The Importance Of Balanced Scorecard And Decentralized Decision Making In Business Organizations

Balance Scorecard and its significance in strategic planning and management

1.The balance scorecard is a strategic responsibility accounting system that translates an organization’s mission and strategy into operational objectives and performance measure for four different perspectives. How can a balanced scorecard be used to measure performance? And how can performance evaluation in multination settings?

2.Decision-making is authority.  A key question is whether authority should rest with senior management at the center of a business, or whether it should be delegated further down the hierarchy, away from the Centre why firms choose to decentralize and what is advantage and disadvantage.  What are the reasons for decentralization. Explain the relationship between responsibility Centre and profit Centre.

The present essay is undertaken to analyse and examine the importance of balanced scorecard and decentralized decision-making authority within the business organizations. The contribution of these strategic tools in promoting the long-term growth of a business organization is discussed in the essay.

1.Balance Scorecard refers to the performance metrics that is used by the business for the purpose of strategic management decision. The main purpose of the balance scorecard is to identify and improve the internal business functions so that resultant outcomes come in favor to the organization. It is the strategic planning and management tool that is used by the management for communicating about their missions and objective in the concise manner, align the business activities with the business strategies, align the projects, products and services according to priority and lastly measure & monitor the business progress towards the strategic targets (API, 2010). The balance scorecard helps the organization to focus on what has to be achieved in order to create the breakthrough performance. It acts as an integration device in order to solve various corporate programs. It helps in making the business strategy operational through translating them into the different measures and targets. It breaks down the objectives at top level into the smaller one so that each department can understand what exactly they have to do to achieve the desirable goals. Balance scorecard is the complex process yet it is easy to understand and implement in the organization. It has some limitations that make it unfavorable in some cases. It provides so many performance indicators that create issue for the management as well employees to align them with the business strategies (Kaplan and Norton,  2011). It is not easy to maintain the balance between the four perspectives of the balance scorecard. Implementation of the balance scorecard requires huge flow of money at the initial stage. In order to make the balance scorecard successful there is need to update it regularly (Balanced Scorecard Institute, 2010). 

Four different perspectives of Balanced Scorecard

Balance scorecard aims to use the business mission and strategies in order to translate them in the operational objectives and other performance measures of four different perspectives. In this context the four different perspectives of the balance scorecard are as follows:

• Financial Perspectives: A financial perspective is the main perspective of the balance scorecard and management has most focus on the financial perspective of the organization. Financial perspective helps the company to evaluate the financial performance of the company using various tools of financial management such as ratio analysis, trend analysis, variance analysis, and share market performance. All these financial indicators tell growth of the company and tell the actions that need to be taken to achieve the desired growth in the future period. All the stakeholders of the business are interested to know the financial performance of the business in order to take the important decisions. It is important to include the historical, current and future financial performance results in the balance scorecard (Bardy, 2011).
• Customer perspectives: The customer perspective of the balance scorecard focuses on the people who buy the product or services of the company. As per this performance customer satisfaction must be the main goal of the business in order to achieve the maximum revenue. The main of the customer perspective is to identify the main customers and business segments in which organization will compete and measures its business performance. The measures applied in this perspective are customer satisfaction, customer retention, acquiring new market and thing about the customer profitability.
• Internal Business Process: This perspective of the balance scorecard helps the management to deliver the value propositions that in return helps to attract and retain customers in target market segments. This perspective also provides the management the ways to satisfy the shareholders expectations through providing the excellent financial results (Kaplan and Norton, 2009).
• Learning and growth perspective: This perspective looks at the overall corporate culture of the organization and provides the information to the management about new ideas and technology (Eisenberg, 2016).

Multinational companies focus on the core competencies of the business and use many tools to measure the performance. The traditional management control system does not help to implement the global strategies as very traditional system only some of information to measure the performance and ignore some of important information that balance scorecard successfully implied in the system (Drury, 2011).

2.The business organizations need to place emphasis on decision-making authority for proper management of the overall functions and activities. It plays an important role in the planning process of an organization by determining the goals and objectives to be achieved. The presence of a decision-making authority provides an overall direction to the employees about their job roles and responsibilities. However, the major issue present within the workplaces in this context is that whether the authority should rest with senior management or should be delegated. Thus, the business leaders have to decide whether to adopt a centralized or a decentralized decision-making system within an organization (McKee, Kemp and Spence, 2012).

