Benefits of Introducing the Indicators-based Balanced Scorecard as Strategic Controlling Instrument for Implementation of Corporate Strategy from Four Different Perspectives

Bachelor Thesis, 2015

65 Pages, Grade: 2,1


Table of contents

List of Figures

List of Tables

List of Symbols/Abbreviations

Chapter 1 Introduction
1.1.Problem Description

Chapter 2 BSC as A Strategic Controlling Instrument
2.1.Traditional Performance Measurement Concepts as Predecessor of BSC
2.2.Comparing BSC with Traditional Performance Measurement
2.3.Controlling Instruments
2.3.1.Operational Instruments
2.3.2.Strategic instruments
2.4.Balanced Scorecard (BSC)
2.4.1.Implementation of BSC
2.4.2.Targets and tasks of BSC
2.5.The four-perspectives of BSC
2.5.3.Internal business process
2.5.4.Learning and growth
2.6.Strategic targets formulated in the four perspectives
2.7.The concept of indicators system
2.7.1.Monetary indicators
2.7.2.Non-monetary indicators

Chapter 3 Implementation of BSC in automobile industries
3.1.BSC at Daimler AG
3.2.BSC at BMW Group

Chapter 4 Analysis of using BSC
4.1.Cause-and-effect correlations
4.2.Advantages and Disadvantages of BSC
4.3.Chances and challenges of implementing BSC

Chapter 5 Conclusion

List of References

List of Figures

Figure 1 – The Four Primary Management Functions.

Figure 2 – Matrices Used in the BSC.

Figure 3 – Balanced Scorecard Strategic Perspectives

Figure 4 – The Four Perspectives of BSC Illustrated as a Process of Planting an Apple Tree.

Figure 5 – The Concept of Indicators System.

Figure 6 – Product Portfolio of Daimler AG.

Figure 7 – Five Years Summary of Non-financial and Financial Performance Indicators of BMW Group Showed in Column Charts.

List of Tables

Table 1: Five Years Summary of Daimler AG‘s Financial Report 2014.

Table 2: Five Years Summary of Non-financial Performance Indicators of BMW Group.

Table 3: Five Years Summary of Financial Performance Indicators of BMW Group.

List of Symbols/Abbreviations

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Chapter 1 Introduction

1.1. Problem Description

Nowadays, many companies should not only discuss about how to obtain profits from their products, which are successfully sold to their customers, but also they should be forced to use any other aspects that are able to give more impact for their long-term success. For examples, discussing about quality of their products, relationship between them and their customers and employees, and the production process as well as marketing. Those are the challenges for all managers who are not only struggling in achieving company’s targets - high profits but also in achieving customer, employees and stakeholders satisfaction. Schermerhorn (2011, p. 16) generally sees the role of managers in a company and stated that all managers, regardless of their titles, levels, types, and organisational settings, are responsible for the four primary management functions which are defined by Lewis, et al. (2007) as planning, organising, leading, and controlling.

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Figure 1 – The Four Primary Management Functions.

(Source: according to Lewis, et al. 2007)

a) Planning should be described that managers have tasks in setting targets and in defining actions that are necessary to achieve the targets of their companies.

b) Organizing involves determining the assignments to be done and how those assignments would be managed and coordinated to reach the company's targets.

c) Leading should be defined that managers should be able to guide, to motivate, and to lead the employees in order to effectively and efficiently achieve company’s targets.

d) Controlling requires the managers to monitor process of planning, leading and organising whether its process may be able to help reaching the targets, targets have been achieved as expected and applied strategies have been effective or not.

It is difficult for managers to accept the challenges. Therefore, managers need to seek out an approach which is able to help them finishing their tasks and involves not only one aspect but any other aspects, such as customers, shareholders, internal business processes and employees. For other aspects, Tesarovicova (2008) clarified that a higher return on the funds and an increase of the company value is expected by shareholders and owners since customers expect a higher value and quality of products. Nevertheless, the problem appears where to reconcile conflicting demands of individual interest groups are not easy. She also argued that modern approaches are needed to be applied with an emphasis on their most important assets to the management of companies. In addition, the concept of balanced scorecard (BSC) is one of modern approaches that she mentioned.

