Balanced Scorecard Methodology - Assignment Example

Balanced Scorecard As per reports, more than half of the most fortunate firms across the world make use of the Balanced Scorecard methodology. Like any other business process application, it acts as a catalyst and a platform for learning evaluating the operations of the business organization. It is a framework for merging various measures derived from strategy. This method takes into account the past performance while setting the drivers for future financial performance. The drivers are identified as customer, internal business process, and learning & growth perspectives, and are developed from the company’s strategy translated into objectives and measures.

According to Kaplan and Norton, the balanced scorecard cannot be just considered as a measurement but it becomes useful only when applied as a framework for management process (21-23). Performance measures are set in the balanced scorecard anticipating that those would help to meet the financial objectives of the Organization. Balanced Scorecard Financial Perspective Performance Measures Desired Change Total profit Total sales revenue Contribution margin per unit Customer Perspective Performance Measures Desired Change Written-off accounts receivable (bad debts) as a percentage of sales Customer satisfaction with accuracy of charge account bills from monthly customer survey Product returns as a percentage of sales Percentage of customers retained from last period Number of new customers Internal Business Process Perspective Performance Measures Desired Change Percentage of charge account bills containing errors Average age of accounts receivable Travel expenses for buyers for trips to fashion shows Percentage of suppliers making just-in-time deliveries Sales per square foot of floor space Unsold inventory at the end of the season as a percentage of total cost of sales Learning and Growth Perspective Performance Measures Desired Change Profit per employee Sales per employee Percentage of charge account bills containing errors Percentage of salesclerks trained to correctly center data on charge account slips Suggestions per employee 2.

If the organizations do not channel the efforts into validating performance measures, creating a desired linkage between measures and end-results, it would end up in disaster. Measurement validation is an integral part of the process, and so rushing with the performance measures would not be advisable for an organization. Therefore, necessary significance must be given to measurement validation or else will be left with stimulating performance and behavior that the organization had not anticipated.

While adopting a balanced scorecard, it is important to consider that business process does not take place in a coherent straight line. Therefore, it is advisable to leave out space for innovation and change. Opportunist behavior are welcomed and it is an added advantage to the organization to consider local idea generation in the future in order to be equipped with the ability to clutch opportunities as they arise. It is not a stand-alone process, and so must be put into application and driven by firm’s strategy process.

After it is in operation for sometime, some of the measures may show improvements while some others may be lagging. Here it is necessary for the management to review and update the scorecard for increasing its efficiency. The organizational strategies will need to be changed over the period, so do the elements of the scorecard. Measures that do not show improvements must be identified and put under review and renewal, and new measures should be adopted in each dimension of the scorecard. Once the renewal process is completed, the management should make sure that the scorecard measures are exactly what the firm really wants to achieve.

While reviewing and updating the performance measures, it is advisable to the organization evaluate through a pattern of questions, in each dimension of the balanced scorecard, to make sure that the measures are sound enough. Balanced Scorecard Analysis for Modifications Financial Financial Objectives Customer Product Offering Relationships Services Brand Image New Products? Product Improvements? Latest needs? New customers? New channels? New services? Service improvements? Brand repositioning?

Business Process Operations Mgt Customer Relations Innovative Process Regulatory Changes to the value chain? New Processes? New management processes? New Channel impact? Innovation process capability/capacity? Regulator requirements? Stakeholder analysis? Learning & Growth People Skills Culture Leadership Redeployment? New insource, outsource? Will the skill portfolio change? Should we use external competencies? Is our set value still applicable? Does the firm need a behavioral change? Any leadership change needed?

Transformational or transactional change? (Source: Davies) 3 If customers feel satisfied with the accuracy of their charge account bills and on the other hand performance measures for the average age of accounts receivable and for bad debts do not improve, the performance measures must be updated in time to meet the anticipated objectives. In such a condition, those measures related to average age of accounts receivable should be analyzed and the average period of the accounts receivable must be brought down.

A larger extension to the bills receivable would decrease the profitability of the firm. In the same way, the amount of accounts written-off (bad debts) is a significant matter to be evaluated. The percentage of bad debts on the amount of sales has a great influence on the extent of profit earned by the firm. So, in order to maintain profitability, the organization should concentrate on maintain the percentage of bad debt on sales within a minimum level. On the other hand, if the average age of accounts receivable, bad debts, and unsold inventory improve and total profits do not, it indicates that the organization’s strategy regarding other performance measures must be improved.

The measures like sales per employee and profit per employee must be carefully reviewed. The organization should make sure that the rate of sales per employee remains within the expectations of the firm. In the same way, if the scale of profit per employee falls below the expected average level, it would reduce the profitability of the firm. In such conditions even if the average rate of accounts receivable and bad debts stand high, the profitability of the firm remains low. Therefore, appropriate organizational strategy must be implemented in order to maintain the ratio between the number of employees working and the profit earned.

Works Cited Davies, Robert. ‘Balanced Scorecard: Panacea or Poisoned chalice?’ Dr Robert Davies.com. Web 17 Dec 2011 Kaplan, Robert S and Norton, David P. The Balanced Scorecard: translating strategy into action. Harvard Business Press, 1996. Print.