Measures for Learning and Growth Perspective - Research Paper Example

Balanced score card Table of contents Introduction of balanced scorecard 3 Introduction of business case 3 Importance of balanced scorecard 4 Construction of balanced scorecard 5 Key performance indicators 7 Key performance indicators in perspectives of BSC 8 Measures for financial perspective 8 Measures for Customer perspective 8 Measures for internal business process perspective 9 Measures for learning and growth perspective 9 10 performance indicators applicable to business case 10 References 13 Introduction of balanced scorecard Balanced score card was developed by Kaplan and Norton in the year 1996 for the management and measurement of corporate performance. Balanced score card is a framework that recognises the evaluation of corporate performance involving multi-dimensional approaches and so incorporates both financial and non financial measures accordingly (Banerjee, 2010, p.685). It is a management system and strategic planning which is used to align the business activities to the vision and strategy of the organization by effectively monitoring its performance against its strategic goals. According to balanced score card, the performance of a firm is measured on the basis of four perspectives, which are financial, customer, internal business process or value chain and learning and growth. The name balanced scorecard reflects balance between long term and short term objectives, financial and non financial measures, leading and lagging indicators, and between internal and external perspectives. Balanced score card is more than a system of measurement. It should be transformed into a strategic management system (Brigham and Louston, 2009, p.112). The new measurement system is used to align and communicate with the new strategies of firm and to properly manage them. For this, the suggested steps could be: classification and translation of strategy and vision, communicating and linking the strategic measures and objectives, planning, setting targets and aligning strategic initiatives and enhancing the learning and strategic feedback (Chandra, 2011, p.95). Introduction of business case There are a community group of volunteers who are taking over some greenhouses at a nursery garden with an objective to grow plants as a way of providing training to the young people with learning difficulties. The principal sources of income to this community group of volunteers will be the sale of food and plants which are grown at the site, individual funding from each of the learning disabled, grant funding and charitable donations. It is advisable to them to use an appropriate balanced scorecard for the work. The use of balanced scorecard will provide the nursery volunteers with lot of benefits and the balanced scorecard should be produced with an appropriate number of financial and non-financial measures. In addition, the grant funder can apply some key performance indicator to the contract to reassure themselves that the service is being run appropriately by the volunteers. Importance of balanced scorecard It is important to build a balanced scorecard which communicates the strategy of firm for certain factors. The scorecard provides a description of vision of organisation to the entire organisation. So it creates a shared understanding. This will benefit the community group of volunteers undertaking greenhouses at nursery garden to describe their vision to the learning disabled. Further, scorecard creates a holistic model of strategy allowing all the employees to see how their contribution can be towards the success of organisation. Without such linkage, local performances can be optimized by the departments and individuals but they cannot contribute towards the achievement of strategic objectives (Brigham and Daves, 2013, p.78). The scorecard also focuses on changing efforts. If the right measures and objectives are identified, its successful implementation can be possible. If it is not identified, then initiatives and investments will be wasted. The scorecard improves the performance of organisation by measuring what matters. Further, it aligns the strategy of organization with workers on a day-to-day basis and focuses on the key to future performance. It improves the communication of the strategy and vision of organization. So use of balanced scorecard by the volunteers can enable them to pursue their task in an effective manner. Construction of balanced scorecard Building of balanced scorecard involves designing of objectives in critical areas, formulation of suitable strategies and aligning them with corporate goals for success. Norton and Kaplan have suggested how the entire process should be performed in several key components of balanced scorecard. Financial perspectives The volunteers have to link the financial objectives to the strategies of their unit. The financial objectives are different during different stages of business lifecycle. At the early or growth stage, importance is not given to profit rather more importance is given to the growth in revenues in target markets, region, and customer groups etc. To achieve this objective, strategies like expansion of market, changing the product mix, reaching out to new customers can be adopted. Likewise, at the sustain stage; the requirement is to have an excellent return on investment. To achieve this objective, strategic cost management and strategies of cost reduction can be adopted. Again, during the harvest stage, the financial objectives make increase in operating cash flows and reduce working capital (Keown, 1985, pp.80-90). To achieve this objective, certain strategies can be adopted like better use of fixed assets, disposing off such assets which provide inadequate return and more effective