To further understand about balanced scorecard, Averson (1998) issued an argument that the balanced scorecard is not only giving an alternative to the traditional financial key figures, but also it may give a description as well as explanation of what should be measured in order to assess whether applied strategies have been effective or not.

Not only Averson (1998) has argued regarding balanced scorecard, but Kaplan and Norton (1996, p. 7) also have argued that:

"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”.

There is another opinion regarding balanced scorecard from Asefaso (2013). He argued that it enables executives to implement their strategies for real. He also stated that the balanced scorecard method gives a clear prescription as to what organisations should indicate in order to “balance” the financial perspective. Balanced scorecard itself is applied with the help of indicators system. Nevertheless, Poureisa, Ahmadgourabi and Efteghar (2013) stated that performance of indicators system has dramatically changed compared to the prior indicators. They argued that the indicator results are real when the comparisons are used between similar items. Based on traditional performance indicator method, they argued that the most significant targets of evaluation are performance indicators while modern method has focused on evaluated growth and development capacity. In other words, modern method should answer the questions. For examples, whether our customers are satisfied with our products, whether our employees have been very well treated and whether our production process has been efficient so that it increases our growth and development capacity, while the traditional performance indicators method focus on finance indicator such as Return on Investment (ROI), Return on Capital Employed (ROCE), Earnings Before Interest and Taxes (EBIT), Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Profitability, Revenue, and other indicators.

1.2. Objectives

According to Asefaso (2013), the balanced scorecard has developed from its early use as an easy performance indicator framework to a complete strategic planning as well as management system. It provides a framework that is not only provides performance indicators, but also gives a help for the planners to recognise what should be done and measured. Due to a complete tool for manager to navigate the successful of the company, BSC would be thoroughly reviewed through some examples of two German companies. The targets of this thesis are answering questions, for examples:

- Whether BSC may help managers to achieve the challenges which are described in the problem description.
- Whether it is true that BSC as strategic controlling instrument should be defined as a complete method which should increase performance of a company through its four different perspectives.
- Whether the positive impact of BSC usage may be clearly seen on the financial statement of company.
- Whether each company should pass the four different perspectives in implementing of BSC.

1.3. Structure

The main topic of this thesis is balanced scorecard. However, it would be more specifically explained about the benefits of introducing the indicators-based balanced scorecard as a strategic controlling instrument for implementation of corporate strategy from four different perspectives. Before the conclusion, this thesis would be started from chapter 1 which is an introduction which would involve the problem description, the targets and the structure of this thesis. In this section, the challenges for the managers to manage their primary tasks and to achieve company goals linked to other aspects are introduced. Thus, chapter 1 contains problems which should be solved in the next chapter.

Chapter 2 would explain the theories about BSC as a strategic controlling instrument. It would also introduce the concept of BSC to solve the problems which are previously described in chapter 1. In addition, how BSC appeared, what is BSC, how to use BSC, what the four-perspectives of BSC are and how the concept of indicators system in BSC works would be more clearly explained so that reader and especially managers should well understand. All these explanations would be used in chapter 4 to analyse how cause-and-effect correlations of implementing BSC in two German automobile industries so that the reader may evaluate whether BSC is a good strategic controlling instrument which may give benefits for these two German companies if BSC is applied.

Next, chapter 3 would present two examples of German automobile industries which had been implementing the concept of BSC in their companies and directly or indirectly stated that the concept of BSC had been properly applied in their strategy in achieving their objectives. Then, the facts shows BSC giving them more benefits in their company strategies would be shown with their financial reports for five years period so that it should clearly emphasis that this concept would deliver positive impacts especially for their financial reports.

In chapter 4, the analysis of using BSC is presented along with exploring out the cause-and-effect correlations from the result of implementing BSC in two German companies. Then, the analysis result of exploring out the advantages and disadvantages, which would probably happened, when this concept of BSC was applied or when BSC would be still applied in the future, would be carried out and shown. Furthermore, examining the chances and challenges of implementing BSC are two important themes since it shows the challenge for the managers if these are applied.