Centralized decision-making authority refers to concentration of authority at higher level in an organization. This means that senior management holds the authority of making key decisions about the strategic aims and objectives of the organization. Thus, employees are not involved in decision-making process as there is presence of higher level of hierarchy between the senior and lower level management. It can be referred to as a presence of a command and control approach within an organization as employees have to gain approval from the higher level before taking any important decision. However, the presence of such type of organizational structure is often associated with difficulty of slow decision-making as employees have to gain approval from their subordinates which in seeks emission from senior management before implementing any changes. Also, it leads to lower productivity level of the employees as they feel reluctant and ignored and thus does not consider them an integral part of the organization. The lower motivation level of employees negatively impacts their job performance (Marquis and Huston, 2009).

The increase of competitive pressure is causing the organizations to adopt changes in their decision-making authority. There is high need of decentralizing the power of authority to promote employee involvement in decision-making process. This is essential to improve the motivation level of employees to increase their organizational commitment level. The greater employee engagement in the business processes higher is their productivity at the workplaces. It will also help in gaining new and creative ideas from the employees to resolve the complex problems present in the business context. Decentralized organizational structure relatively means to remove the levels of hierarchy so that there is higher coordination and interaction between the upper and lower level of management. This enables the organization to take effective decisions by greater employee involvement who can significantly contribute in providing innovative solutions to problems as they possess greater knowledge about the day operational activities (Coleman, 2007).

The role of Balanced Scorecard in performance measurement

Therefore, it can be said that decision-making authority in an organization should be delegated at lower levels. The most significant advantage of decentralization is greater employee involvement and quick decision-making within an organization. This is because employees can themselves implement a major decision to solve a complex problem without requiring gaining approval from higher management people. This will help in resolving the problematic area quickly and lead to its higher growth and development. This is highly essential for promoting the growth and expansion of a business organization at a global level. The delegation of authorities would enable quick decision-making across different departments of a global organization and thus helping it to achieve its aims and objectives. The increased participation of employees tends to improve their productivity as they feel themselves an essential part of the organization. This encourages the development of new thoughts and processes within the employees to carry out their job role and responsibilities which in turn improves the operational efficiency of a business organization (Coleman, 2007).

However, the business organization decentralizing their structure needs to place emphasis on some of the shortcomings of their type of decision-making authority system. This involves increasing the ambiguousness in the business authority as it is not concentrated so that will be a lack of proper chain of command to the employees. Also, it results in lack of uniformity as the different departments may adopt varying type of policies and procedure for carrying out the organizational functions. It will also lead to incur significant cost and time by the organization to adopt decentralized system of decision-making (McKee, Kemp and Spence, 2012).

Thus, despite of the significant disadvantage associated with the decentralized system of decision-making, the organizations are increasingly adopting its use to achieve e a competitive advantage in the market place. The responsibility centre, a unit of business organization involved in carrying out a specific task or activity is regarded as a major type of activity center. On the other hand, profit center is regarded as a department of an organization that is controlled by the managers and recognizes the profits on the basis of revenue and costs. It holds all the responsibility of sale of goods and production functions. The presence of a decentralized system of decision-making improves the communication flow between responsibility centre and profit centre promoting the growth and development of an organization (Drury, 2005).

Conclusion

Thus, it can be concluded from the essay that balance scorecard is powerful tool used to evaluate the performance of business and helps to take strategic decisions. Also, decentralized organizational structure facilitates quick decision making and achieving employee satisfaction to promote the sustainable growth of an organization.

References

API. 2010. Balanced Scorecard Perspectives. [Online].  Available at: https://www.ap-institute.com/Balanced%20Scorecard.html  [Accessed on: 1 may, 2018].

Balanced Scorecard Institute. 2010. Balanced Scorecard Basics, Balanced Scorecard Institute. [Online].  Available at: https://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx  [Accessed on: 1 may, 2018].

Bardy, R., 2011. Management control in a business network: new challenges for accounting. Qualitative Research in Accounting & Management 3(2), pp.161 – 181.

Coleman, L. 2007. Why Managers and Companies Take Risks. Springer Science & Business Media.

Drury, C. 2005. Management Accounting for Business. Cengage Learning EMEA.

Drury, C. 2011. Management and Cost Accounting, 6th ed.Thomson.

Eisenberg, P. 2016. The Balanced Scorecard and Beyond–Applying theories of Performance Measurement, Employment and Rewards in Management Accounting Education. International Research Journal of Management Sciences 4 (7), pp.483-491.

Kaplan, R.S. and Norton, D.P. 2009. The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press.

Kaplan, R.S. and Norton, D.P. 2011. The Strategy Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press.

Marquis, B. and Huston, C. 2009. Leadership Roles and Management Functions in Nursing: Theory and Application. Lippincott Williams & Wilkins.

McKee, A., Kemp, T. and Spence, G. 2012. Management: A Focus on Leaders. Pearson Higher Education AU