Balanced Scorecard for Banagas - Essay Example

Balanced Scorecard for Banagas (Bahrain National Gas Company) I. Introduction The use of Balanced Scorecard as a tool of strategic planning is a very common phenomenon. The reason for the introduction and the application of such a technique in the organizational environment can be found to the high range of elements available towards its application and evaluation regarding a specific firm. On the other hand, the availability of a series of measures for the estimation of the company’s performance after the introduction of such a scheme has resulted to the extension of its application among the firms that currently operate in the global marketplace. This paper examines the application of Balanced Scorecard in Banagas a company that activates in the marine industry. The company has an international presence however its performance has been found to be enhanced after the implementation and the application of Balanced Scorecard in its daily operations. In this context, the results and the outcomes of this strategy are measured and evaluated taking into account both the efficiency of the specific market as well as the findings of the empirical research and the literature regarding the specific area of knowledge. II. Balanced Scorecard as part of the corporate strategy – General Overview Balanced Scorecard was created in 1992 by Robert S. Kaplan and David Norton. It is a method for measuring a companys activities in terms of its vision and strategies giving managers a comprehensive view of the performance of a business. Generally, Balanced Scorecard can be characterized as a strategic management system that forces managers to focus on the important performance metrics that drive success. It balances a financial perspective with customer, internal process, and learning & growth perspectives [1]. Moreover, Balanced Scorecard can be regarded as a part of an extended net of ‘strategies’ that can create for a specific business a significant competitive advantage towards its competitors. The role of financial and non-financial measures to the implementation and monitoring of the above strategy has been proved to be critical. According to the study of Moore (2001, 572) financial measures are ‘outcome measures based on historical results; in contrast, nonfinancial measures, categorized as lead indicators, tend to focus attention on actions that drive future results, creating value for the long-term from such intangible assets as human capital, customer relations, innovation in products, and highly efficient operating systems’. In this context, the balanced scorecard has been found as combining measures in such a way that management has access to key financial and nonfinancial information, while not being inundated with an abundance of information’. However, in certain cases, a problem that may arise is the choice of the appropriate measures that will serve the targeted scope, the enhancement of the company’s performance. Regarding this issue it has been stated by Neely (2002, 295) that ‘the key benefit in the process of deciding what to measure appears to lie in the fact that the process forces management teams to be explicit about their priorities; without precise definitions and targets it is impossible to establish appropriate measures for customer satisfaction; hence the act of deciding what to measure, forces management teams to clarify their language and make explicit what they mean when they say “we want to increase customer satisfaction’. The design and the implementation of Balanced Scorecard within an organization are therefore, according to the above, closely connected with the organization’s aims and perspectives as presented through its strategy. Moreover, it should be noticed that Balanced Scorecard is generally viewed as having four major areas of reference: a) the Financial, b) the Customer-related, c) the business structure and processes and d) the learning and growth area of interest (in which the human resource management can be regarded as the main component) IIa. Financial Perspective Balanced Scorecard from a financial perspective measures reflecting financial performance, for example number of debtors, cash flow or return on investment. The financial performance of an organization is fundamental to its success [1]. It should be noticed that the financial perspective of Balanced Scorecard usually refers to the estimation and evaluation of the figures revealed in the company’s accounts (trying to locate the firm’s current performance) as they can analyzed and presented using the common financial analysis practices. IIb. Customer perspective Furthermore, we should also refer to an issue which is of a significant importance regarding the implementation of Balanced Scorecard within an organizational environment, this of the relations with the clients. Duffy (2004) examined the above relation and stated that in order to secure a positive image towards the public a company should take all the necessary measures in order to cultivate and develop this relation to the best possible level. Of course this effort should always be developed under the terms of real market conditions and of ‘pragmatic’ position of company in the industry (Paredes, 2004). Moreover, it should be noticed that to its customer perspective Balanced Scorecard