Abstract

Many organizations are usefully viewed as a web of relationships between and among various stakeholder groups. An organization may be defined as a "nexus of contracts," where said "contracts" are relationships that are marked by contributions from the various stakeholders in return for inducements provided by the organization. Over the long haul, the success of an organization is a function of the extent to which the needs and requirements of its various stakeholders can be integrated and balanced, without sacrificing any one to the other. There is, in this arrangement, mutual influence and accountability. It is the main thesis of this paper that many organizations would be well served by making use of the Balanced Scorecard as an alternate way of evaluating a company’s performance. Introduction Since its introduction in the Harvard Business Review in 1992, many corporate executives and information technology (IT) professionals have found the concept of Balanced Scorecard it to be a key strategic measuring stick of corporate success. Robert Kaplan and David Norton created balanced Scorecard, often referred to as BSC, in the early 1990’s. Today many large consulting firms like Pricewaterhouse Coopers and Earnst and Young have adopted the balanced scorecard concept. A balanced scorecard is a framework for translating strategic goals and visions into measurable results for the entire enterprise. The balanced scorecard starts with corporate strategies and objectives, and then uses financial and non-financial measures from across the company to create positive and negative indicators of corporate success for all levels of the organization (Kaplan and Norton, 1992). These indicators provide an in depth snap shot of corporate performance that managers and executives can use to clearly manage the company for success on a daily basis. Since the scorecard is based on key performance indicators (KPIs) that are directly linked to corporate goals, it provides a true measure of corporate success. These KPIs consist not just of financial indicators, but also of performance measures in customer satisfaction, internal process, and innovation and improvement (Kaplan Norton, 1992). The breadth and diversity provided by all four perspectives give managers an ideal cross-functional view of the business from all perspectives. It aligns both internal and external focuses, that offer a true balanced view of the scorecard (Kaplan and Norton, 1996b). A successful balanced scorecard implementation must also incorporate a communication mechanism, which allows management to communicate its strategic vision and goals to the employees, who, in return, can also report their processes and progress back to management. Multidimensional Architecture Since an organization is composed of multiple levels, a scorecard must support different levels and perspectives from strategic business units and divisions, to departments, teams and individuals. To accommodate this architecture, the scorecard is structured as multiple, aggregated cubes. Each layer a nesting of the ones below. In general, the highest level cube defines the measures and dimensions that apply to the corporate level, and these drill through to divisional and departmental cubes that have a more detailed level of information (Nickols, 1999). This “artery” of the cubes lets the strategy communicate down the organization, while performance is aggregated up through the organization like blood through vein. Cubes are an ideal vehicle to implement a hierarchical architecture. You can have both logical and physical separation of the data; i.e., data can reside in one cube where different views are offered to different users, or alternately data can be maintained in completely separate cubes. In cases where the data is inconsistent, it may be allocated to provide managers with more accurate and workable views for comparison and analysis (Nickols, 1999). Four Perspectives In contrast to traditional, financially based measurement systems, the Balanced Scorecard solidifies an organization's focus on future success by setting objectives and measuring performance from four distinct perspectives. The Learning & Growth perspective directs attention to the basis of all future success - the organization's people and infrastructure. Adequate investment in these areas is vital to all long-term success (Kaplan and Norton, 1996a). The Internal perspective focuses attention on the performance of the key internal processes, which drive the business. The development of a true learning organization supports success in the internal perspective because improvement in internal processes becomes key lead indicators of financial success in the future. However, in order to translate superior processes into financial success, companies must first please their customers (Kaplan and Norton, 1996a). The Customer perspective considers the business through the eyes of a customer, so that the organization retains a careful focus on customer needs and satisfaction (Kaplan and Norton, 1996a). Finally, the Financial perspective measures the ultimate results that the business provides to its shareholders. Together, these four perspectives provide a balanced view of the present and future performance of the business (Kaplan and Norton, 1996a). Organizations and Performance Organizations are viewed in many ways: as devices for meeting individual and societal needs; as collections of processes; as assemblages of people; as structures of authority; and as legal entities capable of owning property and engaging in commerce. Organizations differ from each other. There are sole proprietorships and partnerships that are closely held and differ in significant ways from those where corporate ownership is diffused among thousands of shareholders. Many organizations are usefully viewed as a web of relationships between and among various stakeholder groups, as a "nexus of contracts". These "contracts" or