Essay about Balanced Scorecard: Traditional Performance Measurement

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Balanced Scorecard Traditional Performance Measurement Historically, the measurement system for business has been financial. Activities of companies were measured and monitored through the traditional financial accounting model. However, the extensive, even exclusive use of financial measurements in business has been criticized primarily because an overemphasis on achieving and maintaining short-term financial results can cause companies to overinvest in short-term fixes and to underinvest in long-term value creation, particularly in the intangible and intellectual assets that generate future growth. Indeed, the Harvard Business School Council on Competitiveness project in 1992 identified the following systematic differences between …show more content…
Every measure selected should be part of a link of cause-and-effect relationships that culminate in improving financial performance. 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 system to deliver the desired long-run economic performance. Financial Perspective Table 1: Stages of a Business’s Life Cycle Table 2: Measuring Strategic Financial Themes Revenue growth and mix refer to expanding product and service offerings, reaching new customers and markets, changing the product and service mix toward higher-value-added offerings, and repricing products and services. The cost reduction and productivity objective refers to efforts to lower the direct costs of products and services, reduce indirect costs, and share common resources with other business units. For the asset utilization theme, managers attempt to reduce the working capital levels required to support a given volume and mix of business. They also strive to obtain greater utilization of their fixed asset base, by directing new business to resources currently not used to capacity, using scarce resources more efficiently, and disposing of assets that provide inadequate returns on their market value. All these actions enable the business unit