BSC and Strategic Decision Making 1

BALANCED SCORE CARD AND STRATEGIC DECISION MAKING

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 BSC and Strategic Decision Making 2

Question 1: Balanced Score Card and Strategic Decision Making

Introduction

Firms dedicate considerable resources, both financial and intellectual, to the intricate

processes of gathering, processing, storing, and disseminating information to facilitate strategic

decision-making. Regrettably, despite these endeavors aimed at enhancing strategic decision-

making companies have made detrimental choices resulting in substantial losses. The Balanced

Scorecard (BSC) presents itself as a practical resolution for assessing a company's performance

by reshaping the organization's vision and strategy into a multifaceted array of performance

metrics. In the early 1990s, Robert Kaplan and David Norton unveiled this groundbreaking

notion, signifying a pivotal advancement in the realm of strategic management (Kaplan and

Norton, 1992). The BSC integrates financial and non-financial metrics into four pivotal

perspectives: financial, customer, internal processes, and learning. This essay embarks on a

comprehensive exploration, delving into the BSC's theoretical foundations, its role in the realm

of strategic management, its contributions to informed strategic decision-making, and an

evaluation of its strengths and limitations. This essay critically evaluates how the balanced

scorecard is used to assist companies in making better strategic decisions.

Theoretical Foundations of BSC

In earlier times, businesses hinged their operations on conventional accounting and

management methodologies which often led to misguided choices. After Robert Kaplan and

David Norton introduced BSC, the framework received a lot of praise as it solved this problem

and has been used by various top companies worldwide. Volkswagen is one of the top global

companies that has implemented BSC in its decision-making, which has helped it overcome

previous losses and declines in the market (Kaplan and Pinho, 2010). Robert Kaplan and David
 BSC and Strategic Decision Making 3

Norton developed the framework to offer a more accurate and comprehensive perspective of

organizational performance. They noted that depending simply on financial indicators might be

unwise since they were insufficient at capturing the important non-financial factors that

determine an organization's performance.

Apart from the historical perspective, it is also essential to discuss the key concepts of the

BSC. The BSC is based on four key perspectives: the financial perspective, the customer

perspective, the internal process perspective, and the learning and growth perspective. Figure 1

below shows the relationships between these perspectives.

Figure 1: Balance scorecard (Lawrie and Cobbold, 2004).

The BSC’s financial perspective emphasizes conventional financial performance

measures like revenue, profitability, and return on investment. This framework achieves the

company’s goals by managing various risks and satisfying the desires of shareholders, suppliers,
 BSC and Strategic Decision Making 4

and customers (Corporate Finance Institute, 2022). This viewpoint ensures that the company's

strategic goals coincide with its financial performance and address the interests of shareholders.

The customer perspective investigates how consumers view the company. It aims to

answer questions like: Do we live up to consumer expectations? What do consumers think of our

goods and services? According to the Corporate Finance Institute (2022), BSC helps

organizations learn about their competitive positioning and long-term sustainability by assessing

customer happiness, loyalty, and market share.

Based on the internal business perspective, firms can identify and assess their internal

procedures which are essential to satisfying consumers' needs and reaching financial targets. It

entails evaluating these processes' efficacy and efficiency and improving them for better

outcomes (Corporate Finance Institute, 2022). Here, operational streamlining and continual

improvement are prioritized.

The learning and development perspective emphasizes the ability of an organization to

innovate and adapt. It assesses how effectively a company is set up to learn, acquire new

abilities, and promote an innovative culture (Corporate Finance Institute, 2022). This covers

personnel education, transferring knowledge, and the capacity to adjust in a company

environment that is changing continually.

Role of BSC in Strategic Management

After discussing the theoretical foundations, this section will discuss the role of BSC in

strategic management. BSC is crucial for coordinating an organization's strategic goals with its

everyday operations. Organizations may ensure that every area of their operations contributes to

the overall purpose and vision by breaking down strategic objectives into concrete measurements

within the four perspectives of the BSC (Tharp, 2007). This alignment helps employees at all
 BSC and Strategic Decision Making 5

levels to concentrate and communicate effectively since they can see how their efforts directly

advance the company's strategic aim.

