Financial Perspective of The Balanced Scorecard (BSC)

According to Kaplan (1996), building a BSC should encourage firms to link their financial objectives to corporate strategy. The financial objectives serve as the focus for the measures in all other scorecard perspectives. The BSC approach should be started from long-term strategy and financial objectives, and then link to customers, internal-business processes, employees and systems. Financial objectives can be different if firms implementing different kinds of business strategy, e.g., growth, sustain, and harvest.

Kaplan (1996) further contends that for each of the above three strategies of growth, sustain, and harvest; there are three financial themes that drive the business strategy. These are revenue growth and mix, cost reduction/ productivity improvement and asset utilization/ investment strategy.

The most common revenue growth measure would be sales growth rate and market share for targeted markets. They are the percentage of revenue from new products or services introduced within a specified period and existing products or services to new markets. These measures would emphasize the importance of investigating the source of revenue enhancement. Besides objectives for revenue growth and mix, Kaplan (1996) states that a business might wish to improve its cost and productivity performance. The success of cost reducing efforts can be measured by tracking the absolute amount of selling, general and administrative expenses or their percentage to total costs or revenues. Objectives to reduce spending and expenses levels, however, should be balanced by other measures as customer responsiveness, quality and performance, so that cost cutting does not interfere with achieving important customer and internal business process objectives. Finally, according to Kaplan and Norton (1996), companies may wish to identify the specific drivers they would use to increase asset intensity. Common measures of assets utilization may focus on improving capital investment projects and accelerate the capital investment process so that the cash returns from these investments are realized earlier.

In order to achieve objectives in the financial perspective, all objectives and measures in other perspectives should be linked. For most organizations, the financial themes of increasing revenues, improving productivity, enhancing assets utilization could provide the necessary linkages. As summary, previous studies have offered several management variables for measuring the financial perspective of BSC, most of these studies are concerns about what efforts that could be done to enhance revenue growth and mix; cost reduction/ productivity improvement and asset utilization/investment.

In BSC approach, firms are required to identify the customer and market segments to compute. The emphasis of customers should take care of satisfaction, loyalty, retention, and acquisition of customer (Kaplan, 1996). According to Kotler (2002), in order to satisfy the needs of customer, firms have to create values and core competence to compete with competitors and win the customers. Identifying the value propositions that will be delivered to targeted segments is the key for customer perspective. Thus, the customer perspective of BSC translates a firm’s mission and strategy into specific objectives about targeted customers and market segments that can be communicated throughout the firm.

Kaplan and Norton (1192) argue that customers tend to fall into four categories: time, quality, performance and service, and cost. Time may be referred to the time the company receives an order to the time it actually delivers the products or service to the customer. Quality measures not only the defect level of the incoming product, but also on time delivery, the accuracy of the company’s delivery forecasts. The combination of performance and service measures how the company’s products or services contribute to creating value for its customers.