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.
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.
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.
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.
- Balanced Scorecard Institute, What is the balanced scorecard?
- Neely, Adams and Kennerley (2002). Performance Prism: The Scorecard for Measuring and Managing Business Success. Financial Times Prentice Hall
- Reilly and Reilly (2000). Using a measure network to understand and deliver value. Journal of Cost Management (November/December): 5-14.