The Balanced Scorecard places the strategy at the center of the organization and focuses on the different areas that comprise it. It shows the interrelation between the perspectives and towards the general goal of the organization through indicators and inducers. The correct selection of the indicators is of great importance since they must explain the reasons for the success or failure of the company. They also serve as alarms to initiate immediate corrective actions.
The Balanced Scorecard as a Management Tool
The appearance of the Balanced Scorecard is the result of a management need at the end of the century. The instability and complexity of the market, due in large part to the technological development experienced in recent decades, has exposed the shortcomings of management systems based solely on the financial aspects of an entity.
The systems that appeared in previous years to combat this deficiency focused on other important aspects of the organization such as quality and customers, but they failed to fully explain the operation of the company and the causes of the results obtained.
The Balanced Scorecard places the strategy at the center of the organization and focuses on the different areas that comprise it. It shows the interrelation between the perspectives and towards the general goal of the organization through indicators and inducers. By creating synergy between the constituent parts of the company, it is to demonstrate that "the whole is greater than the sum of its parts." If an entity cannot create synergy between its parts, we wonder why they do not aggregate and operate independently.
Traditional Financial Model Vs. Strategic Model
Over the last decade, the number of objections to the traditional method of management has increased. The following chart describes some of the criticisms made of the system and how the Balanced Scorecard solves the concerns raised. Traditional management problems and their solution in the CMI
| issue | Traditional method | Balanced Scorecard |
| Provides misleading information to make decisions | The use of past performance indicators can lead to using measures that are not in accordance with the strategy | Joint analysis of result indicators with progress indicators can clarify decision-making within the strategic framework |
| Does not consider the current requirements of the company and its strategy | Ignoring other less tangible indicators the company may receive a false appreciation of the real competitive situation | The use of non-financial indicators allows to perceive the whole figure and make the corresponding decisions |
| Encourage short-term thinking and suboptimization | Financial analysis can lead to decisions that, although they improve the current financial situation, compromise good future performance. | By fully visualizing the effects and causes of a decision, a balance can be struck between the long term and the best results |
| Provides abstract information for workers | Traditional indicators do not demonstrate to workers the relationship between their work and the organization's performance | The CMI provides a scheme of cause and effect indicators that allows workers to identify the role of their work in achieving the entity's objectives. |
There is an explicit vision and strategy at the base of the four perspectives and for each of them strategic goals, indicators, specific goals and action plans are formulated.
The vision is made explicit and shared, communicated in terms of goals and incentives that are used to focus work, allocate resources, and set goals. Follow-up results in learning, which in turn leads us to a new examination of our vision. This learning process emphasizes the interrelation of the different indicators. If we have to be profitable, our clients must be loyal. If they have to be faithful, let us provide them with a good service. To achieve a good service we need adequate processes that work well. For the proper functioning we must develop the information of our workers.
Table II. Description of the Balanced Scorecard
Description of the Balanced Scorecard
Kaplan and Norton developed the best known of the Balanced Scorecard models and the one with the most acceptance so far. They are considered the world's most recognized authority on management control. His model aims to unite short-term operational control with long-term vision and strategy from four vital perspectives: finance, customers, internal processes, training and growth.
Table I. Perspectives of the Balanced Scorecard
Perspectives of the Balanced Scorecard
Financial perspective:
It defines the expected performance by virtue of the strategy embodied in the financial objectives claimed by the entrepreneurs, such as the maximization of the benefits and the value of the company, at the same time, the economic-financial approach must bring together the rest of the objectives and indicators from the other perspectives.
From this point of view, the growth objectives of companies, clients or markets must be considered, always linked to the evolution of results and without losing sight of the behavior of working capital and liquidity. The financing and liquidity requirements derived from the investment policy directly affect the financial analysis and control.
Customer perspective:
Analyzes the customer segments and markets where the products are going to be commercialized, impacting on the determination of the sales figures and their respective income, collecting the strategies of marketing, operations, logistics, products and services. The preferences of the clients in relation to the variables of price, quality, functionality, image, prestige, relationships or usefulness must be explained within the objectives of market strategies.
The selected indicators will show the education of the strategy with variables such as market share, the evolution of the number of clients, their level of satisfaction, the profitability obtained from them, punctuality in deliveries, the quality of the products or your selling price.
Internal processes perspective:
It aims to explain the internal variables considered critical, as well as to define the value chain generated by the company's internal processes. It will be necessary to carry out the analysis of the innovation so that starting from the identification of the needs and demands of the clients, the ideal solutions are developed for their satisfaction.
The operational processes, from the reception of the customer's order to the delivery of the product to it, are controlled by the indicators of quality, cycle time, costs and analysis of deviations. This perspective ends with the after-sales service that guarantees adequate customer care and maintenance.
Learning and growth perspective:
It allows analyzing the ability of workers to carry out continuous improvement processes, the performance of information systems and the organizational climate that enables motivation, delegation of responsibilities, coordination of the decision-making process and consistency. internal objectives.
The satisfaction of the workers and their loyalty constitute the indispensable premises for the increase of the productivity and the continuous improvement of the system. The activities and expectations of the personnel must be aligned with the general objectives of the company, so that the achievement of the personal goals established for the workers is parallel to the degree of achievement of the strategy.
In this way, the Balanced Scorecard must allow the management results to be measured in relation to intangible assets by means of the action drivers that allow us to know in advance the evolution of the activity in relation to the strategy adopted.
For this, it will be necessary to develop a series of financial and non-financial indicators that provide a clear and prompt vision of the situation at all times. The selected indicators serve to carry out the monitoring and periodic evaluation of the key variables that are to be controlled, the time they reflect the position of the entity in relation to internal and external benchmarks. At the same time they enable the vision of the company in its static aspect (knowledge of the situation at the time the analysis is carried out) and dynamics (study of the evolution over time of the variables considered). The comparison of the results obtained with those foreseen constitutes the starting motor of the improvement or correction actions to be undertaken.