utilisation of scarce resources. Customer perspectives Managing the customers effectively is critical to the success of a firm. This area is highly sensitive. The volunteers have to look after the different aspects of customer perspectives like acquisition of customer, retention of customer and satisfaction of customer. Each of these areas can be improved by formulating certain strategies like increasing the functionality and quality of product, building up the reputation and image, offering a competitive price and improving the quality of purchasing experience and personal relationships. It ultimately aims to maximise the value to the customer. Internal business process or value chain perspectives Each business has a unique set of processes to create value for customers and producing financial results. There are three principal processes, operations, innovation and post-sales service. There are two steps associated with the process of innovation. In the first step, market research is undertaken by the managers to collect information on customers and markets, relating to preferences of customer, size of market, and prices of targeted product or service. This information is used in the form of inputs for the actual design of product/service and the processes of development (Fabozzi and Drake, 2009, pp.50-60). The second step is the process of innovation. The basic and applied research is performed by the division of research and development for the development of technology and product. The short wave of value creation is represented by the process of operations in the organisation. It initiates with receiving an order from a customer and ends with delivering the same to the customer. The process of operations lays stress on the existing products and services to the existing customers. The traditional financial measures like standard costs, budgets and variances that can be used for controlling and monitoring the operating processes can be supplemented by the measurement of quality and cycle time. The quality programmes and quality initiatives for total quality management is in almost all organisations. The success of a quality programme should not be measured by the quality of outgoing items alone because those items might have survived the processes of rework and numerous inspections. Rather, it should also be measured by reduction in percentage of items at each stage of the process of production which does not conform to the specifications which are customer based. Learning and growth perspectives The driving force to success is the employees. So, the principle objective should be to bring improvements in the capabilities of information system, capabilities of employee, motivation, alignment and empowerment. Employee satisfaction is a precondition for responsiveness, increasing productivity, customer service and quality. Employee satisfaction is measured by the companies in terms of certain attributes like recognition for doing good job, involvement with decisions, teamwork, Initiative, creativity etc. An aggregate index of satisfaction of employee could be included in balanced score card by department, decision, location etc. Employee retention holds objective to retain those employees in whom the firm has interest for long term (Lasher, 2011, p.80). The theory underlying with this measure is that long term investment is made by the firm in its intellectual capital and such investment should enhance the value to the firm. Key staff turnover is one of the popular measures for employee retention. Key performance indicators Key performance indicators or key success indicators helps an organization to define and measure the progress towards the goals of organization. After the analysis of mission of organization, identification of stakeholders, defining of goals, it is required to measure progress towards those goals. Key performance indicators are such measurements. These are quantifiable measurements reflecting the critical success factors of an organization. They differ depending on the organization. Key performance indicators in perspectives of BSC Measures for financial perspective The attributes of financial perspective are growth stage, sustain stage and harvest stage. The suggested measures of key performance indicators at the growth stage can be sales growth rate by segment and percent revenue from new product. Further, the suggested measures at sustain stage can be share of targeted customers, cross selling, percentage of revenues from new applications, customer and product line profitability. The suggested measures during the harvest stage can be customer and product line profitability and percentage of unprofitable customers. Key performance indicators of financial category can perform a comparative analysis of different departments of company. Financial perspective can also include a both dynamic and static indicator which enables to evaluate the current condition of company and changes in profitability and performance. Measures for Customer perspective The attributes associated with customer perspective are market share, customer acquisition, customer retention, customer profitability and customer satisfaction. The suggested measures for market share can be number of customers and number of units sold. The suggested measure for acquisition of customer can be number of new customers and percent of new customer sales to total sales. Again, suggested measure for retention of customer can be the number of customers retained. Suggested measure for profitability of customer can be the number of customers left and percent of sales (McMenamin, 1999, p.110). Further, the suggested measures for satisfaction of customer can be the net profit of a customer or a segment after allowing for customer support expenses and the