Finally, chapter 5 concludes and summarises this thesis

Chapter 2 BSC as A Strategic Controlling Instrument

2.1. Traditional Performance Measurement Concepts as Predecessor of BSC

According to Schmeisser, et al. (2011) the traditional concepts for the evaluation of corporate performance development are primarily focussed on monetary planning and controlling calculations which are able to express the company occurrences and gives effects on the company's profit. Furthermore, Schmeisser et al (2011) argued that the traditional performance measurement concepts (e.g., DuPont system, ZVEI-Ratio, Profit-Liquidity-ratio system) have a target to show the capacity and value flows within the company that deliver basic information for corporate management. They classified these concepts into three systems, as follows:

a) DuPont system:
- The oldest and most well-known ratio system.
- Developed by the American Chemical Corporation E.I. DuPont de Nemours and Company in 1919.
- Illustrated as the pyramid which is Return on Investment (ROI) may be found on the top and may be the most important company goal because the key figure ROI is mathematically and practically broken down in its components in accordance with the annual report in statement of financial position and the profit and loss statement.

b) ZVEI-ratio system:
- Developed by the Zentralverband der elektronischen Industrie (ZVEI) based on the DuPont ratio system in 1969.
- Used as an analytical actual instrument and as a planning instrument for corporate management.
- Involves the growth analysis (with four areas: sales activities, result, capital commitment, and value creation/occupation - with nine absolute indicators: sales, sales related result, period result, cash flow, inventories, fixed assets) and the structural analysis, which is the core of the ZVEI-ratio system, reviews the efficiency of a company.
- Consists of 210 indicators, of which 88 ratios are used most of the time. Most of the indicators are financial ratios, while non-financial ratios such as employee turnover or headcount are not often applied.
- Uses above all data from the financial statement, but does not fully renounce the use of indicators from cost and activity accounting.

c) Profit-Liquidity-ratio system:
- A multidimensional and operated more than the pure profit reasoning.
- Consist of a general part and a special part.
- The general part includes liquidity indicators such as CF, current surplus revenue, surplus scheduled and working capital) and a profit part (indicators: annual profit and deficit, ROA, ROI, rate of capital turnover, sales return, etc.)
- The special part involves indicators that are needed to complete the indicators of the general part which is appropriate with the individual company in dependence of the sector.

Furthermore, Schmeisser, et al. (2011) criticised that traditional Performance measurement concept using financial ratios, have many weaknesses since the historical data from accounting financial ratios only assess the current situation so that the future relevant actions and decisions of the management, e.g., innovations, quality and customer's satisfaction, may not be measured by financial ratios. In other words, traditional performance measurement systems may not be used to estimate long term success potentials of a company.

2.2. Comparing BSC with Traditional Performance Measurement

Based on Schmeisser, et al. (2011), traditional finance oriented for performance measurement instruments are not appropriate to the actual demands of the market because traditional finance oriented performance measurement instruments are only restricted to finance related targets so that they may be compared with modern, multidimensional, future oriented instruments for performance measurement which are not limited to measuring monetary targets only but also consider non-monetary, however, quantitative goals. The concept of BSC should be considered as multidimensional instrument which is described above.

In 2013, Lohrmann and Reichert stated to emphasise argument of Schmeisser, et al. (2011) after they compared BSC approach with traditional performance measurement concepts and stated that the concept of BSC recognises the financials as backwards-oriented and does not provide clarity on an organisation's future perspectives. Furthermore, organisational targets are often contradictory. For example, when its targets are maximising cash flow, it would be in contrast with the need for investment. Due to this reason the concept of BSC measures and controls organisational performance based on multiple perspectives. However, the concept of BSC does not only focus on one single perspective. It would try bringing the organisational goals to be addressed through its multiple dimensions. In other words, the organisational targets are combined into four perspectives (Financial, Customer, Innovation & Learning and Internal Business).

2.3. Controlling Instruments

2.3.1. Operational Instruments

Erichsen (2011, p. 9) defined operative instruments as a tool for an organisation to achieve its targets (e.g., profit and liquidity) based on short-term period (i.g., timeframe of one to two years) in order to ensure and to increase the profitability and efficiency of producing and selling its products. To achieve these targets, variety of controlling instruments is provided for management and managers (executives).

