily replicated across organisations, which is not the case” (Parmenter, D.(2012). Thus, regardless of 3 conceptual revision upon the framework alongside 3 generations of BSC, there still remains considerable levels of criticism regarding the concept and application. Therefore, analysis and evaluation of the limitations of BSC in concept and in practice will occur, established from conclusions derived from prevailing studies on the BSC.
Based on the conceptual level, Kraaijenbrink (2012), disparages Kaplan and Norton regarding the dishonesty of possessing a concept in which Analog Devices had established beforehand. Moreover, Kraaijenbrink (2012) postulates BSC is more appropriate regarding engineering firms, rather than industry types, particularly service industries. For instance, internal process perspective may not be pertinent for utilisation by a consulting firm, however, assertions of BSC illustrate that all 4 performance metrics are important. According to practitioner-oriented literature, suggestions portray “that the BSC improves strategy awareness, communication, execution and achievement”, which Kraaijenbrink opposes (Kraaijenbrink, 2012). This is due to Kraaijenbrink (2012), notwithstanding the affluential results of the BSC, associating them to other elements, “such as increased attention to strategy that the BSC influences rather than the to the BSC itself” (Kraaijenbrink, 2012).
Regarding the development of BSC and the definitions of performance measures, criticism incurs from Parmenter (2012). The criticism faults Casey, Peck (2004) observation that BSC transforms strategy into tangible performance measures by arguing that, the BSC does not define Key Performance Indicators adequately, hence hampers identification. The disparagement compares BSC KPIs to Winning KPIs methodology, and concludes that accountabilities regarding the stance of BSC conceptualisation upon performance measures. Based on the Winnings KPIs, these denote primary purpose of performance measures is to postulate assistance for managers to put emphasis upon critical success factors. However, BSC perceives principle functionality of performance measures is to examine and to assess the performance of strategies. “Moreover, the BSC does not indicate critical success factors nor defines them” (Parmenter, D.,2012). Due to critical success factors being pinnacle in attaining KPIs, the BSC doesn’t contribute towards identification of KPIs for managers. Thus, senior management will find difficulties in evaluating the performance of their organisation, due to BSC not providing assistance upon identification of KPIs. Thus, providing inaccurate depiction of performance when BSC has been implemented. “The Winning KPIs suggests KPIs should be non-financial, but support financial indicators, and should be less than 10, but the BSC conceptualises all KPIs including financial ones as performance indicators, which could be more than ten creating challenges in implementation” (Parmenter, D.,2012).