There are various advantages from the adoption of Balance Scorecard methodology, as indicated by the popularity of the method and the large amounts of US Corporations as well as the government departments are trying to embrace Balance Scorecard approach to improve performance.
First of all, the traditional methods of analyzing and improving company performance with purely financial metrics are insufficient. Particularly in the new knowledge era, where globalization, technological changes and increasingly competitive business environment is obvious, a company should look into the other intangible areas such as innovation, customer satisfaction and skills to improve company performance. The Balance Scorecard offers such a solution, where it explicitly considers many other critical and important ‘soft factors’ in the analysis. In fact, Balance Scorecard often able to deal with the root cause of performance, while traditional method with financial measures is just the reflective tool that shows the company results after a certain time. The traditional methods are unable to identify or measure the truly relevant performance metrics that are impactful to the bottom line and growth of a company.
Balance Scorecard can also ensure better alignment between the various operating units and focuses attention on what’s important and on results. This is because the key success factors, instead of purely financial measures are used in the measurement, evaluation and analysis purposes.
Apart from that, the use of Balance Scorecard can also ensure a more effective reward system to be implemented in a firm. Traditional methods are concentrated solely on the financial performance, and this often can cause the workers to shape their behaviors purely to meet the stated financial targets. It is not unusual to find worker or management to game a company performance in order to meet the growth target, and they often do this by scarifying long term stability and prudence management to short term gains, which can be highly detrimental to shareholders’ wealth and could even threaten society interests.