measures the direct impact on customers, for example time taken to process a phone call, results of customer surveys, number of complaints or competitive rankings [1] IIc. Business Process Perspective From a Business Process Perspective, Balanced Scorecard measures the reflection of the performance of key business processes, for example the time spent prospecting, number of units that required rework or process cost [1]. The evaluation of the firm’s strategy and aims – as part of the specific area of Balanced Scorecard analysis and implementation – has to be regarded as a challenging task. The reason for that is the fact that in today’s extremely competitive corporate environment, the survival and the expansion of a company is a really difficult task which is depended from a series of variables (Parnell, 2003). On the other hand, there are cases where the local markets are characterized by lack of flexibility and adaptability to the new demands of the commercial area and this can result to the limitation of a company’s prospects in a specific market (Thomsen, 2005). For this reason the identification and the evaluation of the firm’s strategies are of major importance for the success of any Balanced Scorecard scheme. In this context it has been stated by Paredes (2004) and David (2003) that although the performance of a company is mainly depended from its financial and commercial environment, the role of the corporate strategy (both locally and globally) is really significant. The above assumption can be also supported by the fact that in order for a company to survey, it has to proceed to the design and application of a well structured strategy that can guarantee the protection of the company’s financial performance (from unexpected turbulences) as well as the existence of prospects for growth in a short – term or in a long – term basis (Pritsker, 1997). Towards this direction Porter et al. (1985) created the theory of ‘five forces’ which – if applied with accuracy – can offer the company a series of advantages towards its competitors. In any case it should be noticed that the strategy that a company chooses to follow should be visible to the public at least to its shareholders. According to Parnell (2003, 16) ‘in many respects, the evidence for the existence of a strategy can permeate an organization; sharing strategic information with lower-level managers and employees may enhance both job comprehension and organizational commitment; hence, the arguments for a "public" strategy are intuitively obvious’. When evaluating the existing business strategy in order to decide the implementation of a balanced scorecard there is are a few issues that have to be taken into account. Culture (Zhang et al., 1996), globalization (Newman et al., 1996) and marketing belong to the above category. More specifically, according to Soutar, Grainger and Hedges (1999, 203) ‘culture is an important idea as it deals with the way people live and approach problem solving in a social and organizational context’. On the other hand, it has been stated (Ihator, 2000, 38) that ‘globalization of business has created the need for international public relations practitioners to identify, study and understand the world views, mindsets, and habits of their global publics in order to effectively communicate’. The above assumptions are in accordance with those of Tan (2002) and Taylor (2002) who supported the importance of culture to the success of an international business strategy (and analogically to a firm’s international marketing strategy). Moreover, it has been found that when designing international marketing strategies there are a few elements that should be taken into account: ‘a) the importance of consumer closeness-a service orientation, b) the need for a distinct and identifiable set of corporate values the organisational culture-represented by a "belief in being the best: and the importance of people, and c) an external, or market-orientated, focus as distinct from an internal, or company-orientated, focus’ (Norburn et al., 1990, 454). The extended reference on the structure and the operation of a business strategy has been considered as necessary because it is the main (the central) point of the Balanced Scorecard’s implementation process (as can be viewed in Appendix I). IId. Learning and Growth Perspective As of the learning and Growth Perspective this refers to the use of Balanced Scorecard in order to measure and describe the companies learning curve, for example number of employee suggestions or total hours spent on staff training [1]. In this context, it should be noticed that human resources is a critical area for a firm’s performance. Moreover, the role of this area to the success of a Balance Scorecard’s implementation and performance is also significant. According to Conner (1996) ‘to improve its effectiveness and have greater impact, the human resource function must understand how to add value in the organization by helping line managers align HR strategies, processes, and practices with business needs; This will require HR professionals to perform increasingly complex and at times paradoxical roles; (Conner et al., 1996, 38). The reason of the above assumption can be found to the fact that employees as part of stakeholders, participate in the evaluation of the company’s performance through the