What are some of the potential difficulties in approaching strategic planning from a balanced perspective? Isn’t financial performance still the most important perspective to take in planning? Explain. Traditional financial measures – ROI, net profit, sales growth, and market share – fail to capture the true picture of a firm’s value propositions because they focus on the past. They tell the story of what has happened to the organization. They explain the results of past transactions and disregard what the future benefits could be.
Traditional financial measures are only part of the information that managers need to successfully guide their organizations through highly competitive marketplaces (My Strategic Plan, n. d. ). During the 1990s, two Harvard professors and consultants – Kaplan and Norton, devised a tool, the Balanced Scorecard, to rectify the deficiencies in relying primarily on traditional financial measures. A Balanced Scorecard allows better measurement of a firm’s capabilities to create long-term value by identifying the key drivers of this value.
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The drivers are then translated into four categories of measures- customer, internal/operational, innovation/learning, and financial. The financial measures are typically focused on short-term results; while the other three categories are coupled to future oriented activities needed to successfully sustain the enterprise (My Strategic Plan, n. d. ). Obviously financial health is critical for any business organization- cash in the bank is necessary to pay the bills.
However, many managers become nearsighted as a result of this requirement and believe that by making fundamental improvements in their operations, the financial numbers will resolve themselves. This is an utter fallacy. For example, if a firm has a goal of increasing net profit from 10% to 13% for the current fiscal year, there are a number of interrelated factors that must be in place to succeed. Possibly customer satisfaction must be enhanced to increase the number of customers or increase the loyalty of existing customers.
May be the product/service’s defect level must be decreased to boost customer satisfaction? So if the manager waits until the end of the fiscal year to determine if he/she was successful, there will be a “history” lesson on the events of the past period. However, if the defect rate is currently monitored or customer returns observed, the manager can make mid-course corrections to the firm’s strategy in order to accomplish the goal of increasing net profit.
In other words, the manager should develop and monitor measures of drivers of that net profit goal (My Strategic Plan, n. d. ). As such, managers should develop strategic measures that are specifically tied to their firms’ unique strategy (My Strategic Plan, n. d. ). Reference: My Strategic Plan. (n. d. ). Balanced Scorecard: Performance Measurements for Success. Retrieved from http://mystrategicplan. com/resources/balanced-scorecard-2/