The critical point of the operational work of a controller (i.g., accountant) consists of planning; monitoring; controlling and the controller should be in cooperation and coordination with the executive employees of a company. Accordingly, instruments, such as operational planning, liquidity planning or calculation as well as instruments, such as discount analysis or project management, belong to tools which are used by operational controller. By these tools, management and managers may be regularly and promptly informed about the most important development which happens in company. He also characterises that operational controlling is always oriented with detailed figures, for example, turnovers in total, customer sales, product turnovers and cost data, for material and personnel or cost centre.

Then, we would be given the question, what actually the role of operational controlling are when it is confronted with strategic controlling which is only concerned with the question, how to efficiently and effectively exploit our new resources and provide additional resources?. Erichsen (2011, p. 9) argued that operational controlling is ideally arranging long-term targets and strategies then implementing them in daily business.

Erichsen (2011, pp. 9-195) named the following selection of operational controlling instruments may be used to help achieving the short-term targets, as follows: the ABC analysis, order-size analysis, reporting, break-even Analysis, product profitability calculation, bottleneck analysis, investment appraisal methods, liquidity planning, operational planning, project controlling, discount analysis, sales territory analysis and XYZ-Analysis.

2.3.2. Strategic instruments

Compared with operational controlling, strategic controlling applies different tools to lead a company to achieve its long-term targets. According to Erichsen (2011, p. 199), strategic controlling discusses about securing the existence of the company. It should be checked whether and where there are new potentials and opportunities for a company to achieve its targets.

In addition, he also stated that in topic of strategic controlling, it is necessary to recognise risk and how to prevent it. In other words, strategic controlling is considered for long-terms goals containing with risks and people working in controlling should be able to foresee effects which may happen and to prevent them so that it may give a positive impact for company and help managers to determine which strategies should be applied for company's success in attaining strategic targets and tasks.

Based on Erichsen (2011, p. 199), strategic targets and tasks of a company involve, as follows:

- Product development: for example, it should be considered to develop the product in order to be able to comply with dynamic customer expectation.
- Development of new markets and customers: for example, it may be tried to enter into global market after a company has successfully dominated local market so that it may give more challenges to recognise new customers with different request.
- Improvement in productivity: for example, in producing 200.000 cars per annum a company may discuss how to produce more than the initial plan with implementing the most sophisticated technologies in production.
- Process improvement and organisational changes: for example, to satisfy the customer request, companies need to review their production, sales, marketing process whether it has given benefits for customer or not.
- Reduction in cost: for example, reducing irrelevant costs may increase profit of company.
- Risk analysis and prevention: for example, as it has been described above.

Strategic controlling is reviewed for period of about one to five years in the future and is not commonly operated with detailed figures (e.g., turnovers or liquidity), but it provides analysis which is able to give informative, precise and explicit statement that may help managers in taking action for the further development of the company.

Although operational controlling and strategic controlling have different targets, they should be capable to work together and need to synchronise their targets in their daily work. For instance, when a company want to try entering new market with pointing the target of turnovers which increases 20% (for example, from 200 million Euro to 240 million Euro) in five years, a manager may inform its employees to observe the market first and especially to know what market wants and which products would be appropriate with that market. Then, the employees may implement that observation. For instance, they try producing and selling more than usual so that it may increase sales every year and achieve the target. In this part, operational controlling has tasks, for example, to plan which strategy should be applied, to control annually the turnovers whether has reached the target or not, to monitor its employees and company’s development.

According to Erichsen (2011, pp. 199-389), instruments which may be used in strategic controlling to achieve the long-term goals of company and to deliver guidelines for daily operational business, are, as follows: Balanced Scorecard, Benchmarking, competitor analysis, Life-Cycle Costing, Portfolio-Analysis, potential analysis, risk controlling, strategic gap analysis, SWOT-Analysis and target costs management.

This bachelor thesis would only focus on the one strategic controlling instrument which is balanced scorecard. It would be completely explained and started from following chapter.

2.4. Balanced Scorecard (BSC)

Disselkamp & Schüller (2004) stated that in the early 1990s, the concept of balanced scorecard was developed by Robert S. Kaplan and David P. Norton who had closed cooperation with twelve American companies. Then, Lehr (2010) argued that the concept of balanced scorecard was introduced by Kaplan and Norton for the first time in 1992 in the journal of “Harvard Business Review”.

