Performance Measurement System (PMS)

1. Introduction

Historically, performance measurement systems have been financially based, which has a limiting effect on the criteria used to measure and assess performance. To overcome these limitations, performance measures based on a range of non-financial measures have been suggested. Among the potential performance measurement systems that can be utilised, the balanced scorecard (BSC) has been advanced in the literature as a tool that overcomes the deficiencies of financially based performance measurement systems.

The principles underlying the BSC were first detailed in the Harvard Business Review by Robert Kaplan and David Norton in 1992.- The BSC concept is based on a notion that managers need a balanced set of measures covering financial, customer, innovation and learning and process areas to manage effectively. The score-card is used to translate an organisation's mission and strategy into a comprehensive set of performance measures that enables organisations to track short-term financial results while simultaneously monitoring their progress in building the capabilities that generate future growth. In contrast to financial performance measurement systems, the BSC 'puts strategy and vision, not control at the center. It establishes goals but assumes that people will adopt whatever behaviors and take whatever actions are necessary to arrive at the goals' (Kaplan and Norton 1992:79).

Kaplan and Norton divide the BSC into four quadrants of measures: financial, customer, internal business processes and learning and growth. Adoption of measures from the four quadrants are not mandatory, rather it is the need to establish measures that link to an organisation's strategy. For this reason an organization should modify the Kaplan and Norton model to reflect unique characteristics of the organisation, for example cultural aspects, strategic planning horizon and the nature of operations (Hoffecker and Goldenberg 1994; Chesley and Wenger 1999).

Required

You are required to answer the following answers:

1. Scholars believe that Balance Scrorecard has some significant benefits over to other performance measurement systems. Discuss some important benefits of the Balance Scorecard. (5 marks)
2. Scholars also believe that Balance Scorecard helps in improving performance of both financial and non-fiancial parameters. Discuss how Balance Screcard assist performance improvement of any organization. (5 marks)
3. There are two prominent strategic tools - strategy map and Balance Scorecard. Differentiate between these two tools. (5 marks)
4. Develop a Balance Scorecard for the organization you are working with. If you are full time student, you can choose either a hypothetical organization or any other organization with which you are familiar. (10 marks)