The potential benefits and limitations that may arise from the adoption of a balanced scorecard approach to performance measurement

(1) A broader business perspective
Financial measures invariably have an inward-looking perspective. The balanced scorecard is wider in its scope and application. It has an external focus and looks at comparisons with competitors in order to establish what constitutes best practice and ensures that required changes are made in order to achieve it. The use of the balanced scorecard requires a balance of both financial and non-financial measures and goals.


(2) A greater strategic focus
The use of the balanced scorecard focuses to a much greater extent on the longer term. There is a far greater emphasis on strategic considerations. It attempts to identify the needs and wants of customers and the new products and markets. Hence it requires a balance between short term and long term performance measures.


(3) A greater focus on qualitative aspects
The use of the balanced scorecard attempts to overcome the over-emphasis of traditional measures on the quantifiable aspects of the internal operations of an organisation expressed in purely financial terms. Its use requires a balance between quantitative and qualitative performance measures. For example, customer satisfaction is a qualitative performance measure which is given prominence under the balanced scorecard approach.


(4) A greater focus on longer term performance
The use of traditional financial measures is often dominated by financial accounting requirements, for example, the need to show fixed assets at their historic cost. Also, they are primarily focused on short-term profitability and return on capital employed in order to gain stakeholder approval of short term financial reports, the longer term or whole life cycle often being ignored.


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