relationships are garnered by contributions from the various stakeholders in return for inducements provided by the organization. Stakeholders remain stakeholders only so long as the inducements received from the organization make it worthwhile to provide the contributions sought (Atkinson, Waterhouse and Wells, 1997). It is worth noting that what is a contribution and an inducement varies with one's perspective. For example, look at an employee who exchanges labor in return for pay and benefits from the employee's perspective. The labor provided can be viewed as an inducement given the organization in return for the contribution of pay and benefits. Conversely, from the organization's perspective, the labor is a contribution and the pay and benefits constitute the inducement (Atkinson, Waterhouse and Wells, 1997). It is this reciprocal exchange of contributions and inducements that makes accountability mutual. Balancing and Integrating Stakeholder Needs and Requirements Stakeholders may be thought of as groups of individuals or organizations significantly affected by what goes on at an organization, with a stake in having it go well, and for whom the organization wants things to go well in return. In other words, the relationship is reciprocal. The organization gives and gets something as well as the stakeholders. There is some kind of quid pro quo. Clientele Clientele refers to all the entities an organization serves. The use of clientele avoids unnecessary and unproductive debate about the meaning and use of terms such as clients, customers, and end users. All are included under the heading clientele (Kaplan and Norton, 1993). Employees Employees are people, other than the officers and directors or trustees of an organization, who think of themselves as members of the organization. This view of membership carries connotations of people making commitments to the organization that go beyond pay in exchange for work performed (Kaplan and Norton, 1993). Suppliers The Suppliers stakeholder group consists of individuals and businesses that provide an organization with the products and services that are used to create the products and services the organization in turn provides, sells, or leases to its own clientele. Suppliers include vendors, subcontractors, and partners. Even utility companies qualify as suppliers. Technically speaking, employees are suppliers, too, but they constitute such a special class of supplier that they receive separate treatment (Kaplan and Norton, 1993). Stewards (Officers, Directors or Trustees, and Key Managers) The officers, directors or trustees and other key managers of an organization bear special burdens of responsibility for its performance -- financial and operational. They are also responsible for the extent to which the organization satisfies the needs and requirements of other stakeholder groups. In addition, they are concerned with the organization's image among various constituencies such as the general public, regulatory agencies, and professional communities of interest. Most important, they are concerned with the organization's impact on and contribution to society, and for its continued viability as an organization. As a stakeholder group, senior managers, directors, and trustees may be viewed as the stewards of the enterprise (Kaplan and Norton, 1993). The long-term success of any organization is a function of the extent to which the needs and requirements of its various stakeholders can be integrated and balanced, without permanently or completely sacrificing any one to the other. This arrangement is not unilaterally defined and is marked by mutual influence and accountability. Thus, the ultimate balancing act in any organization is the one whereby the needs and requirements of the organization's stakeholders are reconciled and integrated (Nickols, 1999). Conclusion The Balanced Scorecard is a proven approach to strategic management that imbeds the long-term strategy into the management system through the mechanism of measurement. The Balanced Scorecard translates vision and strategy into a tool that effectively communicates strategic intent and motivates and tracks performance against the established goals. The balanced Scorecard also allows a company to manage its day-to-day operations around its stated goals and objectives. In doing so it also aligns different stakeholders within the organization and blends information from different arteries of the business. A vision describes the ultimate goal - to be the best. A strategy is a shared understanding about how that goal is to be reached. The Balanced Scorecard provides a medium to translate the vision into a clear set of objectives with each stakeholder in mind. These objectives are then further translated into a system of performance measurements that effectively communicate a powerful, forward-looking, strategic focus to the entire organization. This balanced concept allows an organization to evaluate its performance in different aspects other than financially acceptable balance sheets or income statements.

Bibliography
Bibliography 1.) Atkinson A. A., Waterhouse, J.H., and Wells, R.B. (1997). “A Stakeholder Approach to Strategic Performance Measurement.” Sloan Management Review (Spring, 1997, pp25-37): Cambridge. 2.) Kaplan, Robert S. and Norton, David P., (1992). “The Balanced Scorecard: Measures that Drive Performance.” Harvard Business Review (January-February 1992): 71-79. 3.) Kaplan, Robert S. and Norton, David P., (1996a). “Linking the Balanced Scorecard to Strategy.” California Management Review (Vol. 39 No.1, Fall, 1996): 53-77. 4.) Kaplan, Robert S. and Norton, David P., (1996b). “Using the Balanced Scorecard as a Strategic Management System.” Harvard Business Review (January-February 1996): 75-85. 5.) 5.) Nickols, Fred (1999). “Reconciling and Integrating Stakeholder Needs and Requirements.” COG News (Spring 1999)

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