Implementation of Balance Score Card (BSC) - Essay Example

?IMPLEMENTATION OF BALANCED SCORECARD INTRODUCTION Balance Score Card (BSC) is a framework for measuring performance on strategic level and accounts both financial and non financial measures (Banker, Chang, and Pizzini. 2011). BSC, since introduced by Kaplan and Norton in the early 1990s, has been adopted by large number of organizations. It is called BSC as it attempts to balance between short and long term goals while maintaining balance between financial and non financial variable (Kalpan, 2010). Proponents of BSC claim that it has many beneficial features that makes it preferred choice; such as connecting vision with strategy and activities down the hierarchy; cause and effect relationship of performance drivers with outcome etc (Chavan, 2009). Other feature that makes it most advocated is the fact of providing performance measurement and goal oriented guidance by combining variables or perspectives (2GC Limited, 2011). With agreement on benefits BSC offers to organization, fact remains that due benefit from BSC can only be availed based on appropriate and well thought implementation and there has been considerable debate on the implementation of BSC. This paper is also aimed to investigate and analyze success or failure of BSC that can be attributed to the appropriate implementation. Followed by introduction is the literature review of past academic studies done in the selected domain. Research methodology contains information related to method adopted to address the selected question. Analysis section provides analysis of the case studies selected to address the aim of this research. Finally, conclusion provides response to the question based on evidence collected in analysis section. LITERATURE REVIEW There is immense literature available on the BSC from various perspectives. This section will draw some relevant literature to BSC, its implementation with its proponents and critics. The section will also draw references related to implementation phase and cause implementation failure. Variation in studies are present that discussed increase in the adoption BSC due to the benefits it offers while others revealed firm’s decision of not adopting BSC due to less benefit it offers in proportion to the efforts required to implement it (Cardinaels, Paula, and Veen-Dirks. 2010). BSC has also undergone critical evaluation of assumptions on which it is built; such as managers’ capacity to link strategy to operational matrices in different departments and levels and issues related to designing BSC related to the respective organization etc (Geuser, Mooraj, and Oyon. 2009). Hence, discussion from various perspectives to explore possible deviation (Neely, 2005) while each aspect, directly or indirectly, referred to the factors that lead or hamper successful implementation of BSC. PEA, for instance, suggested complete procedure to develop balance score card to meet the challenges posed by other performance measurement in procurement organizations. It provided detailed guidance for all four perspectives including customer, financial, internal business processes and learning and growth perspective. It was also aimed to develop a model that allows comparability among various organizations along with providing a comprehensive performance measurement system (as given in image below (Procurement Executives’ Association, 2000). Hence, BSC shall be devised with adaptability to the nature and size of the firm (Rompho, 2011). Richardson (2004) provided six elements to be employed for the successful implementation of balance score card. These six elements include: first, development of strategy; second, involvement of strategic management and feedback from other management level of the new strategy; third, development of balance score card and its vision while both being aligned with vision of organization; fourth, implementation of balance score card performance measurement systems all around the organization and each level; fifth, communicating and educating the objective of BSC to employees and lastly implementation of scorecard in a way that has flexibility to adopt the environmental and day to changes. Appropriate implementation of BSC has resulted in considerable improvement in performance of organizations. For instance, Niven (2005) stated case study of Horizon Fitness and concluded that successful implementation of BSC and linking strategy with performance has resulted substantial increase in sales revenue by more than 11 percent in three years. Al-Najjar (2012) developed BSC for the banking sector in Iraq that is still relying on financial measures for their performance evaluation. Valuable sources of information highlighted by BSC in study convinced banking management in Iraq to adopt BSC in place of traditional measures. Tseng, (2010) suggested implementation of BSC for measuring the competitive advantage of ports terminals with limiting scope focused on container terminals and noted its potential usefulness in improving overall performance. (Procurement Executives’ Association, 2000) Schneiderman (1999) presented reservation on BSC and claims that after sometime managements of firms would switch to other performance measurement systems. Schneiderman (1999) supports this claim by stating reason that huge performance promises developed in BSC are not met. Schneiderman (1999) also mentioned following six flaws in BSC: 1. The independent variables or those other than financial measures are difficult to identify and usually wrong variable are adopted. 2. Concerns over performance measurement systems. 