Balanced scorecard in corporate India: From philosophy to practice

It has been a common and traditional practice of companies’ world over including India during the industrial age environment to measure their performance by financial measure, i.e. profit. Profitability measurement in terms of return on investment, return on sale, return on capital employed, earnings per share, etc. are, what Pandey (2005: 52) considers, the ‘bottom-line’ results used to measure the performance of companies. But, the financial performance of a company is characterised by the features like ‘historic in nature,’ ‘after-the-events,’ or ‘lagging’ which depend on numerous events that would have occurred months or years before and over which company did not have any control at present. Performance improvement being a critical component of the strategic planning process, financial performance measure lacking in futuristic look prove inadequate for strategic planning.

However, the relevance of financial measures has been questioned in the information age environment when companies are building internal assets and capabilities. The major problem with financial measures is that they do not directly focus on non-financial variables otherwise very critical in affecting company's financial performance. For example, a financial decision of cost cutting on research and development (R&D), employees’ training, and after-sale services might, no doubt, benefit in short-run at the cost of long-term customer satisfaction. Thus, it means that non-financial indicators ultimately affect the financial indicators. In view of this, a good performance appraisal measurement system should incorporate the measurement of lagging, current, and leading indicators of companies. This realisation has necessitated growing concern among companies worldwide to measure performance based on both financial and non-financial measures, which is dubbed as the ‘balanced scorecard’. The concept of BSC initially originated in the USA during 19^th century and is of a relatively recent origin in India. In this article, we shall investigate the philosophy and practice of balanced scorecard in corporate India.