BSC's ability to close the performance gap between strategic planning and actual

performance is one of its key roles. This is achieved by offering a set of key performance

indicators that show the advancement of strategic objectives (Grigoroudis, Orfanoudaki and

Zopounidis, 2012). These metrics support businesses in tracking performance versus

benchmarks, implementing plans, and making data-driven modifications as needed.

Organizational success depends critically on the strategy and performance objectives

being effectively communicated. The BSC makes this easier by converting complicated strategic

objectives into understandable KPIs for all workers. These actions encourage accountability and

a common knowledge of goals when they are cascaded across the business (Mard, 2022). This

synchronizes people and teams with the overarching goal and promotes a culture of

accountability.

Supporting Strategic Decision-Making

After discussing the roles, this section will outline how BSC supports strategic decision-

making. For instance, the BSC helps organizations make strategic decision-making by improved

performance assessment. According to Evans (2005), traditional performance evaluation

methods only include financial data, which gives a constrained picture of how well a business is

doing. The BSC provides a more comprehensive and well-rounded approach because of its four

interrelated perspectives (finance, customer, internal process, and learning and development).

This implies that businesses may assess their performance in various important areas, such as

customer satisfaction, internal operations, and personnel skills. Decision-makers can understand

what motivates success and where changes are required using various KPIs. For instance, BSC
 BSC and Strategic Decision Making 6

can direct company executives to evaluate the consumer viewpoint to find areas for improvement

in customer happiness or loyalty if the financial perspective indicates deteriorating profitability.

Therefore, companies can make better informed and successful strategic choices by addressing

problems at their source.

The BSC framework assists in establishing strategic objectives and activities by

converting the organization's purpose and vision into concrete, quantifiable goals. Specific goals

and projects are developed within each perspective, offering a road map for what the business

must accomplish (Pandey, 2005). This method helps prioritize strategic objectives and coordinate

them with a business's overarching vision. For instance, the BSC may emphasize certain

activities, such as starting a customer feedback program or improving customer service training,

if the objective is to increase customer happiness. When carefully selected and in line with the

BSC's viewpoints, these projects aid in strategic decision-making by providing a distinct sense of

direction.

Conducting ongoing observations and input is essential in making strategic decisions.

The BSC responds to this demand by providing a mechanism that continuously monitors the

advancement of strategic goals and projects (Bremser and Barsky, 2004). Organizations may

easily pinpoint their strengths and weaknesses with frequent data updates and performance

evaluations. Also, this real-time feedback loop facilitates agile decision-making. Companies can

swiftly modify their plans if data shows that certain efforts are not yielding the desired outcomes

(Alhamdi, Sulaiman and Zin, 2023). This flexibility is essential in a company environment that is

changing quickly.

The BSC promotes a mindset that values strategic learning and adaptability.

Organizations may promote a culture of learning and development (according to the BSC's
 BSC and Strategic Decision Making 7

learning and growth viewpoint) by routinely gathering data and evaluating performance (Candela

and Cardós, 2009). This has helped companies adjust to shifting market circumstances, new

trends, and changing client preferences. Additionally, firms are able to comprehend the cause-

and-effect connections between various regions thanks to the BSC's capacity to link performance

indicators across perspectives (Francioli and Cinquini, 2014). This improves their capacity to

make data-driven judgments. For instance, if measures for customer happiness indicate a drop,

decision-makers can look at internal processes from the standpoint of inefficiencies that create

consumer displeasure.

Advantages of BSC

BSC has led to several benefits in strategic decision-making. One of the BSC's main

benefits is its capacity to amplify organizational focus on strategic goals. The BSC offers a clear

road map for staff members at all levels by breaking down the vision and strategy into concrete

goals within the four perspectives (Pandey, 2005). This encourages alignment and guarantees

that everyone is pursuing similar objectives. For instance, for a hospital aiming to improve the

quality of their services, BSC can align this goal with measures such as reducing waiting time for

patients to accomplish its overall objective.