The correct selection of the indicators is of particular importance, since they must explain the reasons for the success or failure of the company, as well as the impact of the variables analyzed on the results. They must also serve as an alarm to initiate immediate corrective actions in the face of certain detected changes, for this, the indicators must be affordable and easy to measure.
Both the work environment and customer satisfaction and the quality of production are key strategic factors. In practice, it will be necessary to design timely cause-effect diagrams that establish the link between the strategic objectives or the mission of the company, the key factors and the indicators that inform about the creation of values for customers.
Design of the Balanced Scorecard
Design of the objectives
The elaboration of the Balanced Scorecard begins with the correct planning of the strategic objectives and the adequate definition of the key factors that will set the guidelines for action and control in the medium and long term. At the same time, it must exist and, in fact, there is usually an alignment of the strategic objectives set towards the one that would represent the maximum aspiration of the company.
Thus, this primary objective is deployed in a fan through the proposal of another series of priority objectives of second rank and which in turn are correlated with the partial objectives by specific departments or areas of activity.
The elaboration of cause-effect diagrams allows, at first, to link the network of objectives oriented to the ultimate goal, and then to develop the system of indicators linked to them. The objective system must show, to the extent that this causal link between them is feasible.
Design of the indicator system
The selection of the set of indicators adopted for the previously established strategic objectives constitutes a laborious process, since the indicator must accurately collect the content of the objective, seeking the cause-effect relationship between the two. The indicators, in addition to measuring the results obtained, should facilitate the search for causes of inefficiency and indicate the orientation to be followed for solving problems. On the other hand, the sources of information required for its preparation must be available and easily accessible
Below we list some of the most relevant indicators in relation to the perspectives discussed above, the dashboards must be adapted to the level of decision for which they are designed, being different, as may be assumed from the general management of the company, which that which serves as decisional support for a specific department or area of the entity. Each department should pay special attention to the indicators that are most related to their activity.
The global vision of the company must not be lost at any time, highlighting how the most important indicators are aligned with its general strategy.
a) Financial Perspective
Here it will be necessary to start from the traditional indicators of liquidity, solvency, efficiency and profitability.
Liquidity and solvency
- Short-term solvency = Current assets / Current liabilities Immediate liquidity = Current assets-Inventories / Current liabilities Long-term solvency = Total assets / External resources Treasury = Cash / Current liabilities
Operating efficiency
- Rotation of assets = Net Sales / Total Assets Rotation of fixed assets = Net Sales / Fixed Assets Rotation of inventories = Net Sales / Average Inventory
Economic profitability
- BAIT / TotalBAIT Asset: Profit before interest and taxes
Financial profit
- BAI / Own Resources BAI: Profit before taxes Cash Flow / Own Resources
Profitability on sales
- Gross Profit / SalesBAIT / SalesBAT / Sales
Self-financing
- Self-financing on sales = Net Income + Amortizations / Sales Self-financing on assets = Net Income + Amortizations / Total Assets
b) Customer perspective
- Market shareCustomer evolutionCustomer structureCustomer satisfactionCustomer retention
Likewise, the indicators related to:
- The attributes of the products and services: prices, delivery time, quality. The relationship of the clients. The image and prestige of the company. The creation of value for the client.
c) Perspective of internal processes
- Performance or efficiency: Consumptions incurred in the products Economy: Unit cost Productivity or Efficacy: Measure of the degree of achievement of the objectives.
d) Training and growth perspective
Training
- Salary level / Average salary Degree of qualification of the staff Satisfaction of the workers Level of absenteeism of the workers Productivity of the workers Level of safety and hygiene at work (Number of accidents at work) Stability of the workers
Increase
- Design of new products and enriched products Investment in growth of the farm Information processing system Information distribution systems Investments in research and development Hours dedicated to research and development Results of research and development Percentage of new products launched on the market Environmental protection actions
The control system
A good control system starts from the correct definition of the budgets linked to each of the magnitudes previously defined as a variable object of specific control. The collection of information must be carried out quickly, easily and in a timely manner, so that the analysis of deviations and their causes, as well as possible corrective actions can be deployed effectively. Likewise, it will be necessary to establish a control system for the effectiveness of the modifications implemented. An integrated control system must take into account the following aspects:
- Definition of the variables object of analysis in each area (key factors and indicators) Quantification of the variables. Comparison of the real values obtained with the forecasts and objectives. Analysis of the causes of the deviations. Solution of the deviations.
The integrated management control, through the use of the balanced scorecard, facilitates the search for products with greater added value, the achievement of the objectives of increasing efficiency, productivity and profitability, optimizing the performance of factors and the production process as a whole; obtaining total quality, particularly in relation to customer service, as well as evaluating people's performance.
Conclusions
The need for the implementation of the balanced scorecard manifests itself, reporting the following benefits:
- Defines and clarifies the strategy. Provides an image of the future showing the path that leads to it. Communicates the strategy to the entire organization. Allows aligning personal goals with departmental objectives. Facilitates the link between the short and long term. clarity and simplicity the most important variables under control. It constitutes a management instrument.
The balanced scorecard is not a single document, different charts must be prepared, adapted to each of the departments or decision levels of the company. The balanced scorecard is not a static model, its dynamic nature is evident when, when questioning the validity of the current strategy, another emerges, which can respond more quickly to the new situations that arise in its environment. The adoption of the CMI must be supported by management control systems (including accounting and budgeting) because by itself it will not be able to promote the necessary modifications for its feasibility.
Bibliography
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