Organizations can either be profit or non-profit. For profit organizations, the main aim is to make profit. No matter what kind of business a profit organization ventures into, the most important thing is to have customers. All profit organizations have relevant customers that must be taken into consideration. The main aim of non-profit organizations, however, is to generate some kind of social impact. To smoothly run their operations, the non-profit organizations need to secure steady resources or income (either from donors or volunteers). Such organizations may not have relevant customers to take into consideration.
An example of an organization that does not have relevant “customers” to take into consideration is The Red Cross. One of the services that Red Cross offers is blood transfusion. The patients receiving the blood are like the customers. They are the receivers of service/care. Red Cross doesn’t consider how these “customers” view it in order to achieve its mission. It does not take into consideration what must be done, from the “customer’s” perspective, unlike the profit organizations. Its service delivery depends on those who contribute to the organization, such as the blood donors. In an organization where all the parts of the balanced scorecard operate equally, customer service is a major priority. Such organizations greatly mind about how customers view them. The management must identify specific issues that are of most importance to the customers. In order to achieve their mission, the organizations must focus on what must be done, from the customers’ perspective. This leads to customer satisfaction in terms of cost, quality, performance, and time, which is a major competitive advantage.
The stakeholders of an organization include the shareholders, employees, customers, and the society in general. All the stakeholders have interests and sometimes, all their interests cannot be served perfectly. What results is the conflict of interest. For profit organizations, the main interest of the shareholders (owners) is to maximize their income (profit) and minimize the expenses. Workers, on the other hand, need good working environment and better remuneration. Increasing the wages and improving the working conditions lowers the profits of the organization thus conflicts the interests of the shareholders. The management would always try to cut costs in order to maximize profits, even if it means increasing the workload or laying-off some employees. No employee would wish for this.
In order to align the interests of the employees and the shareholders, the organization should ensure that the main concern of both stakeholders is the growth of the business. The employees should be in a position to share the performance-related pays. This can be achieved through widening the participation of share ownership among all the employees.
A balanced scorecard has four perspectives: the customer, internal business (processes), innovation and learning, and the financial (shareholder) perspective. The balanced scorecard is all about balancing the four perspectives. The most difficult aspects of simultaneously balancing the four perspectives in the balance scorecard are the complex interrelationships between different business processes. Balancing means that the organization’s performance should be maximized from all perspectives. The organization should not maximize a given perspective at the expense of another. In situations where improvements in one area affect the other areas, simultaneous balancing becomes a problem. For instance, improving the customer perspective (by improving the customer service) harms the financial perspective.