Nowadays, BSC has been familiar for people who are working as a manager, a controller, and an accountant. This concept provides simplicity for managers through its concept which is multidimensional. Kaplan & Norton (1996, p. 2) argued that:

"The Balanced Scorecard (BSC) provides managers with the instrumentation they need to navigate to future competitive success. Today, organizations are competing in complex environments so that an accurate understanding of their goals and the methods for attaining those goals is vital". Additionally, "The scorecard measures organizational performance across four balanced perspectives: financial, customers, internal business processes, and learning and growth. The BSC enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth".

Taguchi, Kaneko and Tabe (2009, p. 164) argued that balances in the BSC may be indicated into the balance between short-term and long-term objectives, the balance between the past, present and future, the balance between financial and non-financial perspectives, and the balance between internal and external perspectives. This argument stresses that BSC is a complete strategic controlling tool that should be implemented in a company and may be trusted to bring other perspectives for a company.

Based on Kaplan & Norton (1996), the manager has role as a pilot, the company is represented as an airplane and the cockpit is assumed as a tool for manager which is BSC steering where the company would be brought and where to bring the company to reach the intended objectives. They assumed that in the cockpit, there are a lot of devices founded to navigate the airplane. Furthermore, through the cockpit the manager may navigate not only one factor (for example, wind) but also there are many factors (for instance, temperature, speed, etc.) which are also necessary to be monitored to bring the journey towards excellent future results. Kaplan & Norton’s argument is added by Poureisa, Ahmadgourabi and Efteghar (2013) who agreed that this concept should be very helpful and appropriate for the top manager.

2.4.1. Implementation of BSC

According to Savkin (2011, p. 20), the company works usually with the strategy which is made by CEO or top-management. CEO makes a specific business strategy and then determines the particular targets to the lower level employees. The lower level managers convert the global strategic targets into specific business works that are necessary to be finished in order to achieve the strategic goal. In the end, these specific works are explained to the low level employee to be executed. In this part, the concept of BSC may be used as systematic approach which may translate the global target to the end-level employee. As a result, the idea of CEO may be easily understood on each level. From this point of view, it may be argued that BSC has an ability to explain the strategy to employees on each level and it is possible to be used to explain the strategy due to his opinion that BSC contains some indicators which would be connected to the company's main goals.

Furthermore, Weber and Schäffer (2008, p. 149) stated that the concept of balanced scorecard may be applied as a measurement system and then it may be used as a tool to connect company’s strategy with its operations. In other words, when a manager has had a strategy for the company then the manager may insert BSC into its strategy in order to help a manager implement its strategy or take action. They also argued that this concept is reliable to connect between strategies with its operations.

The PEA in 1998 has also characterised the "Balanced Scorecard" approach as their chosen approach for deploying strategic direction, communicating expectations, and measuring progress towards agreed-to objectives.

According to PEA (1998, pp. 15-16), in the concept of BSC it is necessary to create vision, mission statement, and strategy for the company in order to ensure that the performance measures may be developed in each perspective to support in achieving the company's strategic targets and it also helps employees visualise and understand the connection between the performance measures and successful accomplishment of strategic targets.

Furthermore, PEA (1998, pp. 15-16) argued that it is necessary to identify what the company should do well (i.e., the performance objectives) in order to achieve the vision which has been targeted. For each objective, it is important to know the measures and to arrange goals relating to a reasonable period of time (for example, three to five years). It does not sound complex, however many variables have impact how long this exercise would take. For instance, how many employees that a company has and how many of them who are involved in setting the vision, mission, measures, and goals. BSC may be implemented to translate a company's vision into a set of performance objectives related in four perspectives of BSC: Financial, Customer, Internal Business Process, and Learning and Growth.

PEA (1998, pp. 15-16) explained that:

"Some objectives are maintained to measure an organization's progress toward achieving its vision. Other objectives are maintained to measure the long term drivers of success. Through the use of the BSC, an organization monitors both its current performance (financial, customer satisfaction, and business process results) and its efforts to improve processes, motivate and educate employees, and enhance information systems - its ability to learn and improve."

Figure 2 below provides matrices applied in the concept of BSC. It may help managers to develop their objectives and measures. The matrices may be easily understood, but PEA (1998, pp. 15-16) argued that developing the contents of each matrix was not easy.

