Evaluation of business performance can be quite a daunting task especially for large corporations that have many different departments and business units, and thus multiple goals and strategies. Why evaluate business performance? The reason is quite simple. It is a tough competition in the market. The problem is that you can hardly find a market or a niche without any competition. It means that if the company wants to achieve success it should gain competitive advantage in order to retain customers and enlarge customer base. Evaluation of business performance is also a must when designing strategy and strategic plans. It is impossible to plan anything ahead without being aware of what is going on in the company and what problems it is facing now or is going to face in future. Through evaluation of business performance it is possible to forecast potential problems and dangers for any business. Yes, it is that simple. Sure thing, it is impossible to be 100% accurate, however, being armed with accurate figure some current business performance it is possible to look in the future and anticipate problems, as well as solve them before they destroy business.
Business performance evaluation requires special knowledge, practical experience and skills. The same time it is impossible to correctly assess car and co performance without having reliable and accurate performance evaluation tools. On top of that, such a tool should be a part of strategic management plan. This is to say that figure's obtained through evaluation of business performance must be used in strategic planning otherwise there is no point in assessing business. Why get information and never use it?
The history of business knows many examples of performance evaluation tools. Most of them measure only financial indicators and everything related to company profits, expenses, losses etc. No wonder that these figures do not tell much about what is going to happen in the market or in the external business environments. Creators of Balanced Scorecard, Norton and Kaplan, were the first experts in business and strategic planning who introduced other indicators, besides financial ones. It appeared that nonfinancial indicators offer much valuable information as well as measure things that were thought to be useless for strategic planning and performance evaluation purposes. Balanced Scorecard was designed to combine financial and nonfinancial indicators to offer top managers, shareholders and business owners a complete picture of what is happening in the company and how the company is implementing strategic goals that were agreed before.
Why is Balanced Scorecard so popular and effective in evaluation of business performance? BSC consists of four categories: financial, customer, internal business processes, learning and growth. However, BSC model can be extended up to five categories or even more, depending on company goals and structure. The four categories are interrelated and the cover the most important aspects of business management. Financial category contains measures that are related to company finances, customer category evaluates relations with clients and their expectations, internal business processes focus on what needs to be done to offer customers high quality products and services while learning and growth category concentrates on improvement of personnel knowledge and skills.
