Implementing the balanced scorecard strategy in your firm 

The balanced scorecard (BSC), which first began to be utilized in the 1990s (Blocher, 2022), is a holistic cost management tool that looks at several facets of an organization’s performance in order to build a strategy match for performance evaluation and improvement.

Unlike some other cost accounting methodologies, BSC looks at non-financial data, mostly from an internal perspective, to help design a strategy map for an organization that encompasses everything from employee learning and development to financial performance. (Blocher, 2022).

The following presents a synopsis of how this framework can be implemented in accounting practices to build a strategy map for sustained growth.            

Balanced Scorecard

Critically, the balanced scorecard relies on tying together the various aspects of an organization, identifying various measurement indicators for each area, and then getting buy-in from employees throughout the entire organization. (Narasimhan, 2004). The interrelatedness of each indicator is the core success factor in the BSC model.

The reason for the popularity of the BSC model is the causal effect between each indicator, without dominance placed only on financial performance. (Perramon et al., 2016). The four primary components of a balanced scorecard model are financial, customer satisfaction, internal processes, and learning and growth. (Blocher, 2022).

Each of these are discussed below with methodologies for implementation:

Financial

Financial profitability is not the only emphasis of BSC, which is one of the unique factors of this model, however, it is still a key component. Financial indicators can include everything from profitability, gross profit margins, increase in sales, return on investor equity, to costs per project. (Blocher, 2022). We’re focusing on analyzing serviced-based accounting firms.

Current financial indicators monitored by management should include monitoring of week over week sales growth by tracking the number of new client leads as well as a number of new closed leads. Cash flow forecasting also is critical to determine if at least 90 days of cash always is available for operations. Internal models should be developed to track internal costs by project.

Internal costs mostly include time for labor as the business is a service model with no tangible goods or products to deliver. Models of internal costs include employee hourly rates as well as burden, or overhead rates that include general and administrative expenses like rent, utilities and software costs. I recommend calculating a general burden rate that can then be added to employee individual hourly costs in order to cost specific jobs by assigned team members.

Analysis by project should be done consistently to determine what the most profitable projects are overall and how to duplicate them in the firm’s portfolio. The objective is to drive profit margin up without having to painfully cut costs, or personnel. The increased profit margin will then drive return on equity to the company’s investors for long-term sustainability.

Customer Satisfaction

Customer satisfaction indicators are driven by two primary focus points; measuring for an increase in customer satisfaction and reducing “order time” or increasing overall responsiveness to the client. (Blocher, 2022). In order to understand how to increase customer satisfaction, however, the executive management team must first have a good understanding of what satisfies the customer.

In a 2013, management review article, authors listed six factors that contribute to overall customer satisfaction; adaptability, commitment to customers, connection to other customers, product assortment, easy transactions and appealing environment. (Anderson et al., 2013).

In short, these factors mean understanding that our service is not “one size fits all” for every customer, being responsive and resolving customer concerns, allowing clients to offer their opinions or allowing opportunities for our clients to network with one another, offering multiples services or even multiple tiers of the same service to allow clients an opportunity to choose a good fit, easy to understanding pricing without hidden fees and an environment to communicate with us that is comfortable for our clientele. (Anderson et al., 2013).

Because each aspect of the model is related and thus interdependent, failing to achieve success in one area will hinder the others. For example, poor customer satisfaction will most likely lead to poor financial performance which will hinder the company’s ability to commit financial resources to improve internal processes and learning and growth. This in turn most likely will result in a frustrated, stagnated staff of employees who will have little commitment to achieving customer satisfaction and hitting financial targets.

In order to review your current state of customer satisfaction, survey your clients and ask for feedback. It is critical to obtain a healthy number of honest responses in order to know where to focus your efforts. A common theme across accounting firms is always slow response times.

Focusing your resources, either for training, technology or both in improving the timeliness and quality of client communication can have a direct and significant impact on the firm’s performance.

Internal Process

Internal process focuses primarily on improving the quality of work product and productivity while reducing the number of issues. (Blocher, 2022). Internal process, to be effective, requires quality control methods in place. Reducing the number of potential issues requires strong systems in place, quality control checks and a management team that understands expectations for internal processes.

Issues could range anywhere from inaccurate information provided to a client, poor communication times, lack of proper documentation for work or breaches of security with information. Improving quality requires a framework of quality control in place for all these varying areas of the business.

Standard quality management systems, such as the ISO 9001 exist for management’s use to put into place a framework of quality control. ISO 9001 is one standardized tool that can be used to start implementing quality control.

Items of measure that are utilized in this system that can be implemented include focusing on lowering manufacturing cost, increasing perceived client value, and faster throughput time. (Ikram et al., 2021). Management may effectively communicate expectations and control procedures, but if there are no accountability checks in place to ensure those procedures are followed and there are no control checks to ensure that the current internal processes produce error-free work, the communication alone is ineffective.

Most specifically, internal process issues begin to affect client satisfaction, which then affects financial profitability. As we foundationally begin to see the links between these subsets of the BSC it’s critical to identify how each affects the others.

Learning and Growth

Learning and growth are not the least of the four components of BSC. Learning and growth of the team will directly impact internal process, the team’s ability to follow internal processes as well as their ability to help develop and maintain processes that result in high levels of production and low levels of error. To have team buy-in for process improvement and maintenance at the highest standards, you need a loyal team that is not bored or uneducated.

This facet of the BSC requires communicating the overall company strategy to the team effectively and frequently to achieve buy-in at all levels, enhancing employee skills to achieve goals, and improving the use of technology to support sustained growth and high levels of productivity.

Employee buy-in from this stage is critical, providing learning and growth opportunities helps to strengthen loyalty and commitment. (Blocher, 2022). Employee loyalty requires an emotional commitment and directly impacts the performance of the firm. (Flory and Eduard Bonet, Marja et al., 2014).

Enhancing employee skills has the ability to enhance employee commitment, which in turn helps to improve internal processes as well as the commitment to follow procedures, which in turn helps to ensure higher levels of customer satisfaction which in turn contributes to higher financial margins for the firm as a whole. Focusing on gaps in employee knowledge, lapses in training, inefficiencies, and poor use of technology can contribute to an overall more efficient and committed staff.

A clear path of improvement should be set for each individual, customized to the skill sets they need to develop to be most efficient in their role. By the firm providing the support employees need to be more efficient and better trained, levels of stress can potentially be combated leaving more room for management to achieve emotional commitments from the team to the greater strategy.

The balanced scorecard helps the executive team to focus on what they actually need to measure instead of only measuring what they want. (Kaplan, 2012). The multi-faceted scorecard approach provides a framework that can be consistently understood and utilized throughout the organization.

The balanced scorecard offers the ability to apply a framework to any size organization, effectively taking human aspects out of the framework in order focus the firm on the critical pieces needed for sustainable growth and building a strategic model. (Kaplan, 2012). Firms should start by assessing their measurement tools in each of the four key areas.

Focus on implementing measurements for each area in order to determine current levels of performance to track performance improvement as the model is implemented.

References