Advantages And Disadvantages Of Balanced Scorecard

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Business Strategy: Kaplan \u0026 Norton: Balanced Scorecard: Application, Advantages and Disadvantages

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According to Freeman and Hannan [ 32 ], the organizational selection processes favor them and the organizations that can change the strategy and the structure as their environment change. The successful strategies only emerge as the process of natural selection offering its judgment. In this approach, the role of the top management is null and nevertheless are fundamental in the identification of the threats. Following this approach, Peters and Waterman [ 33 ] state that the keys of excellence have to do with focusing on people, clients, and action. The eight principles for the excellence, proposed by these authors, allow any manager to make a diagnosis and evaluate its performance. These state that the application of these principles give the necessary clues for managers to convert their companies in organizations of excellence both in operation as in results.

In the same way, supported on the evolutionary approach, Williamson [ 34 ] states that the strategy in the classic sense of rational planning oriented to the future is often irrelevant; this assertion is supported by Gotcheva et al. The systemic approach gives the capacity to the organizations of planning and acting effectively in their environments, it is relativistic. According to Granovetter [ 36 ] following the approach about the social incorporation of the economic activity, the systemic vision proposes the objectives of the strategy to be designed depending on the context of the social system in which it is developed, understanding that the strategies must be sensitive to the sociologic environment of the organizations which guides the strategy are particularities of a concrete sociological environment.

According to Granovetter [ 37 ], a central principle of the systemic theory is to observe the decision makers as complex individuals, whose decisions are not based exclusively on economical conceptions, and understand the interrelation of the multiple variables of the society and its effect with the environment. Following the systemic approach, Whitley [ 38 ] states that a central principle of the economic sociology is that culture and the regulatory institutions help to constitute the nature of the economic actors and guide their actions, thus affecting the economic results.

According to Clegg et al. Cyert and March [ 40 ] visualize the organizations as a system of rational adaptation that responses to a variety of external and internal restrictions when reaching decisions. Theorists of the strategies based on the resources as [ 41 ] state that the managers owe their strategies to competitive advantages of the organizations and the market processes, insisting on the informal learning and the personal vision [ 42 ]. The members of the organizations negotiate among them to arrive to define a set of objectives more or less acceptable of all, that is, the strategy is the product of a political commitment [ 43 ] and not of a calculation to obtain the maximum benefits [ 44 ].

There is a multiple interest in formation of coalitions to take care of the interests of the organizations. Following with this approach, Hamel and Prahalad [ 45 ] defend that the best competitive advantage of a company is its vision of the future; they claim that organizations must search and strengthen the most developed competitive advantages that are difficult to emulate by the competitors. At the same time, Weick [ 46 ] sees the organizations as a system that selects wrong information of its environment, stating that in the future the organizations evolve when they obtain knowledge outside themselves and their surroundings.

It is the complement of the general strategy. Its application corresponds to the leader or director. At directive level, this strategy is used as a mean to perform various functions, serving as support in decision making and carry out coordination processes and communication of goals or the strategic purpose. According to Galbreath [ 48 ], any business strategy must incorporate in an effective way the concept of corporate social responsibility CSR. According to Bento et al. Lee et al. SM implies the formulation and implementation of the main objectives and initiatives adopted by the senior managers of a company, in relation to owners, based on the consideration of the resources, and an evaluation of the external and internal environment in which the organization competes [ 53 ].

Thus, it should have at least five attributes to be a business strategy [ 54 ]: 1 be measurable, 2 clarity in the objectives, 3 resource consumption, 4 assignment of responsible, and 5 that it can be checked. Companies now focus more on exploitation of external resources such as customers, rather than internal efficiency, to gain new competitive advantages.

The adequacy of the strategies can be defined from various approaches, each of which reflects different indicators; these indicators are based on the profit impact of market strategy PIMS structure in order to define the strategic potential Table 4. According to Peppard and Ward [ 57 ], any organizational strategy must define where the company wants to be in the future and evaluate objectively where it is now to decide how to get there; taking into account the options, alternatives, available resources, and the needed changes. A company achieves a superior profitability in its industry when achieving higher prices or lower costs than its competitors; this is achieved through the operative effectiveness or the strategic positioning [ 58 ]. For Rumelt [ 59 ], a good strategy is a coherent set of analysis, concepts, policies, arguments, and actions that give responses to a high-risk challenge.