stakeholder scorecard (which is a type of balanced scorecard) and can influence its administration through the decisions on the firm’s strategic management team. However, it should be noticed that this influence has to be in a specific framework and any particular aspect (company’s financial situation, existence of other stakeholders) should be taken into account before proceeding to any decision. We should also refer to the study of Mathews (1998, 175) who accepts that ‘before diversity strategies are implemented, the organizations cultural environment, management and evaluation systems should be examined to ascertain if existing personnel/human resources processes will support or hinder diversity in the organization; Then, appropriate strategies can be designed to develop and manage diversity based on these findings’ A critical issue for the human resources perspective of Balanced Scorecard is the choice of the appropriate model of human resources management that will perform more effectively under the specific conditions. In this context, Kesler (1995, in Kesler, 1997, 26) has presented the "HR grid" which includes process effectiveness on one dimension and six value-creating behaviours on the second dimension of a matrix’. On the other hand, Wright (1998) examined the issue of ‘fit’ regarding the adaptation of HR strategies to the existed business practices and targets. He found that ‘the basic theory behind "fit" is that the effectiveness of any HR practice or set of practices for impacting firm performance depends upon the firms strategy (or conversely, the effectiveness of any strategy depends upon having the right HR practices)’ (Wright, 1998, 56). In this context it has been proved that ‘for those organizations seeking a competitive advantage through innovative human resource activity, strategic skills analysis (SSA) represents a means to link business strategy with human resource strategy’ (Summers et al., 1997, 18). III. Balanced Scorecard for Banagas – Presentation of the Strategy Implementation stages IIIa. Evaluation of current strategy under the views of literature According to a part of the existed literature, internal organizational factors are critical when defining criteria of performance, such as organizational goals or the procedures for accomplishing these goals. In this context, the rational goal, or purposive-rational model, of organizational performance assumes that organizations are designed to achieve certain goals, both formally specified and implicit. (Etzioni 1964; Pfeffer 1982; Price 1972). However, there are researchers that emphasize different internal measures when they develop portraits of organizational performance, such as various measures of organizational health (Argyris 1964; Bennis 1966; Likert 1967). There are also researchers that focus on external factors in developing criteria of performance, emphasizing the relationship of an organization to its environment. The system resource model, developed by Seashore and Yuchtman (1967), defines organizational performance through the overall survival of the organization, "the ability to exploit its environment in the acquisition of scarce and valued resources to sustain its functioning" (Seashore and Yuchtman 1967, 393). Under the above views, the evaluation of the specific firm’s performance would be based on the internal and the external elements that influence its daily operations. As for the issue of Balanced Scorecard implementation, it has to take place in several steps the first of which (see also Appendix I and II) would be the analysis of the firm’s current strategy. After presenting and evaluating current strategic planning of the firm we could proceed to the identification of the areas (regarding the given strategy) that should be alternated or just adapted to the Scorecard’s requirements and demands. The strategy of the firm is based on seven strategic objectives, the following ones: a) profitability, b) costs, c) quality, d) liquids production, e) plant reliability, f) environment, health and safety and g) human resources. Its current strategy as presented through the above elements can be considered as integrated and completed mostly if combined with the other ‘tools’ of strategic planning that are currently used towards the enhancement of the firm’s performance (SWOT analysis, use of mission – vision and values as parts of the firm’s daily processes). Moreover, it has to be noticed that the implementation and the performance of the corporate strategy is closely monitored by the Board of Directors, a fact which enhance the firm’s performance by guaranteeing the stability and the continuation in the firm’s operations. In the above context, the implementation of the Balanced Scorecard has increased chances to succeed mostly if used as a ‘strategic management’ tool and not as just a part of the corporate governance as a centralized business function. An indicative strategy for the development of the company under current circumstances would be transition management as it has been adapted today to the need for global activity and high rate of performance (due to the increased financial demands). The application of downsizing could be also an alternate method of corporate governance. In this context, it should be noticed that a decade ago, transition management—the leadership and direction