How the Balanced Scorecard Helps Improve Business Performance and Gain Sustainable Competitive Advantage

How the Balanced Scorecard Helps Improve Business Performance and Gain Sustainable Competitive Advantage

Jorge Gomes (ADVANCE - Centre for Advanced Research in Management, Lisbon, Portugal) and Mário Romão (ADVANCE - Centre for Advanced Research in Management, Lisbon, Portugal)
Copyright: © 2017 |Pages: 18
DOI: 10.4018/IJEEI.2017070103

Abstract

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. So, why do some companies outperform others? This question has been intensely debated by strategic management researchers over the last decades. Several authors point out three broad explanations: (1) the mistakes made by some firms create advantages to others; (2) firms that exploit market power gain advantages over others; (3) firms with special capabilities gain advantages over others. Competitive advantage is recognised as being the major cause for explaining top organizational performance and is a fundamental goal of academic strategic management studies. More recently, the research focus goes to an expanded view of the concept, the sustainable competitive advantage (SCA), highlighting the idea that some forms of competitive advantage are very difficult to imitate and can therefore lead to persistent superior economic performance. This article aims to show how a Balanced Scorecard (BSC) can contribute to achieve SCA. It also collects a set of useful information related to several areas that have used this framework as a support to improve the performance of their organizations. Researchers, managers and practitioners recognize the virtues and potentialities of the BSC concept, although some critiques are also referenced.
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Introduction

A core competence is a capability or skill that a firm emphasizes and excels in doing while in pursuit of its overall mission. Core competencies that differ from those found in competing firms would be considered distinctive competencies. Distinctive competencies that are identified and nurtured throughout the firm, allowing it to execute effectively to provide products or services to customers that are superior to competitor’s offering, become the basis for a lasting competitive advantage (Neely et al., 2001).

Recently, there has been an increasing amount of empirical research about competitive advantage (Ray et al., 2004; Newbert, 2008) and about distinguishing competitive advantage from organisational performance (Powell, 2001). The relevance of competitive advantage is not simply determined by external factors (Porter, 1985), but also by those internal sources (Barney, 1991) that have been considered critical for successful organisations.

Porter (1985) refers that competitive advantage is at the heart of organisational performance in the competitive business environment. The core of this view is that to achieve competitive advantage, firms should systematically provide added value to customers relative to the competition. A competitive advantage exists when the firm can deliver the same benefits as competitors but at a lower cost (cost advantage) or deliver benefits that exceed those of competing products (differentiation advantage) Porter (1985). The authors of the resource-based view (RBV) approach include a wider range of possible advantages, such as; physical capital (Williamson, 1975); human capital (Becker, 1964); technological opportunities and learning (Teece, 1980, 1986); and organizational capital (Tomer, 1987).

The RBV theory approach focuses on the characteristics of resources and the strategic factor markets from which they are obtained to explain firm heterogeneity and sustainable advantage (Olivier, 1997).

Peteraf (1993) defined competitive advantage as being sustained performance above normal returns, and Barney (2002) claims that superior performance is obtained through the value generation of internal resources usage. The research of Wernerfelt (1984), Rumelt (1984), Barney (1986), Dierickx and Cool (1989), Amit and Schoemaker (1993) and Peteraf (1993) have all been recognised as a reference for the study of SCA based on the RBV.

RBV highlighted the relevance of intangible resources as a crucial factor for SCA. Intangible assets, such as intellectual property, knowledge and skills of employees or relationships with our customers, are all sources of competitive advantages and long-term financial success, which are both increasingly important for organisations today (Kaplan & Norton, 1992, 1996, 2000).

According to the RBV approach, to develop a competitive advantage, the firm must have resources and capabilities that are superior to those of its competitors. Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. Capabilities refer to the firm's ability to utilize its resources effectively. The concept of dynamic capabilities (DCs) that is an extension of RBV for its ability to respond to rapidly technological change (Teece, 2007) is gaining greater attention in strategic management and has becoming an attractive topic since early 1990s.

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