satisfaction level of customers along specific performance criteria within the value proposition as ascertained by employing techniques like telephonic interviews, mail surveys and personal interviews. Measures for internal business process perspective The attributes attached with the internal business process perspective are innovation (research and development) and process of operations. Innovation includes product design and development processes and product development. The key performance indicator for product design and development processes can be percent of sales from new product, percent of sales from proprietary products, time to develop products, new production introduction vs. plan and new production introduction vs. competitors. The key performance indicators for product development can be cycle time, yields, cost, the number of times the designs are needed to be modified and break even time for measuring the effectiveness of its product development cycle. The suggested measures for operations process can be traditional budget and standard cost measures like labour and machine efficiency variance, material price variance, overhead volume and efficiency variances, returns, rework, response time, number of after sales complaints, reliable on time delivery, waste and scrap. Measures for learning and growth perspective The attributes associated with learning and growth perspective are employee capabilities which includes retention, satisfaction and productivity whose key measures are staff turnover, aggregate satisfaction index, and output per employee and revenue per employee. Another attribute is capabilities of information system whose effective measure is strategic information coverage ratio which is the currently available information relative to anticipated information. Motivation and empowerment is another attribute whose key performance indicators are number of suggestion per employee and number of suggestion implemented (Pandey, 2009, p.88). 10 performance indicators applicable to business case On the basis of above discussion, the following 10 key performance indicators can be applied by the grant funder to the contract to reassure themselves that the service is being run appropriately by the volunteers: 1) Percentage of growing plants By undertaking some greenhouses at nursery garden by the community group of volunteers with a view to growing plants to provide training to young people with learning difficulties, the percentage of growing of plants should be assessed to check the increase in number of growing plants as a result of taking greenhouses at nursery garden. 2) Number of plants sold. It is required to assess the numbers of plants been sold from the nursery garden as it will depict as to how much the process of growing plants by undertaking greenhouses has benefitted the nursery garden. 3) Increase in new customers. This part emphasizes to count the number or percentage of new customers entering the nursery garden to purchase plants. In other words, how the nursery garden has been successful in attracting new customers. 4) Training time per learning disabled. Since the nursery garden aims to provide training to young people with learning difficulties, the training time devoted to each learning disabled should be analysed. 5) Training investment per learning disabled. The investment put towards training the young people should be checked in respect of each learning disabled. 6) Share of training hours. The training hours devoted to provide training to learning disabled and the same time as shared by the learners need to be checked and how effective is the outcome of such training. 7) Money donated to the community group of volunteers. Since the principal sources of income to the community group of volunteers are sale of foods and plants grown at the site, individual funding from each of the learning disabled, grant funding and charitable donations, so the amount of fund raised from such sources of income need to be checked. 8) Return on investment. The total return coming out of the investment in the nursery garden in providing training to learning disabled should be calculated. This measure will reflect how much the volunteers have been successful in imparting training to the young people and resulting with effective return. 9) Customer turnover With respect to the marketing and sale of plant, the turnover rate of customer is required to be calculated. 10) Total cost to customer with respect to the competitors. The total cost to the customers in purchasing the plants and foods which are grown at the site as compared to the prices of its competitors plays a very vital role in attracting the potential customers towards the site. References Chandra, P., 2011. Financial Management: Theory and Practice. 8th edition. New Delhi: Tata McGraw Hill. Brigham, E. and Louston, J., 2009. Fundamentals of Financial Management. 12th edition. USA: South-Western Cengage Learning. Brigham, E. and Daves, P., 2013. Intermediate Financial Management. 11th edition. USA: South-Western Cengage Learning. Keown, A., 1985. Basic Financial Management.3rd edition. United States: Prentice Hall. Fabozzi, F. and Drake, P., 2009. Finance: Capital Markets, Financial Management and Investment management. New Jersey: John Wiley & Sons, Inc. Lasher, W., 2011. Practical Financial Management. 6th edition. USA: South-Western Cengage Learning. Banerjee, B.,2010. Financial Policy and Management Accounting. 8th edition. New Delhi: PHI Learning Pvt. Ltd. Shim, J. and Siegel, J., 2008. Financial Management. 3rd edition. New York: Barron’s Educational Series, Inc. McMenamin, J., 1999. Financial Management: An Introduction. New York: Routledge. Pandey, I., 2009. Financial Management. 9th edition. India: Vikas Publishing House Pvt. Ltd. Read More