of major organizational events—would become a regular component of the managerial repertoire (De Meuse, Vanderheiden, & Bergmann, 1994; De Meuse & Tornow, 1990; Marks, 1994; Mirvis & Marks, 1992). Today, layoffs, divestitures, and closings are found in organizations of every size, in every industry, and just about every geographical location (De Meuse et al., 2003, 1-2). A new word, downsizing, was coined in the early 1990s to represent the variety of ways in which organizational leaders reduced employee ranks to achieve business objectives. Downsizing occurs through voluntary programs such as early retirement, involuntary dismissals like layoffs, and the displacement of employees through outsourcing. No matter which tactic is used, the underlying objective of downsizing is a one-time reduction in costs to contribute to the achievement of short-term financial objectives (Vanderheiden, De Meuse, & Bergmann, 1999; Morris, Cascio, & Young, 1999). A recent study made by De Meuse et al. (2003, 2) proposed an innovative corporate strategy towards the evaluation and the controlling of organization performance: resizing. Organizational resizing is the repositioning of employee ranks to achieve a companys strategic objectives. In many ways, organizational resizing is similar to the popularly used term corporate downsizing. However, unlike downsizing, resizing does not possess all the negative emotional baggage and the stereotype of corporate decline. Resizing does not necessarily suggest massive job cuts and is not fixed within the decade of the 1990s but it is rather a broad-based term that more accurately reflects the organization of the twenty-first century and its goal of becoming agile, flexible, and proactive by being primarily strategic in nature (as opposed to financial) and is part of ongoing organizational transformation (as opposed to a one-time only event) (De Meuse et al., 2003, 2). The application of the above corporate strategy in the specific organization would help the management team to gain a more precise view of the organizational performance as well as a more effective control over the costs related with the firm’s operations in all the particular sectors. IIIb. Presentation and analysis of financial measures The firm’s performance as it can be estimated using the figures revealed in its financial statements and reports can be regarded as successful. More specifically, in accordance with the performance indicators of January 2006 as included in the firm’s relevant Balanced Scorecard Table, the company managed to achieve its target for 2005 (with an actual figure of yield at 438 when the targeted one for the specific year was 285). On the other hand, for current year (as it can be estimated under current results) the company also managed to achieve a significant growth (yield of 590 with targeted one at 395). The above figures which refer to the sales prices are in accordance with the capital expenditure commitment as it is presented on the relevant table). Another issue related with the financial perspective of Balanced Scorecard is the participation of all the employees in the firm’s profits in general. Moreover, Balanced Scorecard has been used as a tool for the introduction and application of a detailed ‘table’ of all the finance – related elements of the company’s strategy (like the salaries of directors and of all employees – stated as undertakings of third parties as well as other amounts referred to the company’s financial strategy, like depreciation) both directly and indirectly (like the cash management). The introduction and the use of this document which includes all finance-related issues can be considered as a major advantage of Balanced Scorecard comparing other potential strategic tools that could be applicable in the specific organization. IIIc. Learning and growth – human resources management Within the contemporary economic context associated with forces of globalisation, small, medium and large enterprises (be they privately or publicly owned) are under pressure to operate in more efficient and effective ways. Discourses of economic rationalism and global competitiveness routinely define this efficiency in terms of an ability to increase profit margins and they generally align the competitive organisation with strategies such as niche marketing, value adding, customer service and a flexible workforce (Emy 1993; Carnoy et al. 1993 in Garrick et al, 2000, 150). In this context, the learning organisation which, according to Watkins and Marsick (1993), learns continually and has the capacity to transform itself, is often represented in positive terms. The need for constant and extensive learning regarding all the organizational procedures should be a priority for the specific company in order for all the measures taken by its HRM team to achieve the targets set. Human resource management has frequently been described as a concept with two distinct forms: soft and hard. These are diametrically opposed along a number of dimensions, and they have been used by many commentators as devices to categorize approaches to managing people according to developmental-humanist or utilitarian-instrumentalist principles (Legge 1995, in Gratton et al., 1999, 41). Guest (1987) and Storey (1992) in their definitions of soft and hard models of HRM view the key distinction