When creating performance measures, PEA (1998, pp. 15-16) recommended to ensure that performance measures should be connected to the strategic vision of the company and the measurement should concentrate on the results necessary to reach the company vision and the objectives of the strategic plan. Each objective within a perspective needs to be supported by at least one measurement indicating a company's performance against that objective. If a measure is executable and plausible, then its implementation should be supported.

PEA (1998, pp. 15-16) argued that:

"When developing measures, it is important to include a mix of quantitative and qualitative measures. Quantitative measures provide more objectivity than qualitative measures. They may help to justify critical management decisions on resource allocation (e.g., budget and staffing) or systems improvement".

A manager should first identify any available quantitative data and review how it may support the objectives and measures incorporated in the BSC.

PEA (1998, pp. 15-16) defined qualitative measures as the matters of perception and it tends to be subjective. Furthermore, it is important to care with judgements based on the experience of customers, employees, managers and contractors since they provide important insights into acquisition performance and outcomes.

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Figure 2 – Matrices Used in the BSC.

Source: Procurement Executives' Association (1998, p. 18)

In their website, (n.d.) stated that a completed BSC would become the focus of company alteration. People's goals, investments, and activities should all be connected to the objectives and the measurement of the scorecard. Because of that, it is important that this scorecard should be accurately designed to reflect the corporate strategy. According to (n.d.), a good Balanced Scorecard is designed with three principles that connect the measures to strategy:

1. Cause-and-Effect Relationships: A strategy containing with cause and effect. A properly designed scorecard may tell the story of the business unit's strategy through a series of cause-and-effect relationships. The measurement system should be explicitly related to objectives so that they may be arranged and validated. Every selected BSC's objective should become a part of a chain of cause-and-effect relationships that communicates about what the business unit's strategy means to the company.

2. Outcomes and Performance Drivers: All Balanced Scorecards apply some certain universal measures. These universal measures (i.e., market share, profitability, and customer satisfaction) are result-oriented measurement describing goals common across many strategies and industries. The performance indicators or the lead indicators are unique since they are used for a particular strategy. A good Balanced Scorecard consists of an appropriate mix of results (lagging indicators) and performance indicators (leading indicators) which have been adjusted to the business unit's strategy.

3. Connection to Financials: According to SAP (n.d.), it is not hard anymore to achieve our targets (quality, customer satisfaction, innovation, and the like) because of the proliferation of change programs under way in most companies today and a Balanced Scorecard should stay on results, especially financial ones. Finally, causal paths from all the measures on a scorecard should be connected to financial objectives.

SAP is a German multinational software company who developed a program related to the concept of Balanced Scorecard called SAP's Balanced Scorecard solution which is fully integrated into the SAP Strategic Enterprise Management (SEM) and fully supports these capabilities. It supports the development and maintenance process of a Balanced Scorecard.

After we have heard more about implementation of BSC above, Kaplan & Norton (1993) as the founding father of BSC concept impressed that the balanced scorecard is not a template that may be applied to businesses in general or industry-wide. Different market situations, product strategies, and competitive environments require different scorecards. Business units devise customised scorecards to fit their mission, strategy, technology, and culture.

2.4.2. Targets and tasks of BSC (n.d.) stated:

"Using the Balanced Scorecard, corporate executives can now measure how their business units create value for current and future customers. They can also learn what investments in people, systems, and procedures are necessary to improve future performance. While retaining an interest in financial performance, the Balanced Scorecard clearly reveals the drivers of superior, long-term value and competitive performance. The Balanced Scorecard tells the story of the strategy".

“The scorecard should tell the story of the strategy, starting with the long-run financial objectives, and then linking them to the sequence of actions that must be taken with financial processes, customers, internal processes, and finally employees and systems to deliver the desired long-run economic performance.“ (Kaplan & Norton, 1996, p. 47)

In an article of Harvard Business Review written by Kaplan and Norton (1993), Larry D. Brady stated that the concept of balanced scorecard translates business unit strategies into a measurement system that connects with entire system of management.