The strategies based on the costs have been considered among the generic forms of strategic positioning [ 60 , 61 ]. According to Reitzig and Maciejovsky [ 62 ], the creation of a strategy is not only a task for the executives; on the contrary, the definition of the business approaches and new measures to initiate, involve all the hierarchy levels of the organization head of business unit, heads of products, heads of functional areas within a business or division, administrators, and supervisors. The academics and professionals are more and more interested in the concept of sustainability integrated measure of the economic, social, and environmental performance [ 63 ].

For Iazzolino and Laise [ 64 ], the strategies must be socially sustainable, creating value not only for the shareholder but also for the other interested, for the employees. According to Radomska [ 65 ], the sustainability issues in the strategies are becoming a natural element of the business policies, and their actions are important for the business of the company and for the financial result, as to cost reduction, cleaner production, gas reduction, and so on [ 66 ]. For supply change management, the sustainability is an important issue, creating a new age of business thinking and a source of competitive advantage [ 67 , 68 ]. According to Nikulin and Becker [ 70 ], in order to analyze the situation in which a company is found, the most commonly used is the SWOT analysis, which allows to determine strengths and opportunities of the company as well as the weaknesses and threats that the market offers in the scope of its business.

According to Hill et al. For Hussein et al. For Norashikin and Ishak [ 74 ], an organization with organizational learning culture improves significantly the competitive advantages, allowing to survive in a competitive world [ 75 ]; in the same way it provides improvements in the performance of the companies supported by the concept of transactional organizational learning, and this mechanism allows the organizations to keep the knowledge and transmit it to specialists for the generation or rethink of new rules [ 76 ]. Power and D. Waddell and D. Coghlan[ 77 , 78 ] analyzed the relation between self-managed work and the organizational learning capacity as indicators of performance in the improvement of the innovative capacities of the companies. The organizations change through the transformation and restructuring of the resources and capacities [ 79 ].

One of these transformations implies to decide what kind of organizational structure is the most propitious to achieve a competitive advantage [ 80 ]. Good organizational structures act as moderators for improving the influence that leaders have about the behavior, performance, and work of their subordinates, in search of the satisfaction of the client [ 81 ]. Different authors have defined the concept of organizational structure.

For Mintzberg [ 82 ], all are the patterns of design to organize a company, taking into account all the forms in which work is divided and the subsequent coordination of the same, searching to meet the proposed goals and to achieve the objectives set. For Strategor and Anastassopoulos [ 83 ], an organizational structure is the set of responsibilities and relations that formally determine the functions that each unit must accomplish and the way of communication between each work team. Chin [ 84 ] made an evaluation of how the leadership of men and women influence in the organizational structures, this author states that skills of men and women gain similar legitimacy, but when an organization fails, the perception of competence of women leaders, the status, and the interpersonal skills fall more than those of men.

The following are the requirements for the implementation of an organizational structure: 1 hierarchy of power and authority for the establishment of responsibilities and goals, which must be verifiable, accurate, and achievable [ 85 ], for them to be precise they must be quantitative and for being verifiable they must be qualitative. The area of authority of each person must be set, that everyone must do to achieve the goals [ 86 ].

The organizations created the structures to coordinate the activities of work factors and control the member performance [ 90 , 91 ]. Based on these two authors, Table 5 describes the advantages and disadvantages of each type of organizational structure proposed in this study. The objective of this strategy is to add value to the business portfolio of the companies reaching to overcome its competitors [ 92 ]. If an organization is in more than one line of business, a strategy at a corporative level will be needed diversify company. The corporative strategy can be understood as the possibilities that an organization has to define its future positioning [ 93 ]. The way to announce this positioning can go from simple motivation messages until reaching to strict objectives and deeply detailed of the business, relating the indicators and the variables of business, with a rigid methodological approach [ 94 ].