3. Goals are self defined and negotiated by internal management and does no incorporate voice of other stakeholder. 4. No system to logically breakdown strategic goals to lower levels from where performance is generated and solely managements’ discretion 5. Improvement mechanism is based on trial and error and BSC does not account any state of the art system for improvement. 6. Concerns to link impact of non-financials on financial measure; for instance, improvement in other measures if does not improve financial measure, then BSC does not remain viable. while discussing assumption of BSC also referred to somewhat similar issues as point by Schneiderman (1999). Relationship among the areas accounted in BSC is logical and not causal therefore, impact from non financial variables may not always translate into financial results. Another problem with BSC is it cannot be regarded as valid strategic tool as does not have organizational rooting; in fact has environmental rooting and so gap between planned and actual will still remain. Ahn (2001) provided case study analysis ABB Industries AG related to implementation of BSC that appeared to most promising solution to strategy implementation crises. It referred list of issues in both developing and using score card such as data gathering, setting goals, extensive time required, developing specific goals from generalized suggestions, defining performance measures and chances of its acceptance or rejection by employees etc. Moreover, it stated though these problems were solved with extensive efforts, BSC still has certain limitation that remain with and require improvement in BSC design. On the other hand, management sciences have also devoted considerable focus on implementation aspect of strategy, objectives, systems and even tools (Bhagwat and Sharma, 2007). It is a proven fact that success of even best strategy is subject to failure if not appropriately implemented. Okumus (2003) provide frame work to ensure flawless implementation and state that implementation shall follow holistic approach. Okumus (2003) further states that individually defined roles and responsibilities do not work unless relationships between factors that influence and receive impact are identified addressed. Davis and Albright, (2004) discussed barrier in strategy implementation under four broad categories that can obstruct the implementation of even well designed strategy. These barriers are: 1- Vision barrier- inability of entire organization except few to understand vision and strategy 2- People Barrier: most people in organization intentionally or unintentionally are not connected with strategy and vision 3- Resource Barrier: resource required for the successful implementation of strategy are either not available or they are not allocated critically. 4- Management Barrier-can serve as most dominant barrier when management does provide required attention to communicate or direct the well thought implementation process rather relies on tactical measure. Most of the failures of strategies fall in either of the mentioned categories and so does will impact the strategy linked BSC. Hence, causes of implementation success of failure can be gauged using barriers as yard stick. Successful implementation of strategy can also be gauged on same yardstick of barrier discussed above with focus around capabilities and ways that enabled strategies to overcome barriers. RESEARCH METHODOLOGY As stated earlier the aim of this research is to address the question regarding the implementation of the balance score card. Being specific, it is to explore the resulting impact in form of satisfaction or dissatisfaction from the implementation of BSC. For the purpose, research methodology adopted for the purpose is analysis of secondary information. For secondary research, the researcher has adopted the case study approach being referred to be strategic approach in providing insight of the issue understudy with more specificity. The study has selected four organizations that adopted BSC where two of them concluding BSC beneficial while the other two being dissatisfied from its performance. Analysis is based on comparison and contrast between the results of each organization after BSC implementation. Moreover, the cases have been selection with consideration of not being older than 5 years. This will provide researcher an opportunity to explore updated insight with respect to current business situation. ANALYSIS Case studies selected for analysis based on information developed in literature review are as mentioned in table below: BUSINESSES SATISFIED WITH BSC IMPLEMENTATION Shat-R-Shield is the manufacturer of lamps and light bulbs since 30 years and specialize providing quality services and safety-coated products. Shat R Shield initially introduced BSC in 2005 and in the year 2010 it started an effort to re-engineer BSC. It aimed reset BSC from merely an operation KPI oriented BSC to strategic BSC. Shat-R-Shield has been extendedly satisfied with the BSC as it lent benefit on both financial (more income than ever in the company history) and non financial variable (entire team was motivated to develop a strategically objective oriented firm) (Perry, 2011). Tesco, UK based super market company has also adopted BSC and named it steering Wheel. Tesco’s steering wheel has distinction that it is not based on strategic vision but based on values that Tesco executive follow to deliver to their customers. Steering connects of entire employee base’ objective to these values and hence manages and aligns their daily operations with strategic values. This approach has led Tesco to success on financial and non financial