Balanced Scorecard in Indian Companies
Vikalpa, Vol. 30, No. 2, pp. 11-25, April-June 2005
Posted: 13 Jul 2005
There has been growing criticism of financial measures in performance evaluation system in post-reform India, as they are historic in nature and lack futuristic outlook. Their relevance in the information age, when the companies are building internal assets and capabilities, is questioned. The situation may worsen when the firm is compelled to pursue short-term goals at the cost of the organization's long-term objectives.
Kaplan and Norton developed an innovative and multi-dimensional corporate performance scorecard known as Balanced Scorecard. It compels the firm to align its performance measurement and controls from the customers' perspective, internal business processes, and learning and growth perspectives and investigate their impact on the financial indicators. There are arguments that Balanced Scorecard should be 'unbalanced' based on the strategy followed by the firm. The corporate experiences with the implementation of Balanced Scorecard suggest mixed results. However, these examples are confined only to Europe and North America. Critics of Balanced Scorecard have argued on the ground of non-consideration of stakeholders' perspective, casual relationship between the measures and top-down evaluation process.
In the Indian context, very few studies on the implementation process of Balanced Scorecard appear to have been done. In this article, we:
* identify the extent of usage of Balanced Scorecard by corporate India
* explore whether Indian firms use all the four perspectives, namely, customer, financial, internal business, and learning and growth in their performance scorecard
* capture the management motivations for implementation of Balanced Scorecard
* identify the key performance indicators in different perspectives of the performance scorecard
* evaluate the performance of Balanced Scorecard as a management tool.
The major findings of this study are:
* The Balanced Scorecard adoption rate is 45.28 per cent in corporate India, which compares favourably with 43.9 per cent in the USA.
* The financial perspective has been found to be the most important perspective followed by customers' perspective, shareholders' perspective, internal business perspective, and learning and growth perspective in the performance scorecard of corporate India. The environmental, social, and employees' perspectives also figure in it.
* The customer satisfaction in terms of quality, delivery schedule, and after-sales service are important key performance indicators in the customers' perspective and the return on investment and days' working capital are the key performance indicators in the financial perspective of Balanced Scorecard of the Indian firms under study.
* The expense centre budgets, brand revenue/market share monitoring, profit centre, and transfer pricing mechanism are the other performance management tools used by the Indian companies.
* Corporate India monitors the indicators as per ISO 14000 norms in the environmental and social perspectives of the performance scorecard.
* The difficulty in assigning 'weightage' to the different perspectives and in 'establishing cause and effect relationship among these perspectives' have been found to be the most critical issues in the implementation of Balanced Scorecard in corporate India.
* Most companies claimed that the implementation of Balanced Scorecard has led to identification of cost reduction opportunities in their organizations, which in turn, has resulted in improvement in the bottom line.
Insights emerging from such an analysis can be useful to both management practitioners and management accounting academics. Managers can benefit from the knowledge of how other firms operate and perhaps change their own practices. Management accounting academics may find the practice useful for re-examining the theory.
Keywords: Balanced scorecard, performance measure, standard costing, management accounting India
JEL Classification: M12, M14, M40, M46, M52
Suggested Citation: Suggested Citation
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