as being whether the emphasis is placed on the human or the resource. Soft HRM is associated with the human relations movement, the utilization of individual talents, and McGregors (1960) Theory Y perspective on individuals (developmental humanism). This has been equated with the concept of a high commitment work system (Walton 1985b), which is aimed at eliciting a commitment so that behaviour is primarily self-regulated rather than controlled by sanctions and pressures external to the individual and relations within the organization are based on high levels of trust (Wood 1996: 41). Hard HRM, on the other hand, stresses the quantitative, calculative and business-strategic aspects of managing the "headcount resource" in as "rational" a way as for any other factor of production, as associated with a utilitarian-instrumentalist approach (Storey 1992: 29; see also Legge 1995). Hard HRM focuses on the importance of strategic fit, where human resource policies and practices are closely linked to the strategic objectives of the organization (external fit), and are coherent among themselves (internal fit) (Baird and Meshoulam 1988; Hendry and Pettigrew 1986), with the ultimate aim being increased competitive advantage (Alpander and Botter 1981; Devanna et al. 1984; Lengnick-Hall and Lengnick-Hall 1990; Miles and Snow 1984). The main element of human resource management in Banagas is the existence of competent staff that will be able to understand and apply all the particular elements of the corporate strategy as designed and proposed by the firm’s Board of Directors. In order to ensure the above target, the company applied a long-term development programme that could ensure the existence of the necessary knowledge to all the firm’s employees with no differentiation between the particular departments. Short term programmes were also used in order to ensure the above outcome. The above development programmes included training on advanced technical issues as well as the acquisition of specific qualifications in accordance with the firm’s demands. In this context, the main elements of the firm’s human resource management can be identified to the creation of a loyal and competent net of employees who will ensure the high level of organizational performance as well as the satisfaction of the client’s needs as set by the firm’s strategic plan. Current results of the above strategy prove that the application of Balanced Scorecard in the specific firm (with a reference to the human resource management) resulted to the enhancement of the firm’s performance creating a loyal and competent workforce of 370 employees who work together in order to achieve the targets set by the management team. The role of line managers towards the achievement of the above target should be considered to be of significant importance. The presentation of current structure and operation of HRM in Banagas shows that the company needs a restructuring both regarding the ‘soft’ and the ‘hard’ aspects of human resource management. More specifically, it seems that talent management is rather limited while the structure and the control of this organizational part by the management team have also many weaknesses. IIId. Relations with Customers The relations between the firm and its customers can be considered as satisfactory. The firm’s clients can ensure through the specific organization the satisfaction of their demands even under circumstances that are difficult for the specific market and which demand the provision of specific facilities (e.g. when servicing small ships). On the other hand, the use of high premiums on product sales can be considered as another competitive advantage of the firm’s strategy which has to be taken into account when implementing and applying the Balanced Scorecard. It should also be noticed that the company follows all the national and international rules when dealing with its customers, a fact that strengthens the ‘bond’ between the firm and the clients providing also the chance for a high organizational performance. Another issue that should be taken into account is the development of the firm’s human resources as described above. This development could also help towards the improvement of the customer – employee relationship and thus the whole organizational performance would be efficiently supported. IV. Conclusion The application of Balanced Scorecard in Banagas can be considered as a very successful management decision as is has helped towards the enhancement of the firm’s performance in all its areas of activation. More specifically using Balanced Scorecard the firm managed to align its financial targets with the targets and the aims set in all the other areas of organizational operations (like the human resource management and the relationship with the clients). At a next level, the figures revealed in the firm’s reports have been used in order to estimate and evaluate more accurately the effectiveness of the firm’s strategy in all its operational processes instead of remaining just a typical indicator of a temporary growth. 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Journal of Advertising, 25(3): 29-42 Appendix I The Balanced Scorecard – An Overview [as cited in Cronje, J., 2005] Appendix II Balanced Scorecard - Stages of Implementation [as cited in Cronje, J., 2005] Read More