Page 61 - MS Year in Review 2017_Neat

THE BALANCED SCORECARD APPROACH

The basic notion of the Balanced Scorecard (“BSC”) is that organizational
performance ought to be evaluated from more than simply a financial perspective.
This core idea is sound and was an improvement over the traditional focus upon
only financial performance. However, there are fundamental problems with the
version of the BSC proposed by Kaplan and Norton.69 Specifically there are three
core issues with the existing version of the Balanced Scorecard:

1. Kaplan and Norton have not provided any empirical support for their
proposed four “perspectives,”

2. There are problems with the “construct validity” of the four
perspectives, “and

3. Successful applications of the approach are rare as the Unicorn.

Each problem will be discussed in turn.

The Fundamental “BSC” Flaw: No Empirical Validation of the Proposed
Perspectives

The Balanced Scorecard version proposed by Kaplan and Norton is based upon
the notion that “four perspectives” ought to be used to evaluate organizational
performance: customer, internal business processes, learning and growth and
financial. While this approach has intuitive appeal, the basic problem is that
Kaplan and Norton have not provided any empirical support for these
particular “perspectives.” We do not know whether these are the correct
perspectives to be used as a basis for assessing organizational performance.
This can have serious consequences for organizations. Managers are implicitly
being encouraged to focus upon these “four factors,” when others might be more
significant.

69 Kaplan, R.S. and Norton, D.P. (1996) “Using the balanced scorecard as a strategic management system,
“Harvard Business Review, January-February, 75-85.

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