The Importance Of The Balanced Scorecard And Its Links To Information Technology

Use of Balanced Scorecard and its Development in Information Technology

The increasing competition within the business environment is causing the firms to adopt the use of innovative methods for performance measurement. This is because the traditional methods of performance measurement are not able to provide accurate information to the businesses for taking right decisions regarding their sustained growth and development. The businesses, as such, are largely emphasizing on the use of transparent performance measurement systems such as Activity based Costing (ABC) and Balanced Scorecard (BSC) for enhancing the reliability of data to improve the decision-making process. The use of ABC system along with BSC is providing to be a highly efficient tool for business managers to gather information for analyzing the business performance. The implementation of these strategic tools and systems enables the business managers to develop adequate strategic aims and objectives for promoting the business growth. The IT industry is increasingly using the management tool of BSC for developing the strategic goals and improving the business growth and development. In this context, the present paper attempts to review the literature in relation to the Balanced Scorecard and its contribution in developing information technology.

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

Explanation of the Balanced Scorecard (BSC) and a brief Summary of its Origin

Kaplan and Norton have introduced the Balanced Scorecard (BSC) in the year 1992 for enabling the companies to measure the performance and thus identifying adequately the issues in context for overcoming them. It measures the progress achieved by an organization for attaining its strategic goals and objectives by analyzing its performance on the basis of four perspectives that are, internal learning, business processes, customer analysis and knowledge and innovation. The BSC can be described as a strategic management tool that enables the stakeholders to assess the progress towards achievement of the strategic goals. The BSC along with its four different perspectives can be depicted as follows:

As per the views of Hasan (2017) the information technology tools and devices are largely being used by the business organizations on a global level for improving the internal efficiency and effectiveness of their operational activities. There has been increasing use of management tools in the IT industry too for assessing the organizational performance at all levels. The use of BSC helps in development of scores and tracking the achievement of the organizational goals at all levels. The scores developed are communicated to all the executives and staff within all hierarchical levels of an organization. The increasing use of IT systems and tools within the businesses is causing the need for IT industry to create innovative information system devices for achieving the organizational goals. Thus, IT is emerging as a major player in driving the corporate performance and therefore there is arising larger use of innovative techniques for measuring performance of IT projects within an organization (Hasan, 2017).

The Balance Scorecard provides an effective IT performance measurement tool that helps an organization adopting the use of information systems for improving the efficiency of their business operations. It leads in combining the tangible financial measures with the intangible measures for assessing effectively the overall performance of an organization. The development of a BSC for the implementation of IT function within an organization for assessing its performance along the four perspectives can be described as follows:

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper
  • Financial Perspective: The financial perspectives within a BSC emphasizes on assessing the financial performance of an organization by the use of various financial metrics that helps in linking the financial goals with the overall business strategy. The financial measures that can be used for assessing the performance of an IT project are assessment of budgeted performance, project ROI, net income and measuring the productivity benefits that are realized with the use of software and hardware devices implemented.
  • Customer Perspective: It is very important for IT project manager to identify the impact of their products and services delivered on the customers for assessing whether their needs are adequately fulfilled or not. This can be assessed by a project manager by the use of customer feedback that can be obtained with the use of surveys that helps in identifying the problems that are faced by the customers (Juvekar, 2017).
  • Internal Business Process: This perspective of the BSC helps in assessing the effectiveness of the internal value chain of an IT project to deliver high quality products and services for meeting the customer needs. The increase in the internal efficiency realized by a business firm through the adoption of information systems can be realized by measuring the average processing efficiency of systems (Addo, 2004). Also, the impact of implementing automated devices on organizational growth can also help in assessing the improvement in business performance after the implementation of the IT project. In addition to this, the improvement in the product quality, average product development time and number of new products developed can be used in assessing the efficiency of an IT project.
  • Innovation and Learning Perspective: This perspective of the BSC helps in determining the value added to an organizational activity by the use of the information systems and devices. This can be assessed by a form adopting the use of IT systems by examining the technical training and education provided to the employees. The perspectives of the employees regarding the changes adopted in the organizational activities after the IT implementation will help in assessing the growth in learning perspective of the employees (Juvekar, 2017).

Explanation of the Balanced Scorecard and a Brief Summary of its Origin

The usefulness of the BSC in assessing the performance of IT projects can also be depicted as follows:

Kontolo (2005) stated that the financial perspectives of the BSC can be evaluated with the use of Activity-Based Costing (ABC) analysis method. The use of ABC analysis method helps in accurately measuring the financial perspective by assuring that it should be able to reflect the current value of business activities. ABC method enables the businesses to gather accurate data about their operating costs. The adoption of ABC method will help the IT project manager to identify the unnecessary costs that can result in enhancing the cost of the project. This is because the use of BSC method will help a project manager to accurately decide about the type of products or services that will result in improving the business profitability and that will significantly result in creating losses. It would help in creating an accurate budget by developing an adequate understanding of the expenses and thus improving the operational efficiency (Kontolo, 2005).

It has been identified during reviewing of the literature in context of the research issues that the use of a performance measurement systems such as BSC along with integration of ABC would be helpful in monitoring and evaluating the success of an IT project. The major benefits that would be realized with its adoption are obtaining a comprehensive measure of all the performance drivers and assessing the progress achieved towards attainment of the organizational goals. The use of the BSC frameworks will help in developing a robust strategic planning system for deal with the problems. It can help in creating strategic awareness among the members of an organization regarding the benefits of adopting IT systems for promoting the sustainable business growth and development (Lee and Epstein, 2013).

However, the key issue that is identified in this context that integration of IT function within all the perspective of the BSC can be quite challenging for the project manager. This is because it will require a significant challenge to be overcome such as resistance of employees to change, lack of support from top management, time constraint and increasing investment required that can result in causing a financial constraint. Therefore, it is essential in this context to effectively manage all the issues before the implementation of IT functions within a BSC for assuring success achieved (Belen, 2010).

The major strength of the BSC is that it helps in gaining an analysis into the financial as well as non-financial performance of a business firm. However, the major weakness is the increasing complexity that is required for the implementation of such system within the firms. The successful adoption of BSC requires huge investment in both time and money on the part of affirm which is the major drawback associated with its adoption.

Conclusion

It can be stated form the overall review of literature carried out BSC is providing to be an effective strategic management tool for assessing an organizational performance. The development of BSC is also enabling the success and growth of the IT industry by accurately determining the performances of an IT project on the basis of its different perspectives.

References

Addo, T. (2004). Development of an IT Balanced Scorecard. Journal of International Information Management 13(4), 1-20.

Belen, V. (2010). Identifying, Measuring, and Valuing Knowledge-Based Intangible Assets: New Perspectives: New Perspectives. IGI Global.

Hasan, R. (2017). Practical Application of Balanced Scorecard-A Literature Review. Journal of Strategy and Performance Management 5(3), 87-103.

Juvekar, A. (2017). Usage of Balance Scorecard in Information Technology Industry. Global Journal of Mathematical Sciences: Theory and Practical 9(2), 205-224.

Kontolo, I. (2005). Management information system based on the balanced scorecard. Campus-Wide Information Systems 22 (5), 263 – 274.

Lee, J. and Epstein, M. (2013). Advances in Management Accounting. Emerald Group Publishing.