The Balanced Scorecard (BSC)

The balanced-scorecard approach offered by Kaplan and Norton (1992) addresses the issues of divergent stakeholder goals and gauging managers’ effectives. These authors argue that existing performance measures are basically too much relied on financial-accounting measures. It is necessary to develop a monitoring system that communicates both financial and nonfinancial measures using two combinations of lagging and leading indicators to address a firm’s long-term and short term objectives. Kaplan and Norton (1992) propose four balanced perspectives: financial, customer, internal business processes, and learning and growth perspective. They contend that the balanced scorecard retains not only an emphasis on achieving financial objectives but also includes the performance drivers of these financial objectives. It is argued that the scorecard enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets for future growth.

Denton and White (2000) contend that the basic premise of a firm should try to attract and retain top associates, which enables the execution of best practices in the internal-business process. The competitiveness of internal-business process will then increase customer satisfaction, which will eventually result in better financial success.

Balanced scorecard approach should be implemented at all levels of the organization and need to focus on the key indicators for each of the four perspectives. Senior executives should decide to focus on single most-important variable or multiple variables for each of the four perspectives.

It seems that firms in different industry and different competitive position tend to focus on different variables on each perspective of BSC. Fletcher and Smith (2004) suggest that, based on BSC, managers must evaluate their business from the above four perspectives. These four perspectives encourage management to ask the following four questions: (1) How do customer view the firm? (2) What business processes must the firm improve or exceed at? (3) Can the firm continue to learn and innovate? And (4) how does the firm appear to its shareholders? Fletcher and Smith (2004) further argue that BSC is an excellence management framework to help managers track many factors that influence performance. The ability to the BSC to provide this view depends upon the construction of a set of performance measures that track how successfully a firm is carrying out its strategies, objectives, and overall mission”.

Since the measurement items of BSC are industry and company specifying analytical hierarchy processing (AHP) may be appropriate to identify key measuring variables for firms in implementing BSC. AHP has been increasingly used to link qualitative and quantitative measures in an integrating framework (Saaty, 1996 and Pineno, 200).