Balanced Scorecard - the Pros and the Cons of BSC
Balanced Scorecard includes financial, customer, internal perspectives and "learn and innovate". Balanced Scorecard (BSC) offers a straightforward method of linking collected metrics to stated company goals. There are advantages and disadvantages of using the Balanced Scorecard to define business goals.
Advantages of Balanced Scorecard
- Balanced Scorecard presents organizational goals in a single page chart broken down into relatable areas.
- Balanced Scorecard allows companies to bridge the gap between mission statement or over-arching goals and how day to day activities support the company's mission or objectives. A BSC goal of pleasing the customer can be tied to improving technical support performance according to the Service Level Agreement or exceeding the SLA.
- BSC raises innovation and process improvement methods such as six sigma and lean manufacturing to a corporate goal. It also ensures that voice of the customer is equally important.
- Balanced Scorecard does not exclude other methods of business reporting or process improvement. Six sigma projects naturally fall under the "learn and innovate" section. Financial standards like Sarbanes Oxley are simply used by the financial department when meeting financial scorecard goals or implemented by the financial department to meet a financial scorecard goal.
- Balanced Scorecards can provide a visual means of demonstrating how different goals are related. Increased sales improve the profit or sales goals under the financial section. Improved customer service meets the “voice of the customer” goal.
- Balanced Scorecards are straightforward enough to be used by many managers after gaining familiarity with the concept. Advanced training isn’t required to implement a simple version of BSC.
Disadvantages of Balanced Scorecard
- Balanced Scorecard performance is subjective. Unlike quality levels, it cannot be quantified except by surveys or management opinion. Mandating a specific number of training hours per year to meet an “learn and innovate” doesn’t necessarily mean all employees take courses that help them in their jobs or that attending classes to fill in the quota is better than working on the assembly line. Demanding high employee morale can hurt managers, since morale is not always a manager’s purview. Setting a goal of high morale along with lay offs to save money is counter-productive.
- Balanced Scorecard does not include direct financial analysis of economic value or risk management. Goal selection under Balanced Scorecard does not automatically include opportunity cost calculations.
- Because Balanced Scorecard can add a new type of reporting without necessarily improving quality or financial numbers, it can seem to be an additional set of non-value-added reporting or, worse, a distraction from achieving actual goals.
- Overly abstract Balanced Scorecard goals are easy to reach but hard to quantify.
- When a company is failing to meet its Balanced Scorecard goals, the goals may be re-interpreted to the current state of affairs to meet success or avoid failure. Altering the acceptance criteria for a good balanced scorecard is easier than altering the acceptance criteria for mechanical parts and hence the reject rate.