The limitations of a balanced scorecard

Written by lauren baluyo
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The limitations of a balanced scorecard
The balanced scorecard suffers from several limitations. (business image by peter Hires Images from Fotolia.com)

An organisation's performance can be measured via traditional financial metrics as well as strategic, non-financial metrics. The balanced sScorecard promotes this approach and provides a framework where companies can align its activities to its strategy. However, this strategic tool suffers from several limitations.

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Definition

A balanced scorecard is a planning and management tool that helps an organisation align its activities to its strategy. It is used to improve communications and measure organizational performance against strategic objectives.

Internal Focus

The balanced sScorecard largely ignores developments of the external business environment. It selectively focuses on shareholders and customers and fails to consider the activities of competitors and interest groups such as suppliers.

Reliance on Balance

Although the balanced scorecard is praised for balancing financial and non-financial metrics, it has nonetheless been criticised for being solely focused on balanced information. Thus, if the scorecard fails to include financial and non-financial objectives, it loses its value as a strategic tool. This limitation is exacerbated by the fact that balanced scorecards do not define an acceptable balance between the two.

Continuous Review

As the key drivers of the organisation changes, the balanced scorecard must be continuously updated to reflect such changes. This requires time, resources and labour which could act as a limitation for smaller organisations.

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