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BSC should not be used just for performance measurement of a company.
BSC is also a performance MANAGEMENT tool for modern companies.
The reason why BSC looks into 4 perspectives is because traditionally, organisations focus on financial perspective only which is insufficient as a management system. If you remember, traditional accounting system/financial information/traditional budgeting is backward looking, internal-looking, myopic, short-sightedness etc etc.
Therefore, in today’s dynamic environment, organisations are competing in a competitive and complex environment. So an accurate understanding of their goals and methods to attain the goal is CRUCIAL rather than the traditional accounting system/ sole reliance on financial information etc. Kaplan & Norton suggested that during the time of research (around mid 1990s) ,they have come up with the other 3 perspectives that an organisation should focus on as part of their management system.
The use of BSC as management process is as follow :
1) Clarifying & translating vision & strategy
Firstly, the team work together to translate the strategy into objectives. They will then clarify and agree with each other the desired objectives2) Communicating & linking strategic objectives and measures
The objectives and measures are communicated throughout the organisation to all employees at all levels of the org(strategic/managerial/operational). The communication is flowing in all directions, e.g high level strategic measures into specific measures at operational level.3) Plan, set targets and align strategic initiatives
Measures are established early to be implemented in the organisation. To achieve financial objectives, managers must identify and stretch targets for customers, internal business process, and learning & growth. This enables org to integrate strategic planning with budgeting process.4)Strategic feedback & learning
This is the most important part of the entire process where management monitors the whole implementation of scorecard is a success or not.However, BSC too has problems.
Conflicting measures , e.g an org wants to speed up business processing times and this could mean that the org needs to invest in additional equipments which may be seen as increasing costs in the financial measureSelecting measures, there can be many measures established during the implementation stage of BSC under all 4 perspectives. Kaplan & Norton suggested that only measures that add value should be selected.
Management commitment, this is normal, any changes to the system will require commitment and full cooperation of the employees/management. It applies to any other alternative of management system too, ABM,Performance Prism, Performance Pyramid, Fitzgerald & Moon building blocks, VBM.
Hope this helps. Correct me if my understanding is wrong/misleading. Im taking the P5 exam too!
@mrfaizankhan : I did pass F9 first attempt, but that was back in 2009. I have forgotten almost everything. To revise F9 and study new topics in P4 in just 3 months would be risky.
I am not sure which subject to decide.
This matter has been going through my mind for quite some time.
I can’t be that the whole world is unprepared for the P5 exam.
Passing rates before appointment of Alex Watt were above 40%.
I’m still indecisive whether to attempt P5 for the 4th time or change to P4.
Please advice!