Balanced scorecard as management system

One such system was the “Corporate Scorecard” that contained besides the traditional financial measurements, other performance process and effectiveness of new product development. Various other systems were studied but the study group (whose academic consultant was Robert Kaplan, author of the seminal book on Balanced Scorecard) felt that the Scorecard was the most promising. Future refinements were made to the Scorecard to shape it into the “Balanced Scorecard” – “balanced” between the external performance indicators (financial & customer) and internal performance-indicators.

In India too, the Balanced Scorecard has been implemented in Mahindra & Mahindra, Wipro, Goodlass Nerolac Paints, BPL group, Taj group of Hotels, Godrej GE, RPG Cellular, TVS Fasteners,TISCO etc. Outside India, it is known to have been implemented successfully even in Schools, Governments, Municipalities and Sports bodies. Traditionally, the only method of measuring business performance has been financial. Over the years, this financial reporting and evaluation of business have progressively evolved and become increasingly sophisticated. However, the overemphasis on financial evaluation, that too on a quarterly or at least annual basis has been found to make businesses and managements focus overly on short term performance. Businesses tend to give short shrift to strategies involving investments in long term growth opportunities. This is particularly so in respect of resource allocation on human resources development and R&D.

The Balanced Scorecard, (BSC), endeavors to integrate the financial indicators of past performance and the drivers of future 4 parameters viz. a) Financial, b) Customer, c) Internal Business Processes and d) Learning and Growth (employee). It thus takes an integrated view of the Customer. Internal Business Processes & the Employee and links them to the financial performance indicators to simultaneously monitor progress in building capabilities and intangible assets required for future growth. Consequently, it is a balance on the one hand, between the objective and easily quantifiable results of past decisions and the other, the internal and subjective performance drivers of future growth viz. Learning and Growth & Internal Business Processes. In a nutshell, the Balanced Score Card helps the business keep renewing itself and remains entrepreneurial.

Innovative companies use the BSC to manage their long term strategy. Incidentally, in the US today, approximately 50% of the companies are said to have developed a Balanced Score Card for themselves. The Balanced Score Card is most effective as an instrument of change. This is why innovative companies find it so useful to use the BSC to reinvent themselves. It is more than an operational measurement system. It is, in fact, a Strategy Management System. It is meant to convert the Mission and Strategy Employee (learning & growth).It is not a tool for measuring past behavior but rather for aligning individual, Departmental & organizational goals towards the overall organizational strategy.

Before starting on building a Balanced Score Card in an organisation, we need to know what it’s Vision, Mission and not for CREATING one. More importantly, there has to be a clear on the organisation’s strategy as well as the purpose of introducing the Balanced Score Card. Even at the cost of repetition, it needs to be clarified that the purpose of Balanced Score Card is not introducing an improved measurement system but aligning the organization and its various constituents with its long term strategy and bringing about changes there for on a sustained basis.

PROCESS OF BUILDING A BSC

  1. IDENTIFYING THE APPROPRIATE BUSINESS UNIT:

Ideally, the business unit for which a Score Card is to be built should be one which covers an entire value chain from product development to marketing to operations and selling/service. If the unit has a clear independent strategy, the Balanced Score Card can be effectively deployed therein. E.g. in our Bank, the BSC could be adopted separately for the Corp. Acts. Group, Leasing SBU, Project Finance SBU, Foreign Offices and individual Circles independently.

  1. DEFINING THE SBU/CORPORATE LINKAGES

Defining the linkages with other SBUs is necessary, so that objectives and measures of one SBU do undermine the objectives and measures of the other SBU, in order to optimise the impact of the Score Card for the organisation as a whole.

III. IDENTIFYING THE SBU OBJECTIVES

Based on detailed discussions with the top executives of the Organisation, as well as the SBU concerned, a consensus is arrived at on the objectives of the SBU, in the background of the Organisational & SBU vision, Mission & Strategy.

FINANCIAL PERSPECTIVE

The financial objectives to be laid down would be dependent on the stage of the particular business life cycle e.g. If the business is passing through the growth stage, the financial objectives could be rate of growth of sales ( & not profits perhaps, because fresh investments would still be required), customer acquisition, and so on. The objectives for a business passing through the sustaining stage would be ROCE. Market Share and various harvesting stage would focus on cash flows. Further, each object would in turn, have one or more measures, targets and a set of initiatives.

CUSTOMER PERSPECTIVE:

It is essential for organisations to understand the needs of its existing and potential customers and well before the competition, if they do not want competitors to eat away their customer base. Customer Perspective enables an organization to align its core customer outcome measures —Satisfaction, Loyalty, Retention & Acquisition to the targeted segment.

INTERNAL BUSINESS PROCESS PERSPECTIVE:

When looking at internal time & costs with a simultaneous improvement in quality. While this strategy definitely goes a long way in improving the existing efficiency of a business, this may not be sufficient for achieving the corporate vision.In today’s competitive environment, where every organization is trying to do the same, this may not be enough to gain a sustainable competitive advantage over the long run perspective. The organization needs to identify the processes which are most critical for delivering the objectives identified under the customer and financial perspectives for achieving the process objectives to financial and customer perspectives itself requires that companies create and focus on two essential internal business processes, viz.: a) managing existing relationships and, b) anticipating and influencing customer’s future demands.

Innovation, therefore, becomes a critical objective of the internal business perspective. For many companies and in many environments innovativeness is rated more important than excellence in day to day operations. This is particularly so in software, consumer durable and electronic hardware industry.

LEARNING & GROWTH PERSPECTIVE

The Information age has revolutionized the way managements view their employees. Managements now believe that ideas for improving processes come increasingly from front-line employees if their morale & satisfaction levels are high. Satisfied employees are considered to be a precondition for increasing productivity, responsiveness, quality and customer service. Surveys have shown that satisfied employees tended to have the most were the lowest paid & the lowest skilled employee is the one coming directly in contact with the customer.

CONCLUSION

A SUCCESSFUL Balanced Scorecard is one that effectively communicates a strategy through the integration of a set of financial and non financial parameters.The Scorecard becomes a holistic model of the strategy that allows all employees (and departments) to see how they are and how they can contribute to organisational growth and success.Without such linkages, individuals and departments can still optimize their respective performances, but they would not be able to orient their performance so as to contribute to achieving strategic objectives of the organisation.The scorecard helps focus on such strategic objectives and change efforts.If the right objectives and measures are identified, implementation is likely to be more successful.If the right objectives and measures are not identified, linkages of various departments with the overall organisational strategy are likely to be missed and go waste.


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↑ Posted on June 8th, 2015

About Mohan Manohar

is a blogger from India who founded Ittech back in 2007. He is passionate about all things tech and knows the Internet and computers like the back of his hand.You can follow Mohan onhttps://about.me/mohanmanohar

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