Access and read a scholarly article that deals with performance evaluation and/o
ID: 443988 • Letter: A
Question
Access and read a scholarly article that deals with performance evaluation and/or balanced scorecards. Support or refute the article’s main points using the language, concepts, and knowledge that you have garnered throughout the course. In other words, how does performance evaluation close the loop in managerial accounting processes? Include any other outside research you deem important to tell your story; i.e., professional or industry journals, trade press, competitor/supplier/industry trend analysis, financial rating agencies, etc. The more of the latter (cited, of course) the better for you, it will move your presentation from a naïve opinion to a well-supported, scholarly underpinned argument.
Explanation / Answer
Performance measurement system has changed a lot in comparison to the past. The measurement results are real just when the comparisons apply between similar items. At the end of 1980, numerous articles were published in European and American managerial journals criticizing the efficiency of corporate performance evaluations methods. In 1978, the researches of American accountant management society showed that 60% of total 260 financial managers and 64 executive managers of USA firms were dissatisfied by their performance measurement systems. Kaplan and Norton in a research with 12 companies identified BSC approach and opened new doors to evaluate organizational performance by this managerial innovation (Kaplan and Norton, 2009, 14). They stated in their articles that firms in order to evaluate their performance should not only lend on financial aspects but also should consider their performance from customer, processes, and learning and growth view. The first generation of BSC was a set of metrics which could prepare an integrated view of business for the management. Balanced Scorecard was containing financial metrics- results of past activities and operational metrics such as customer, internal processes, and learning and growth metrics (operational metrics which motive financial performance in future) (Kaplan and Norton, 1992).
Cause- and- effect relationship can be stated as a sequence of if-then phrases (Kaplan, 2009). Therefore, in order to achieve financial outputs (in financial perspective), we should make value for our customers (in costumer perspective) and it never happens only if we can transcend in our operational processes and adopt them with our costumers’ needs (internal processes perspective) and it doesn’t happen if we don’t prepare an appropriate space for staffs and try to improve creativity, learning, and growth in our organization (Kaplan and Norton, 2001).
The mission statement of most companies focuses on customers. “Change into the best company in creating value for customers”. BSC causes that managers translate their mission statement in four necessary for customers in four categories: time, quality, performance and service delivery, and price. Firms in order to apply BSC should express their goals based on time, quality, performance and service deliver and then translate them into specific metrics. Managers need to focus on those key internal operations which make them capable in order to meet customers’ needs. Companies identify their internal processes metrics of their BSC usually after identifying financial and customer perspectives goals and metrics. Internal processes metrics should be selected based on the business processes which have the most effect on customer satisfaction. Companies should decide in which processes they want to be at top and define each metric related to these items.
After the metrics and goals related to internal processes and customer perspectives identified, it is possible to understand that there is a gap between current organizational infrastructures and optimized level in order to achieve the goals. Metrics based on customer and internal processes are important to identify very important parameters for organization competitive success. However, universal close competition makes companies consider a continuous improvement in their products and processes and capable enough to identify new products. The company capability in innovation, improvement, and learning directly affects the company value. In other words, companies just by their capabilities in providing new products, creating value for their customers and continuous improvement of operational efficiency can enter new markets and increase their profit and income.
Metrics of financial perspective identify that whether the strategy and its execution plays a role in company profitability improvement or not. Financial goals are usually being defined in relation with profitability, growth and shareholders’ value. Companies should define their financial perspective goals in a framework of sustainability, success, and economic boom. Boom is measuring by cash flow, success by seasonal sell growth, sections operational income, and economic boom by market share and ROI improvements. Kaplan and Norton (1992 and 1993) didn’t directly point to cause-and- effect relationship and just mentioned the relationship among four BSC perspectives.