Balanced scorecard is a system which aligns the every day activities of the business to the strategic vision of the company. It helps the management in measuring the performance by telling them what is to be measured. It enables executives to ensure that the day-to-day activities are channelled to the company strategy. It is said to be first developed and used by the Analog Devices in 1987 though it gained popularity with the publications by Robert Kaplan and David Norton in the year 1992.

Balanced scorecard technique is used to scrutinise the way the relationship stands with the customer and how it can be improved in the long run to achieve the strategy. Matrices like Customer Value Proposition or CVP consists of all the benefits the customer has been promised by the vendor for the amount paid by him. The balanced scorecard helps to identify the actual cost incurred on the product and services provided to the customer and the relative advantage of retaining the customer. The use of this application aids in the easy identification of the profit margin created by each product and service.

Today’s business world is facing a major hit on the profit margin on account of the price wars between the companies in the industry and the fall of the dollar. With major pricing on customers being done in dollars, the last year financial results saw a fall in the profitability margin. The companies now play a game of retaining their share in the market. With this intention they are willing to provide a great number of value added services for free, which have a further negative impact on the profitability as these costs are not met by the price paid by the customer.

The balance scorecard tries to introduce ‘time-driven’ activity based accounting which was introduced by Harvard Business Review to identify the cost incurred on a particular product. This technique uses the cost incurred per hour by each group for performing the task and the time spent on these resources to calculate the cost of each product. For example if the company incurs $50 on the resources utilised per hour, and it works for 40 minutes on a product the cost will be $40 ($50*.8 hours). The base cost will include all the charges till the delivery is made and the payment is received. For additional customised features the company can charge an amount which covers the cost of the same. These might be in the form of extended credit facility, an add-on to the product, etc.

Balanced scorecard by adding non-financial matrices to the financial ones helps to identify the customers’ contribution to the overall profitability. When the cost per product or incurred on each customer is identified the company can evaluate the profit margin contributed by each customer. Steps to retain those who contribute significantly can be done on the basis of this analysis. If the customer has a major share of business, but fails to add to the profit margin, the company management can evaluate the reason for the same. If the impact on the profitability is on account of the company inefficiency, steps must be taken to overcome the same. But if the negative result continues, there is no meaning in progressing with such a partnership.

Use of the balance scorecard can help in the creation of long term profitable relationship with the customer rather than short term gains, thus striving towards the strategy attainment.