Hirt (2015, pp. 251-252) argued that Balanced Scorecard as a very helpful instrument may forward a corporate vision to the operational actions. In other words, BSC enable each employee to indicate what employee should do to achieve corporate targets which are clearly constructed with the additional information of its indicators and then these targets are transformed to be a tangible action. Implementation of BSC in company is needed a certain openness and transparency in relation to all hierarchical levels in company. Furthermore, before starting implementation of BSC, it should be reviewed in order to make this instrument harmonised with its corporate culture. Recall what Kaplan and Norton (1998) has argued that implementation of balanced scorecard depends on its business, because different market situations, product strategies, and competitive environments require different scorecards.

Departed from explanations of each author above, it may be pulled a conclusion about targets and tasks of BSC are measuring of business units, telling story of strategy and connecting the long-term financial objectives to actions in order to help company in easily achieving its vision and its mission.

2.5. The four-perspectives of BSC

Abbildung in dieser Leseprobe nicht enthalten

Figure 3 – Balanced Scorecard Strategic Perspectives

Source: Procurement Executives' Association (1998, p. 8)

According to Sherwood, Clark and Lynas (2005, p. 83), the four perspectives of BSC are started from "The trust of Kaplan and Norton's thesis that traditional financial measures such as return on investment or earnings per share are good only for reporting results and that these metrics are not very useful in helping to make the effective strategic decisions that lead to the results", so that it enables to launch other three perspectives as seen above in figure 3.

Mooraj, Oyon and Hostettler (1999, p. 482) stated that the original BSC is designed to identify four perspectives which are the financial perspective, the customer perspective, the internal-business-process perspective, and the learning and growth perspective so that its perspectives represent three of the main stakeholders of the business (i.g., shareholders, customers and employees), thereby, they are ensuring that an entire view of the company is applied for strategic reflection and implementation. However, it is important to know that the chosen perspectives (no matter how many are chosen to be necessary) and the measure are consistent with the corporate strategy.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4 – The Four Perspectives of BSC Illustrated as a Process of Planting an Apple Tree.

Source: (2008).

From the figure 4, the four perspectives of BSC may be explained in a process of planting an apple tree when a manager which may be illustrated as a gardener tries planting an apple tree. His final target that he wants to achieve is obtaining the best fruits from his apple tree and this target represents a financial perspective or financial results. To achieve his target, it would be needed to take care of his apple tree. Starting from providing the best quality of compost, feeding them with fertilisers and water which are these fundamental processes described as providing training programmes that support business process illustrated as trunk and branches which are continuously growing and followed by arising of leaves. The growth of this apple tree is then followed with emergence of apple fruits through processes of photosynthesis which may represent a customer satisfaction.

Because of that the necessary connections through all four scorecard perspectives are needed to settle the financial themes of increasing revenues, improving cost and productivity, enhancing asset utilisation, and reducing risk (Kaplan & Norton, 1996, p. 47).

2.5.1. Financial

According to Mooraj, Oyon and Hostettler (1999, p. 482), the financial perspective reflects the long-term objectives of the company. The chosen measures would represent the relevant level in the product or service life-cycle and are outlined by Kaplan and Norton in 1996 as rapid growth, sustain and harvest.

- Financial objectives for the growth level would be mostly represented by sales volumes, existing and new customer relationships and process development.
- The sustain level would be based on measures analysing ROI, for instance: ROCE, discounted cash flow and EVA.
- The harvest level would be represented by analysing cash flow with measures (e.g., payback periods and revenue volume).

Schmeisser, et al. (2011, pp. 35-36) added the Balanced Scorecard as a multi-target-oriented method integrating the value of the management through the financial perspective. Moreover, in financial perspective, a company usually tends to discuss how to fulfil the financial expectations of the shareholders and it would be poured into company targets. Because of that, it is necessary to fulfil the goals of the shareholders such as profit and growth purposes and all strategies, programs and initiatives are focused towards the achievement of the long-term company purpose, the generation of financial profits for the investors. Furthermore, the financial perspective is defined as final objective and it is connected to the customer, internal process and learning and development perspective through cause-and-effect relations.


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Benefits of Introducing the Indicators-based Balanced Scorecard as Strategic Controlling Instrument for Implementation of Corporate Strategy from Four Different Perspectives
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Christoper Dewangga Pramudita (Author), 2015, Benefits of Introducing the Indicators-based Balanced Scorecard as Strategic Controlling Instrument for Implementation of Corporate Strategy from Four Different Perspectives, Munich, GRIN Verlag,


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