fronts (Witcher, and Chau, 2008) BUSINESSES DISSATISFIED WITH BSC IMPLEMENTATION SAQ Company Limited is a retail trading company in the electrical appliance sector of India. Owner planned to implement BSC and made considerable efforts but could not gain the desirable benefits from BSC. SAQ two years after the implementation of BSC decided to stop using BSC. Reason cited for the purpose was BSC was unable to manage results along with incorporating changes (Rompho, 2011). Neely (2008) conducted a study to investigate the empirical evidence related to benefits of BSC. It conducted an analysis of two sister divisions with one employed BSC and while the other did not. The results were similar improvement in the financial performance of both concerns and hence, Neely (2008) concludes doubt on the success to be attributed to application of BSC. With the cases mentioned above, where two firms enjoyed the benefits from BSC and other two didn’t provide much insight about the BSC in general with issues in BSC implementation in specific. Important to mention is the fact that with increased acceptance of BSC, firms are inclined in to explore the type, kind and level of benefit they can exploit by using BSC (2GC Limited, 2011). ANALYSIS Clarity and connectivity related to strategic direction can be rated as the most important factor in successful implementation of BSC. This is in line with the factors that save strategy from failure (Northcott, and Taulapapa, 2012). For instance, Tesco and Shat R Shield benefitted from the BSC as both firms had clarity in their strategic direction. Unlike, SAQ that failed to continue with BSC due to continuous changes happening in environment causing changes in strategic objectives. Noteworthy to mention is the fact that decision to discontinue with BSC in SAQ was made once the firm bore considerable financial loss. Therefore, it raises the question related to importance of including other variable in BSC when final decision has to be ultimately made by financial stats. As Schneiderman (1999) mentioned lack of scientifically decided method for integrating improvement in firm’s BSC will be among main reasons of its failure; it proved true on both SAQ and Shat R Shield. Success on trial and error in latter organization resulted in satisfaction while failure of trial and error by SAQ resulted otherwise. Similarly, in case of TESCO arriving at steering wheel is the result of vision-aligned trial and error; even if this trial and error is conducted in development phase. TESCO’s steering wheel is also noted to be successful for the reason it has adjusted BSC to great extent to align with suitability of its firms’ nature. Though this flexibility has been suggested in designing BSC but the lack of information related to level most adjustment can be made is also question. This question aligns with concern related performance measure discussed by Schneiderman (1999). Neely (2008) also noted this concern and evidenced it case study. Neely’s (2008) investigated firm of electrical appliance, though firm had improvement in financial performance but this positive trend of performance happened in its sister division that did not adopted BSC. Successful implementation of BSC in TESCO and Shat R Shield is supported by their capability to overcome resource and people barriers as discussed by Anand (2004). This leads to question if BSC can only be implemented successfully by firms that have enough resources and management has considerable time to contribute as CEO of Shat R Shield then does it shall be concerned tool for large organizations. Moreover, small firms shall rely on traditional measures mainly due to these barriers. Empirical evidence in Rompho (2011) and case study of ABB Industries AG also asserts this. Firms in success category accounted contribution from entire people base and overcame people barrier of implementation while in failure category had lack of attention mainly from levels below the strategic point. For instance, in SAQ, top management remained involved consistently while it can be assumed that other levels of managers had their attention diverted to success of new products being launched etc. similarly, second case of failure also had management more concerned with saving their jobs as firms was undergoing an acquisition transaction. All these lead to concern that success of BSC is only vulnerable to acceptance or attention of internal people who themselves makes decision and doesn’t account any voice directly from other stakeholders. This concern was also noted by Schneiderman (1999) in list of flaws of BSC. It is also against the holistic approach by Okumus (2003). CONCLUSION BSC being the performance measurement and direction provision tool has proved to be important asset in assessment tools portfolio of firms. Deciding the strategy with involvement from almost entire people base in the firm combats vision, management and people’s barrier in successful implementation of strategy of the firm. Moreover, it ensures transcending strategy down to each level binds the direction of entire firm towards unified goal. BSC also has certain issues with it specifically related to performance measurement systems. Another main issue also refers to grey area related variable to be and not to be made part BSC process. Analysis of firms that were unable to reap the desired benefits from BSC and those succeeded in this attempt has main distinction of strategy. Success stories had clear strategy and goal while otherwise cases reflected instability in either strategy and goal or at least attention towards it. 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