Examples of that are the competitive priorities, which are translated from the operative decisions derived from the corporative strategies and the client requirements [ 95 ]. According to Mazzei and Noble [ 96 ], the corporative strategy is in charge of determining which data must be collected and analyzed, becoming a key factor for the correct decision making.

For Dolphin and Fan [ 97 ], when formulating corporative strategies and the public relations have become in a function more and more important in the business organizations. Corporative communication managers are in charge of examining the impact and formulating the strategy [ 98 ]. For diversifying organizations, each division will have its own strategy that defines the products or services provided, the clients they want to reach, and so on. The strategy at business level generally is the same that the corporative strategy of the organization.

Action plan for the small organization with only one line of business or the big organization has not diversified in different products or markets. The business strategies have potential to make an impact of first order about the risk of financial accident, a direct economic consequence for the owners, and investors of the companies [ 99 ]. These strategies are approaches and measurements created by the administration with the aim of producing a successful performance in a specific business line.

The main importance of the business strategy consists on how to create and reinforce the competitive position of the company on a long term in the market. According to Bentley et al. Porter [ 28 ] describes the business strategies in terms of leadership in costs and differentiation of products; March [ ] in terms of exploration and exploitation; Treacy and Wiersema [ ] in terms of operational excellence, leadership of product and trust with the client; Miles and Snow [ ] and Dekoulou and Trivellas [ ] in terms of innovation to identify and explore of new products and market opportunities; and Quezada et al. These authors evaluate and generate action plans to improve the competitiveness, taking into account the owner preferences. When an organization is in different business, the planning can be facilitated by creating a strategic business unit SBU.

SBU represents a unique business or a group of business related, for which is possible to formulate a common strategy. Each SBU will have its own distinctive mission and different competitors; this allows it to have an independent strategy from the other business of the organization. For Dubey and Ali [ ], this strategy is close to the definition of processes and actions, that is, it responds to how things must be done or how must be used and applied to the resources. The functional strategy depends and must be well defined and aligned with the corporative and the business strategies. It is considered that the production strategy has been the most effective in the past and will continue to receive the maximum priority in the next years.

In general, continuing with the order of importance are the technological strategy and the human resources strategy. Within the two functions is the configuration of a reference framework for the planning, the control of the production and fixation of guidelines to evaluate the contribution of the operation management to the general objectives of the company. The operation strategy starts from an analysis of the environment, the market and the competitors, as well as a study of the available internal resources, to fix objectives and plans of route.

The corporative values serve as guide when planning the operation strategy. The final objective of the operation strategy is to find competitive advantages that clearly difference the company from its competitors [ ]. It is that the value added to the product or service offered justifies a higher price in the final product that the customer is not only willing to pay, but satisfied to do it. This advantage must be sustainable overtime and difficult to imitate, among other qualities. The main responsibility of this strategy is delegated to the director of the operations area, subject to revision and approval for administrators of higher rank general director or directive board.

According to Wheelwright [ ], it is necessary to design and implement operation strategies coherent with the business mission, always supporting the corporative objectives [ ]. This strategy must provide the objectives of production to achieve competitive advantages, focusing in a uniform decision making model within the category of the key resources of production [ ]. Moreover, to announce the way in which the business units develops or deploys the production resources [ ]. Platts and Gregory [ ] emphasize in the realization of manufacturing strategies, following three aspects of the process that include: design, development, and implementation of the production strategy. Platts [ ] suggests an approach based on the audit to develop the production strategy.

This author describes three stages for the formulation of this strategy: creation of the process, tests, and adjustments [ ]. Table 6 classifies the fifty-two studies categorized in Table 1 strategic creation and organizational structures , taking into account the phase of the strategic analysis to which the research belongs to. The main thing is to detect if there is or not a strategic problem or also called strategic GAP.

There is a strategic GAP when the objectives set forth in the future cannot be achieved with the current strategy. According to Chang and Huang [ ], the SM process consists of three stages: formulation of strategies, implementation of the strategy, and evaluation of the strategy. In order to generate strategies, a previous analysis of the organizations that evaluate the definition of goals, the analysis of the situation and the planning must be carried out. Any company, regardless of the size, kind of industry, business segment, or country where its activities are developed, must have a process that allows the disposition of a methodology to formulate strategies.

