Almost 50% of the 1000 fortune firms are using the balanced scorecard system. Balanced scorecard method has caught a lot of popularity lately but not all the scorecards implemented were successful. Let’s look at the disadvantages of this performance measuring-system.
Balanced scorecard is a method of evaluating a company’s performance. This concept is propounded by an Harvard professor, Drs. Robert Kaplan. It started off as a performance measurement model and is now used as an official planning and management system.
A balanced scorecard is a module of strategic planning and management implemented by an organization. It is basically a tool used to measure if the executions are in sync with the vision, policy and strategy of the company. This tool can be used by all sort of organizations. Financial measurement tools and the accounting measurement tools were available but, they didn’t give a full review. Balanced scorecard was introduced to not replace them, but to give a summation of the both. The balanced scorecard method considers financial evaluations as well as operational evaluations to give a balanced retrospection. An overall view is required to determine objectives and plans for the company’s growth.
Balanced scorecard method addresses four business perspectives, which are as follows.
1. Financial Perspective
2. Customer Perspective
3. Learning and Growth Perspective
4. Business Process
The above four points emphasizes that the company’s vision should be translated into operational goals. How the new system will work, should be effectively communicated to each individual. The process has to be followed by feedback according to which the company strategy can be modified.
Though the balanced scorecard method proves to be productive in attaining a balanced review, it still has some disadvantages.
Does Not Provide Recommendations
Balanced scorecard gives you an extensive overview of the company. It will give you facts about your company’s execution and performance. But it will not give you recommendations on how to amend strategies and policies to overcome discrepancies. Therefore, for attainment of a complete analysis of a company’s performance, a more magnanimous strategy will be required.
Resistance from Employees
Resistance towards balanced scorecard can be from either a top management officer or even from other officers. This is because a few of them might take the implementation of this system as an indicator that their performances are not appreciated. It could also be taken as an additional burden of administrative work. Therefore, it is very important that the implementation of this method in a company should be announced to everyone effectively.
Not Fully Efficient
Balanced scorecard system proves to be completely efficient if integrated with an accounting system. However, if you are relying on balanced scorecard method for complete evaluation of your company’s performance, it will not be completely efficient.
It takes time to adapt to balanced scorecard strategic system. So this will require a lot of motivation from the management to be able to successfully complete the process.
High Implementation Costs
The initial cost of the implementation of the balanced scorecard could be high. Considering you would have already some automation to create a database of the financial transactions, to implement balanced scorecard you will have to give in additional funds and also spend some time and money in training your employees about the metrics of the tool.
Can Show Low Profit
Balanced scorecard system will require a high initial cost and time spent. This will make your balance sheet depict that your company is not making profit and that implementing the balanced scorecard system is a waste of money.
The balanced scorecard methodology is used for picking right strategies and goals. There are various designs offered to suit your business type. It was found that 60% of the companies using balanced scorecard system were using more than one scorecard. This year 100 different scorecard reporting applications have been made available. Improvements have been made in the scorecard system, but make sure you choose the correct scorecard for your needs.