Balanced Scorecard: An Approach for Application in Public Sector Organisation - Term Paper Example

BALANCED SCORECARD: AN APPROACH FOR APPLICATION IN PUBLIC SECTOR ORGANISATION 0 INTRODUCTION: Irrespective of the structure, magnitude, industry or sector every organization strives to improve their performance and remain successful in terms of meeting their organizational goals. For achieving this, the organization needs to establish an appropriate management system which takes into account all the strengths and weaknesses of the organization and steer it towards success by timely decisions. The organizations should adopt a definite framework which can be used to help them develop their vision and goals for the future in a tangible, measurable way. This framework should enable the organizations to identify and understand the systemic nature of their business, the key linkages and cause and effect relationship. Through this process the organization is able to balance its priorities, allocate the available resources for maximization of the profits of the organization and generate realistic business plans. Over the years several research studies have been conducted in this field of the management science, and models like Balanced Scorecard has been developed which are basically designed for helping the organizations in their drive towards being more competitive in achieving their goals. This paper brings out an evaluation of Balanced Scorecard model as applied to a public sector organisation together with the implementation of the system as well as its operation and usefulness. 2.0 BALANCED SCORECARD AND ORGANISATIONAL PERFORMANCE: With a view to measuring a firm's activities in terms of its vision and strategies and to give the manager's a comprehensive view of the performance of a business, a concept which is described as Balanced Scorecard was introduced by Robert S. Kaplan and David Norton in the year 1992. There have been several studies conducted on the subject of Balanced Scorecard to develop the concept adaptable to the changing circumstances and needs of the organizations. 2.1 PERSPECTIVES OF THE BALANCED SCORECARD: "The Balanced Scorecard method of Kaplan and Norton is a strategic approach and performance management system that enables the organizations to translate a company's vision and strategy into implementation working from four perspectives." (12 Manage) The four perspectives are: 1. Financial perspective encompassing the implementation of a corporate database for processing the information in a centralized and automated way. 2. Customer perspective focusing on customer needs and customer satisfaction 3. Business process perspective by designing metrics to show the performance of the organization with strategic management processes, mission-oriented processes and support processes 4. Learning and growth perspective including employee training and corporate cultural attitudes related to both individual and corporate self improvement. (Kaplan & Norton 1996) For each of the perspectives of the Balanced Scorecard four things are required to be monitored and respective scores studied. Objectives: The overall objectives of the organization need to be studied and properly scored. The objectives may relate to the profitability, marketing or capacity utilization etc. Measures: Once the objectives are established the next logical step is to identify the proper tools and parameters and define them to measure the organisational's performance towards achieving these objectives. For example the growth in the net margin or the sales in a particular region may well act as the measurement parameters. Targets: When the measurement parameters are established suitable targets need to be evolved to transform the organizational objectives into reality. Achieving a reduction in the manufacturing cost to the extent of 5% annually may be fixed as a target. Initiatives: Proper initiatives in the form of projects of programmes need to be developed as a support for achieving the set targets. If the targets are supported by initiatives, it may not be possible for the organization to achieve its goals. 2.2 BENEFITS OF BALANCED SCORECARD: According to the Article on Balanced Scorecard by Six Sigma, Kaplan and Norton cite the following benefits of using the Balanced Scorecard: Focusing the whole organization on the few key thins needed to create breakthrough performance Helping to integrate various corporate programmes, such as quality, re-engineering and customer service initiatives. Breaking down strategic measures to local levels so that unit managers, operators, and employees can see what is required at their level to roll into excellent performance overall. 2.3 SHORTCOMING OF THE BALANCED SCORECARDS: People will work to achieve the explicit targets which are set. For example emphasizing traditional financial measures may encourage short-term thinking. "Kaplan and Norton, recognizing this, urge a more balanced set of measurements, which is good. Even so, people will work to achieve their scorecard goals, and may ignore important things which are not on the scorecard. Or, if the scorecard is not refreshed often enough, what looked like an important goal in January may not be very germane in June. Kaplan and Norton recognize these risks and they don't pretend that they have said the final word on scorecards." (Six Sigma) 2.4 BALANCED SCORECARD AND PERFORMANCE IMPROVEMENT: The performance evaluation and improvement is the key assessment area of large and medium companies alike. In the process of evaluation models like Balanced Scorecard goes a long way in helping the organizations critically analyse the functions of the organization concerned by offering managers a relatively small number of categories of key performance metrics to focus on. The central issues this tool considers in general are objectives, strategies and plans, target setting, reward structures and information feedback loops. (Wongrassamee et al. 2003) Kaplan and Lamotte (2001) argue that quality program performance measurement need not be exclusive of balanced scorecard measurement systems. They point out differences and synergies between the frameworks: The BSC emphasizes explicit causal links through strategy maps ad cascaded objectives more than the quality programs do. The BSC targets breakthrough performance whereas the quality programs rely on benchmarking approaches The BSC sets strategic priorities for process enhancements. The BSC integrates budgeting, resource allocation, target-setting, reporting and feedback on performance into ongoing management processes. 