Organizational Performance - Case Study Example

ORGANISATIONAL PERFORMANCE: THE ROLE BALANCED SCORECARD AND EFQM EXCELLENCE MODELS 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 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. Over the years several research studies have been conducted in this field of the management science, and models like Balanced Scorecard and EFQM excellence models have been developed. This paper brings out a critical evaluation of Balanced Scorecard models developed by Kaplan and Norton as also the EFQM excellence model promoted by the European Foundation for Quality Management. 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 further. 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 FEATURES OF BALANCED SCORECARD: The monitoring of the perspectives of the Balanced Scorecard involves the development and usage of the following features within the broad organizational performance arena. Double-Loop Feedback: It is always essential, in order to exercise a proper control on the performance measures, there need to be data feedback to enable the mangers to determine the cause of variations and identify the processes with significant problems. This would enable the managers to focus their attention on repairing the subset of processes. The Balanced Scorecard method includes feedbacks around internal business process outputs. Additionally the Balanced Scorecard provides a feedback for the outcome of the business strategies. This creates a double-loop feedback process in the balanced scorecard. Outcome Metrics: Based on the priorities of the strategic plan, the managers should develop metrics which provide them the key business drivers and criteria which are very essential for the managers to watch for improvement. Processes are then designed to collect information relevant to these metrics and reduce it to numerical form for storage, display and analysis. Decision makers examine the outcome of various measured processes and strategies and track the results to provide the feedback. This allows the monitoring of present performance. According to the Article by 12 Manage, the value of metrics is in their ability to provide a factual basis for defining: Strategic feedback to show the present status of the organization from many perspectives to the decision makers Diagnostic feedback into various processed to guide improvements on a continuous basis Trends in performance over time Feedback around the measurement methods themselves, as to the particular measurements which need to be tracked Quantitative inputs for forecast methods and for decision support systems Management by Fact: University of Houston paper on Management by fact states that a major consideration in performance improvement and change management involves the selection and use of performance measures or indicators. The measures or indicators the managers select should best represent the factors that lead to improved organisational, operational, and financial performance. A comprehensive set of measures or indicators tied to the managers, stakeholder, and/or organizational performance requirements represents a clear basis for aligning all activities with the organization's goals. Through the analysis of data from the tracking processes, the measures or indicators themselves may be evaluated and changed to better support the organisational goals. 2.3 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. 2.4 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 and EFQM go 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 these two tools consider 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. A major strength of the balanced scorecard is the emphasis that the tool has placed on the linking of the performance measures of the firm with the strategies and objectives of the business unit. Kaplan and Norton (1996) in their work 'Strategic Framework for Action' have introduced the following linkage of the scorecards with the business strategies: 1. Clarification and translation of organisation's vision and strategy 2. Communication of the strategic objectives and linking them with the performance measures 3. Planning, Setting Targets and aligning strategic initiatives 4. Enhancing strategic feedback and learning. Hence the steps involved in measuring the performance of a company using the balanced scorecards are: Definition of goals and the measurement of goal congruence in terms of the financial aspects and satisfaction of the stakeholders The second stage is planning and implementation of the plans, in which the managers and executives should illustrate the plan of how to attain the corporate goals as well as deploying the company strategies. The next logical step is target setting. Setting a level of target performance is usually associated with benchmarking and providing an opportunity to compare company performance levels with others engaged in similar operations To ensure the attainment of the targets certain steps of motivation and provision of incentives are required which forms the next step The final step is using the feed back and feed forward information to support and coordinate the process of making decisions and taking action throughout the organization. It is for the management to develop and adopt broader comparable bench marks which function as scorecards against which the actual performance can be measured. 3.0 EFQM EXCELLENCE MODEL: The European Foundation for Quality Management's (EFQM) Excellence Model is a tool and method that helps organisations achieve business success by measuring where they are on the path to excellence; helping them understand the gaps; identifying potential solutions for bridging the gap; and by importantly providing an approach for implementing the gap-bridging solutions. The EFQM Concentrates on the whole of an organisation's activities Is concerned with internal processes and use of resources as well as performance and outputs Applies assessment processes to indicate where an organisation is performing well and where poorly Provides clearly defined standards as a baseline for continuous improvement Provides results on the basis of which the most effective approaches can be designed and resources deployed Provides means of assessing and reviewing the effectiveness of the approaches chosen (EFQM home page) The EFQM excellence model encompasses nine basic criteria divided into five 'enablers' and four 'results'. While the enablers cover what an organization does, the results criteria cover the achievements of an organization. Results are caused by enablers and enablers are improved using feedback from results. Enablers: The enablers are: Leadership Policy and Strategy People Partnership and Resources Processes Results: The results are: Customer Results People Results Society Results Key performance Results 3.1 EFQM and Performance Improvement: Otley (1999) has developed five key questions concerning the performance evaluation of an organization. These questions center round the key objectives, strategies and plans, targets in the level performance, rewards and penalties and feed-back and feed-forward information flows. The EFQM model helps the management to use total quality concepts to define their organizational objectives in terms of the financial perspectives and the satisfaction of the stakeholders are concerned. Broader organizational goals are determined by equating them to attainable quality standards. It also involves effective changes in decision-making and leadership capabilities of the managers themselves. A clear assessment of the organizational goals against the enablers and results of the EFQM is the starting point for the performance evaluation under EFQM. Although EFQM does not provide any suggestions on forming strategies or plans, it provides guidance about what areas will be examined for the European Quality Award Scoring System. Based on the guidance the organization should transform its objectives in to strategies and plans to be pursued in achieving the quality excellence and thereby attaining the broader organization goals set. As regards the Target setting the EFQM provides the scope for target setting by specifying the results criteria which can be expected with a proper performance of the enablers. Hence the model has not provided for any direct suggestions for target setting. By setting the results criteria the EFQM necessitates the establishment of clear targets. People Management and People Satisfaction is the Enabler and Result criteria respectively recognized by the EFQM. Moreover the criterion of 'how people are rewarded, recognized and cared for' is an aspect for judging the European Quality Award. This means that the specific area of reward structure has now been recognized by EFQM Finally the information flow is a part of EQFM excellence model. According to Wongrassamee et al. (2003) the four result criteria are considered as major feedback information flows. There definitely should be feedback information flows from the Results criteria to Enabler criteria in the excellence model. In other words the cause of the four result criteria need to be identified, quantified and prioritized in order to enable managers to perform appropriate actions. 5.0 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 serve as well as the ability to better communicate business values. On similar grounds the EFQM model as a quality management system used to examine organizations functions, operations and results as a whole. REFERENCES: 1. 12 Manage Balanced Scorecard: Management Methods, Models and Theory [Online] Available from http://www.12manage.com/methods_balancedscorecard.html Accessed on 06th March 2007 2. EFQM Home page The EFQM Excellence Model [Online] Available from http://www.efqm.org/Default.aspxtabid=35 Accessed on 06th March 2007 3. Kaplan, R.S. and D.P. Norton, The Balanced Scorecard: Translating Strategy into Action. Boston, MA: Harvard Business School Press, 1996. 4. Kaplan, Robert S. & Lamotte, Gaelle. (2001). The Balanced Scorecard and Quality Programs. Balanced Scorecard Report. March 15, 2001. 5. Otley D.T (1999) Performance Management a Framework for Management Control System Research Management Accounting Research Vol 10 PP 363-82 6. 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 06th March 2007 7. University of Houston paper Management by Fact [Online] Available from http://www.uh.edu/infotech/php/template.phpnonsvc_id=456 Accessed on 06th March 2007 8. 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 Read More