In addition, the BSC is an effective instrument for communication. It converts

complicated strategy ideas into simple, understandable measures, making it easier for everyone

in the company to share strategy and performance goals (Mard, 2022). For instance, we can

create KPIs for sustaining the environment through BSC, such as reducing littering. Access to

these KPIs will help each employee understand their responsibility in attaining sustainability.

The BSC's ability to provide a balanced picture of organizational performance is another

important benefit. In contrast to standard financial measurements, which largely concentrate on

 BSC and Strategic Decision Making 8

short-term financial results, the BSC considers non-financial viewpoints, such as customer

satisfaction, internal procedures, learning and development (Dobrovic et al., 2018). Consider a

tech company that prioritizes innovation and faster development. BSC’s growth perspective can

capture the progress made in innovation and product development, while financial metrics may

show a slow increase in revenue. This balance helps organizations evaluate performance

thoroughly by ensuring that the short-term benefits do not compromise long-term viability.

The BSC promotes a culture of decision-making based on data and strategy adaptation.

Organizations can rapidly identify areas that need development and make informed changes to

their strategy by regularly gathering data and reviewing performance in many aspects (Marr,

2021). This flexibility in decision-making increases an organization's agility in reacting to

shifting market circumstances, new possibilities, and possible threats.

Furthermore, BSC acts as a framework for creating performance reports and dashboards,

which help maintain a close connection between management reporting and an organization's

most important strategic challenges. It establishes a clear connection between strategic intents

and operational execution by breaking down strategic goals into quantifiable key performance

indicators (KPIs) within the BSC's many perspectives (Meller, 2023). This performance

reporting helps businesses monitor the implementation of their strategy and ensures that

management reporting is focused on the most crucial strategic concerns. The BSC’s versatility

ensures that reports are always current, even when market dynamics or strategy goals change.

Limitations of BSC

Apart from the advantages, some limitations impact the effectiveness of BSC in strategic

decision-making. For instance, the BSC encourages companies to focus more on internal factors.

A study by Salem, Hasnan and Osman (2012) argues that BSC focuses on the internal factors of
 BSC and Strategic Decision Making 9

a company and neglects the external factors such as market competitors. Also, the BSC does not

determine any changes in the external environment of the company, which may affect its

performance (Khalid, Beattie and Sands, 2021). In certain circumstances, companies lose sight of

the qualitative components of performance because they become excessively focused on precise

metrics and KPIs. This metric-centric strategy could encourage system gaming or concentrate on

immediate outcomes at the cost of long-term planning.

The BSC's implementation may provide certain difficulties. Organizations often struggle

with choosing the appropriate metrics, creating efficient performance measurements, and

guaranteeing data veracity. Metrics must be specified to be used uniformly throughout the

company, even if their performance goals vary, and gathered at the optimal frequency for

decision-making (Awadallah and Allam, 2015). This lack of clarity can affect the

implementation of BSC.

Besides, the BSC framework is not standardized, and each organization uses it

differently. Although potentially advantageous, this versatility may also result in inconsistent

performance measuring and reporting (Gomes and Romão, 2014). It is, therefore, difficult to

compare BSC findings across various firms or sectors due to the lack of standardization.

Conclusion

The BSC framework is an effective and adaptable tool that substantially contributes to

organizational strategic management and decision-making. The BSC comprehensively assesses

an organization's performance by balancing financial and non-financial measures across its four

core viewpoints. Businesses can maneuver in a fast-changing environment by prioritizing

activities, aligning performance with strategic goals, and regularly assessing progress.

Additionally, the BSC's capacity to improve performance assessment and foster a culture of
 BSC and Strategic Decision Making 10

strategic learning is evidence of its success in helping organizations make wise strategic

decisions. Its benefits include directing organizational attention toward strategic objectives,

strengthening communication, improving employee performance, giving a fair picture of

organizational performance, and encouraging data-driven and adaptive decision-making.

However, the BSC has limitations, such as its focus more internally, overemphasis on metrics,

and the difficulty of standardizing its implementation. Based on the above evaluation, BSC

offers more benefits for strategic management, especially for companies looking to make more

informed decisions.
 BSC and Strategic Decision Making 11

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