According to Sadler [ ], this methodology initiates with the formulation of the strategic planning FSP , defined as the way to diagnose and analyze the current competitive position and strategic problems that are affecting the company. FSP must be the guide to visualize what is wanted to be achieved and how the companies will achieve it. A correct FSP must start by identifying the current competitive position and market of the company, which allows guiding in a better way the destiny of the company.

According to Masoud [ ], through the FSP, it is possible to identify the areas that require improvements in its strategies and, at the same time, align them with the functional competences and compare them with the initial strategy, if it exists. On the contrary, Mintzberg et al. For Van der Kolk and Schokker [ ], the control of management are all the guarantees that directors must give to ensure that the behavior of the employees is consistent with the objectives and strategies of the organization; this definition is built based on what is said in [ , ].

In the first stage of the discussion, the strategy is formulated by the senior managers on behalf of the owners, based on the consideration of the resources and an evaluation of the internal and external environment in which the organization competes [ 47 ]; the middle and lower managers are restricted to the implementation of the strategy. The function of MCS is to support the implementation of the strategy proposed by the middle and lower managers. On the contrary, [ ] states that the strategies must not necessarily be formulated by the senior managers but initiated by the lower levels of the organizations; this type of strategy is known as emergent. Mintzberg [ ] states a form to classify strategies, which identifies planning i Strategy as a plan: marks the direction or course of action in the future.

Those are guides to address a specific situation. These strategies have two essential characteristics: they are elaborated before the actions in which they will be applied. They are developed consciously and with a specific purpose. These can be general or specific. The real strategy that is taken as a plan is the threat not the expansion [ ]. The strategy is a model, especially a pattern in a flow of actions. It allows to know how to establish the specific directions of the organization; a definition that covers the behavior we want to produce is required. It looks towards the outside looking for placing the organization in an external environment in concrete positions placing determined products or services in particular markets.

Just as the personality type defines the behavior of the individuals, the type of strategy defines the behavior of the organization. The strategic formulation process continues with the implantation, evaluation, and control. Even the best strategies could not reach success, if the administration fails, either when implanting them or when evaluating their results. For David [ ], SA is a clear and practical approach for formulation, implementation, and evaluation strategies, which in turn are subdivided in different stages and activities, all pointing to the attainment of the organizational objectives, by means of the obtaining of competitive advantages.

Thompson and Strickland [ ] state that the SA model has a fundamental purpose to convert the administrative guidelines of the strategic vision and the mission of the business in indicators of specific performance, in results and consequences that the organization wants to achieve. The administrators can have a follow-up of the progress of the company through the establishment of the objectives and the measurement of its success or fail at achieving them. Hill et al. These authors expose that the strategy is the result of a formal process of planning and the most important role in this corresponds to the senior manager.

The strategic managers are in charge of identifying the strategies, as well as to create them starting from a set of elements that are obtained as steps of this model. In Figure 1 , the fundamental steps for the strategic formulation are described. For the so-called implementation of the strategy, the capacity of the organization must be assessed; the strategy is linked to the operations and people who are going to put the strategy into operation, synchronize the people and their various disciplines linking the rewards to the results.

The techniques for formulating strategies can be integrated into a three-stage framework for decision making. These techniques can be applied to organizations of all types and sizes and can help strategists to intensify, evaluate, and choose strategies. Summarizes the basic information that must be taken to evaluate all strategic factors, in order to detect and prioritize according to the levels of importance and significance [ ]; according to Azarnivand and Banihabib [ ], the techniques of this stage include:. Tool of strategic analysis that summarizes the internal audit of an organization [ ] and evaluate the weaknesses and strengths of the organizational units.