3.0 BALANCED SCORECARD AND THE PUBLIC SECTOR ORGANISATION: The Balanced Scorecard has risen to the performance measurement challenge of the private sector and is equally well-equipped to facilitate a rapid and dramatic transition to a public sector organization as well. Objectives: In contrast to the improvement of the shareholder value objective of a private organization, the efficient allocation of funds becomes the central objective in the public sector organization which represents the 'mission' of the organization. Hence in public causes like 'Reducing the incidence of HIV' or 'Increasing public safety' the organizational mission is well set which needs to be achieved by using the performance measurement tool of balanced scorecard. In a public sector organization which is in the utility sector providing Telecom Services or Electricity to the consumers, achieving a higher market share as opposed to the profit making private enterprises may well fit as the organizational goal or objective. The other perspectives of monitoring performance and learning from the results in the customer, internal processes, employee learning and growth and financial perspectives provide us the short and medium term information that may be required to guide the organization closer to the achievement of the central mission. Thus balanced scorecard in a public sector organization may be represented by the following diagram. Strategies: Irrespective of the mission and purpose, a private sector organization has to cultivate a clear and concise strategies for achieving the established mission. For example, raising of funds from benevolent and charitable organizations and organizing awareness programmes may well fit into the strategic parlance of a public sector organization involved in the 'Reducing the incidence of HIV'. The strategies must represent the priorities consistent with the unique situation pertaining to the organization and its mission. Technology up-gradation and provision of value added service may be identified as the strategies in service providing public sector organisations. The different strategies should also fit with one another in an effort to respond effectively to the organisation's challenges and opportunities. Once the strategies are evolved the balanced scorecard serves as the device for effective translation and implementation. Customer Perspective: One of the difficult processes in applying the principle of balanced scorecard is the identification of the customer. In the case of a private profitable organization, it is easier to identify the customers, while in the case of a public sector organization it is difficult to make the choice of the customer between the people who derive the service and who funds the mission including the legislative body who is controlling the functions of the organization. However balanced scorecard enables the managers to select a multiple choice of customers whom need to be served by the organization. "Each group of customers identified will likely result in different measures appearing in the other three perspectives of the Scorecard." (Paul R. Niven 2003) In our example the funding organisations or the government department in charge of the Anti HIV drive may be considered as customers. Even the people who were supposed to be educated by the programmes of the organization may be taken as customers. Simlarly in a public utility organization providing Telecom or Electricity service to the public the customer groups can be easily identified. In such cases the Customer Satisfaction may be quantified by the reduction in the number of complaints or the number of new connections may be taken as the customer satisfaction measure. Once the customer groups are identified the job of choosing the performance measures in all perspectives becomes much simpler. Financial Perspectives: Financial measures in a public sector organization can best be seen as the enablers of customer success or constraints within which the organization has to perform. Financial measures are consistent with the quality service delivery and achieving the mission. When services are performed with the least cost or with great efficiency the organization is likely to attract more number of funders. Taking the example of public organization engaged in the provision of utility services, the cost of providing such services can best be the best performance indicator and qualifies to be the financial perspective of the organization. Provision of value added service at lower cost is another indicator of the financial performance. Internal Process Perspective: According to Paul R. Niven (2003) every organization from the smallest local service agency to the largest departments of the Federal government will have documented processes for establishing their goals. Small organizations may have dozens, while larger entities may have processes numbering in the hundreds. The key to Balanced Scorecard success lies in selecting, and measuring, just those processes which lead to improved outcomes for customers, and ultimately allow the organization to work towards its mission. The processes that were chosen to focus on should normally flow directly from the objectives and measures chosen in the Customer perspective. Examples may include the provision of internal operational guidance for providing quality services by reduction in the number of complaints in the case of service organizations. Employee Learning and Growth Perspectives: Skills, dedication and alignment of their staff to achieve their socially important goals are the factors which the public sector organizations have to rely on for the achievement of their organizational goals. Motivated employees with the right mix of skills and tools operating in an organizational climate designed for sustaining improvements are the key ingredients in driving process improvements, working within financial limitations, and ultimately driving customer and mission success. The right mix of skills and competencies of employees, the information flow and the organizational climate under which the employees function are the important parameters for applying the balanced scorecard and derive the benefits there from. 4.0 CONCLUSION: Thus the Balanced Scorecard approach enables the organization to enhance the clarity of their vision and strategy to translate them into action. The Balanced score card practice has been able to help the managers to take the advantage of metrics- based organization demonstrating alignment to the community they serve as well as the ability to better communicate organisational values. Based on the feedbacks organizations clarify current and future needs of customers and customer groups and develops services accordingly. Organisations follow the satisfaction of the customers and try to forecast the changes. This model along with many other tools and models developed as a result of various research studies have helped the public sector organizations as well to strengthen their efforts towards achieving the organisational goals of excellence and result in an enhanced organizational performance. Reference: 1. 12 Manage Balanced Scorecard: Management Methods, Models and Theory [Online] Available from http://www.12manage.com/methods_balancedscorecard.html Accessed on 13th March 2007 2. Kaplan, Robert S. & Lamotte, Gaelle. (2001). The Balanced Scorecard and Quality Programs. Balanced Scorecard Report. March 15, 2001. 3. Kaplan, R.S. and D.P. Norton, The Balanced Scorecard: Translating Strategy into Action. Boston, MA: Harvard Business School Press, 1996. 4. Six Sigma Balanced Scorecard [Online] Available from http://www.isixsigma.com/offsite.aspA=Fr&Url=http://www.skymark.com/resources/methods/balancedscorecard.htm Accessed on 13th March 2007 5. Wongrassamee, J.E.L. Simmons, P.D. Gardiner (2003) Performance measurement tools: the Balanced Scorecard and the EFQM Excellence Model Measuring Business Excellence Journal Volume 7 No 1 pp 14-2 6. Paul R. Niven 2003Adapting the Balanced Scorecard to Fit the Public and Nonprofit Sectors [Online] Available from http://www.balancedscorecard.biz/articles/adapting_BSC_Public_Sectors.html Accessed on 13th March 2007 Read More