Introduction: four specific goals and identified an appropriate measure

Introduction:

Balanced
scorecard refers to a performance management tool used by a management team. It
is a semi-standard structured report, supported by design methods and
automation tools. To keep track of the execution of activities by the staff
within the control and to monitor the consequences arising from these actions,
managers use this report. The characteristics that define a balanced scorecard
are:

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v  It
mainly focuses on the strategic plan of the organization concerned

v  To
monitor it selects a small number of data items

v  It
is a mix of financial data items and non-financial data items

Development
of balanced scorecards:

The first generation scorecard
identifies what measures are used to track the implementation of strategy to
design a balanced scorecard which is included in Kaplan and Norton’s writing.
This is done by using a “four perspective” approach and they were as follows:

v  The Financial perspective: These measures typically focus on the profit
and market share in a private sector whereas in the public sector, financial
measures include the results oriented measures required by the Government
Performance and Results Act of 1993 (GPRA). Managers should be answerable to a
question, “How do we look to Congress, the President, and other stakeholders”?

 

v  The Customer’s perspective: Here
the managers should evaluate
whether their organization is satisfying the customer needs or not. They must
be able to answer to a question, “How do customers see us”?

 

v  Internal business process perspective: To satisfy the customers needs, managers have
to focus on the critical operations. They should answer the question, “What
must we excel at”?

 

v  Organizational learning and growth
perspective: The
value of an organization depends upon its ability to innovate, improve, and
learn. Managers must pose a question, “Can we continue to improve and create the
value for our services”?

 

 

For
example, consider Senior managers at ECI. They have established general
goals to improve customer performance i.e. get standard products to market
sooner, improve customers time to market, become customers supplier of choice
through partnerships with them, and develop innovative products tailored to
customer needs. The managers translated these general goals into four specific
goals and identified an appropriate measure for each. 

Inorder to check whether the specific goal of
providing a continuous stream of attractive solutions is met or not, ECI
measured the percent of sales from new products and the percent of sales from
proprietary products. This information was available internally. Certain  other measures forced the company to get data
externally. To assess whether the company was achieving its goal of providing
reliable, responsive supply, ECI collected response from its customers. The
response from customer’s defined “reliable, responsive supply” differently, ECI
created a database of the factors as defined by each of its major customers.

The
second generation scorecard is based on strategic linkage model or strategy
map. This scorecard allows the individuals and the teams to define a set of
strategic objectives. These strategic objectives are plotted on a strategy map.
The third generation balanced scorecard refined the second generation of
balanced scorecard to give more relevance and functionality to strategic
objectives. Here testing of the business model is done by securing greater
clarity between the assumed non-financial drivers of performance and cash flow.

Implementation
of  balanced scorecard:

For the successful
development and implementation of a strategic scorecard Kaplan and Norton
identified five key principles. They were:

v  Translate
strategy into operational terms

v  Align
the organization to the strategy

v  Make
strategy everyone’s job

v  Make
strategy a continual process-strategy management meetings and the         learning process

v  Mobilise
change through executive leadership

Why
does a business need a balanced scorecard? :

The
benefits of adopting a balanced scorecard approach to performance management
may include:

 

v  It
creates a strategic view of performance in the long term

v  It
broadens the view of divisional managers in concluding what represents good
performance away from the solely financially oriented view

v  Organizations
can develop performance measures that are explicitly aligned to the corporate
strategy

v  Considers
customer view point which is critical in any business

v  Can
promote accountability as each performance measure could be the responsibility
of a nominated individuals

v  The
implementation of the balanced score card should be relatively simple and
understandable

 

Measurement:

The balanced scorecard consists of leading
and lagging metrics that the company, even departments and individuals can be
evaluated  to determine whether they are
on track. The executives are forced to put much concentration into performance
management as the strategy map solves the performance dilemma between the
financial objectives and the performance management goals to meet up the
mission and vision of the organization. Once a scorecard is ready to manage
performance, employees come to know how their job makes a difference to the
company by showing how their tasks contribute to departmental goals, which
ultimately leads to financial accomplishments that push the company closer to
its vision. With a scorecard, employees know where they stand, and can easily
determine in what areas they can contribute to the success of an organization’s
strategy.

           

Limitations:      

v  It
involves a lot of subjectivity. So, it not easy to implement.

v  This
tool is more complex when compared to other tools.

v  Creating
a balanced scorecard for an entire organization is a difficult task.

v  For
effectiveness, the entire organization should understand the theory for the use
of balanced scorecard.

Conclusion:

The balanced scorecard is a very important management
tool for organizations in identifying the pressure points, set-up of
objectives, planning and budgeting. It helps not only to measure the performance
but also to decide the strategies that are needed to adopt, to achieve goals of
an organization. Its application ensures the consistency of vision and action
which are the important factors for the development of a successful
organization. The proper implementation of the tool ensures the development of
competencies of an organization which finally leads to the competitive
advantage.