IFE offers a diagnosis of all the companies in its different functions [ ]. Setiawati and Wahyono [ ] propose the design of strategies for the positioning of a pharmaceutical product where IFE is developed starting from the functional aspects of the organization. It allows to summarize and evaluate external factors opportunities and threats that impact the company in a negative or positive way [ ]. EFE facilitates the strategists to summarize and evaluate economic, social, cultural, demographic, governmental, legal, technological, and competitive information that could benefit or damage in a significant way an organization in the future [ ].

Pratiwi et al. This matrix can identify the main rivals of a company. The identification of critical factors of success is the most important process for the construction of CPM [ ]. Pelaez [ ] proposes the use of CPM to explore the competitive environment in three institutes of higher education in Philippines, evaluating strengths and weaknesses of competitors. It focuses on generating viable alternative strategies, aligning internal and external key factors. The techniques of this stage include:. This matrix allows to evaluate the problems inside and outside the company. It is composed of an evaluation of the internal competences as strengths and weaknesses and the externals competences as opportunities and threats [ , ].

According to von Kodolitsch et al. For Lee [ ], the main weakness of SWOT is a general dependence of qualitative analysis that simply classified the importance of individual factors without measuring them qualitatively. Shakerian et al. This model achieves a high performance due to the different combined methods. Anguibi et al. This matrix was designed by Rowe et al. Its structure of four quadrants allows to find out if fan organization is using the aggressive, conservative, defensive, or competitive strategies [ ]. The axes of the matrix and the strategic action represent two internal dimensions financial strength and competitive advantage and two external dimensions validation of the environment and industrial power [ ].

Jamali et al. The results showed that this industry can follow an aggressive strategy since it takes advantages of its strengths in the opportunities. Henderson [ ] aims at helping the companies to position their products or business units in the market, this tool consists on making a strategic analysis of the portfolio of the company based on two factors: growth rate and market share [ ]. The matrix is composed essentially of four quadrants, which in turn possess different strategies to develop. Each of the quadrants is symbolized by a caricature.

Chang et al. According to Allen [ ], this matrix represents a tool to evaluate an organization, taking into account their internal factors strengths and weaknesses and their external factors opportunities and threats ; the IE matrix is similar to BCG matrix since both tools register the divisions of a company in a schematic diagram; this is the reason for which both are known as portfolio matrices [ ]. IE is based on information generated by other matrices IFE-EFE capturing more information, quantifying them in an index that can be graphed, and locating in one of the nine quadrants of such matrix. Tahernejad et al. According to Christensen et al. It consists of a Cartesian plane in two dimensions: the competitive position and the market growth; any kind of organization can be placed within the dimensions previously mentioned, according to its conditions.

According to David [ ], QSPM uses the obtained information at stage one to evaluate, in an objective way, the available alternative strategies identified in stage two. David et al. The main contribution of this document was to reveal how and why QSPM can be useful, both theoretical and practical for the design of effective marketing strategies. Table 7 classifies the thirty-two studies categorized in Table 1 strategic formulation , taking into account the organizational characteristics and the different typology of strategies.

According to Uhl and Gollenia [ ], the strategic evaluation consists of measuring the impact that has had the strategic planning, opening the possibility of taking the necessary corrective actions. This process serves the organizations for knowing and analyzing if the proposed actions are really directing the company in the right direction. The processes of strategic evaluation are made through the analysis of quantitative and qualitative data [ ]. The quantitative approach allows understanding the results in light of the investment and the growth forecasts; the numerical part of the results is measured starting from the key performance indicators KPI. The qualitative approach allows to understand causes and consequences and interpretation of situations beyond numbers; this type of analysis will serve to know the effectiveness of the strategy and the departments of the organization that need corrective actions.

For the strategic evaluation, according to Cokins [ ], all those factors coming from the environment, being threats or opportunities, that directly affect the operation of the strategy and that require an effective response must be considered. To identify these factors, it must be analyzed that the objectives set are the right ones that the observable results are consistent with the initial states, and the analysis of the plans and politics implemented are the right ones [ ]. According to [ , ], the processes to evaluate strategies are specifying the processes and the most important results to supervise and evaluate for measuring them in an objective way; establishing performance standards that make the difference between what is acceptable and what it is not; and compare the real performance with the expected one and apply the pertinent corrective actions [ ].

The coherence and the advantage are based on the external evaluation of an organization, while concordance and viability are mainly based on the internal evaluation Balanced Scorecard. Initially, BSC focused on indicators of individual and group performance to measure and manage the implementation of the strategic objectives [ ]. Different authors have given definitions of BSC; for Srivastava et al. For Kaplan and Norton [ ], BSC is a system of manager management that directs attention points in the organization. Its purpose is to translate the strategy in measures that only communicate their vision to the organization. According to Cooper et al.

The construction of BSC is made in seven steps: analysis of the vision and mission, internal and external analysis of the organization, key factors of the success, relation of the diagram of causes and effects between the factors, definition of the strategic objectives, election of the KPI, and elaboration of the BSC [ ]. In [ , ], each strategic objective is measured with key indicators of performance. Table 8 classifies the thirty-seven studies categorized in Table 1 strategic evaluation , taking into account the perspectives and indicators developed for BSC. For the development of the BSC model, Kaplan and Norton [ ] pose it can be resorted to four phases with their respective products:. Finally, BSC transformations focused on the description of the function of the strategic maps, using chains cause-effect among the strategic objectives and how organizations use their leader staff to align the processes and key systems of management with the strategy [ ].

Due to the complexity and speed of the changes in the external environment of the industrial organizations, Korableva and Kalimullina [ ] propose to use a hybrid model BSC-SWOT for the optimization of the organizations taking into account the basic approaches and the commercial goals of the business. It is becoming mandatory to consider the sustainability within the strategic decision making [ ].

Maintain that the economic development, considering the environmental and social factors, is the new concept of sustainability balanced scorecard SBSC [ ]. Even though BSC has been widely used for the strategic evaluation, it has some deficiencies in the implementation. For Abran and Buglione [ ], obtaining a global BSC performance rating is poor, due to the lack of methods to combine the indicator scores; therefore, different authors propose the use of tools to overcome these deficiencies: Ravi et al.

A subject that acquires a lot of criticism in the system of measurement of the performance is its static nature. As a consequence, an increasing current of authors consider that the surroundings of static measurement are not suitable for this time. According to the state by [ — ], the classic BSC, stated by Kaplan and Norton, have deficiencies in organizations where its business has dynamic systems, where the interested parties define the performance in different ways chains of commercial supply, humanitarian logistics. Norreklit [ ] states that BSC has a linear vision of the cause-effect relations among the indicators in the strategic map; moreover, for Brignall [ ], the relations cause-effect in BSC are an excessive simplification of the reality since this set of relations is recursive and dynamic.

This limitation compromises the accuracy of the system of managerial control BSC, making the alignment among the strategic objectives difficult [ ]. In this way, the possibility of considering measurement systems of dynamic performances arises, as an attempt of being able to make a better adjustment of the business to the environment reality. Balanced-budget amendment proposals often contain an exemption for emergencies such as being in the state of war. It could be envisioned that the Congress would simply declare the country in a perpetual state of war, year after year, just to avoid the necessity of politically costly spending cuts or tax increases.

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Archived from the original on September 25, November 3, Mises Daily. The Washington Post. United States House of Representatives. Archived from the original on April 27, Washington Post. February 7, Retrieved August 21, Great transformations : economic ideas and institutional change in the twentieth century. January 27, The American Presidency Project. When accurate forecasting inventory levels are kept at maximum efficiency, this allows for the organization to be profitable. ERP software provides a top-down view of an organization, so information is available to make decisions at anytime, anywhere. The lack of boundaries created by ERP software in a company can cause problems of who takes the blame, lines of responsibility and employee morale.

While employing an ERP system may be expensive, it offers organizations a cost efficient system in the long run. ERP software works by integrating all the different departments in on organization into one computer system allowing for efficient communication between these departments and hence enhances productivity. The organizations should take extra precautions when it comes to choosing the correct ERP system for them. There have been many cases that organizations have lost a lot of money due to selecting the 'wrong' ERP solution and a service provider for them. Previous Page. Next Page. Previous Page Print Page. Save Close. Dashboard Logout.