Financial and Human Resource Management - Essay Example

?Financial and Human Resource Management - Case Study Table of Contents Financial and Human Resource Management - Case Study Table of Contents 2 Executive Summary 3 Introduction 3 Literature Review 5 Method 8 Financial 8 Customer 8 Internal Process 8 Learning and Growth 9 Analysis 10 Recommendations and Conclusion 11 Reference 12 Bibliography 13 Executive Summary The highly competitive business landscape of the present day has accentuated the need for greater efficiency in business organizations. Efficiency in this regard means a holistic development program that ensures the development of every department of the organization. The present study would analyze the case of Progres that is a ship manufacturing company engaged in manufacture of small commercial vessels. The Balanced Scorecard approach is a well crafted strategy in this regard that can help in the overall development of the organization. In this study an analysis of the literature would be done to identify the theoretical aspects associated with the Balanced Scorecard approach. The literature review would be followed with an analysis of the methods that would contain the framework of the Balanced Scorecard that would be designed for the organization. An analysis of the implication of the Balanced Scorecard and its overall impacts on the business prospects of the organization would also be discussed in the study so as to help the company critically analyze the effects of its strategies on all the departments of the organization including the key stakeholders. Finally in the concluding section an overall assessment of the approach would be made along with a set of plausible recommendations that would help the company to help generate long term sustainable competitive advantage. Introduction Academic researchers and managers have tried to fill up the inadequacies and gaps existing in the present performance measurement systems trying to make the financial measures more relevant. Others have brought up the fact that improving the operational measures is the secret to enhancing financial performance. Improving such operational measures like defect rates and cycle time automatically enhances the financial results (Kaplan & Norton, 1992, p.71). The balanced score card as proposed by Kaplan and Norton is a strategic management and planning system which can be used extensively in businesses, industries, government and all nonprofit organizations to align business activities with the strategies and visions of the organization and measure the performance of the organizations against its strategic goals. Recognizing the various weaknesses and vagueness’s of the previous strategic management approaches this score card was presented a clear prescription about the parameters which companies were required to measure to balance the financial perspectives. From the perspective of HRM also, a strategic management system has been designed and implemented based on the scorecard proposed by Kaplan and Norton. This HR balanced scorecard was implemented keeping in mind the new organizational dynamics. It provides the means of monitoring the performance of the workforce, analyzing the workforce statistics, diagnosing the workforce issues, calculating the negative impacts on the company finances and then providing solutions for the same and then finally tracking improvements (Walker & MacDonald, 2001). The project seeks to present the various issues faced by Shipyard Progres which was engaged in building of ships for Shortsea shipping. The first issue is the limitations issued on the shipyards along Winscotencanal on the dimensions of the ships. This meant that the ships which customers demanded could no longer be built among the coast and required to be completed at some other place. However, this means that the building costs would go up considerably. Some issues were also likely to arise from the employees as they would be reluctant to commute more. Moreover a radical change program such as the incorporation of a balanced scorecard are likely to be resisted by employees as they would be apprehensive about their future career prospects and experience in the organization. Literature Review Today’s managers have increasingly realized the importance of measuring organizational performance. Researchers have used various financial indicators for measuring the same but they are not without loopholes. According to Norton and Kaplan (1993), the balances scorecard is a management which can be used to motivate breakthrough improvements in areas like products, customers, processes and market developments. It is not just considered a template which can be applied in businesses but also applicable in various market situations, product strategies and competitive environments (Schneier, Shaw, Beatty & Baird, 1995, p.67). According to the two authors the conventional financial measures have reduced in terms of their relevance to the business models which reflects the new economy which has consequently led to the emergence of a new challenge as to how the new value drivers in the organization can be measured. According to Amir & Lev (1996), non financial measures can be considered to be better value drivers or better measures of future financial performance of firms as compared to the financial measures (Porporato, Basabe & Arellano, 2008, p.115). They have particularly focused on the importance of the HR balanced scorecard for measuring performance. However, according to Banker, et al. (2004) and Lipe and Saslterio (2000), companies predominantly use the financial measures because of their effectiveness in providing comprehensive and apparent measures of performance. Despite the fact that most companies understand the importance and relevance of non-financial measures they are still unaware about how to use them. Thus in spite of the knowledge of the relevance of non financial performance measures complete benefits of using the measures cannot be utilized and this results in huge wastage of potentials (Porporato, Basabe & Arellano, 2008, p.128). Researchers like Becker, Huselid & Ulrich (2001), embraced the idea of the HR balanced scorecard in this regard as being a new system of measurement of intangible assets. The HR scorecard has found relevance not only in maintaining a running total of HR results, but it is also a well constructed system which allows managers to keep monitoring their inputs into the firm’s results and make arrangements periodically to ensure that the HR architectures remain aligned with the emerging business strategies of the firm (Becker, Huselid & Ulrich, 2001, p.8). According to researcher Peter Drucker (2011), developing a tight cause and effect linkage in measuring organizational performance is considered a challenge for all organizations. The extent of difficulty is compounded in both non-profit and the public sector organizations by the numerous influences surrounding their works. According to him, most of the organizations adopting other scorecards have not benefited through a ready supply of answers to all questions. The balanced scorecard has been effective in removing these gaps and provided for ready answers to the questions and at the same time generated the right questions at the right time too (Niven, 2011, “Benefits of using a Balanced Scorecard”). Numerous organizations are seen to struggle with their performance management and measurement systems. In fact, according to the results of a research conducted, 80% of the respondents were reported to make changes in their performance measurement systems in the last three years. In the same study it was shown that in 33% of those organizations this change was described as a ‘major overhaul’ and the balanced scorecard emerged as the proven tool among all other scorecards as the most meaningful provider of performance information (Niven, 2011, “Benefits of using a Balanced Scorecard”). During the same time 60% of all the Fortune 100o companies in the United States were seen to use the Balanced Scorecard. According to the views of researchers Kaplan and Norton (1992), most organizations today operate in highly turbulent environmental conditions and their complex strategies which once suited in the conditions they operated eventually lost their validity in the changing business environment. In such a condition when the chances and threats and opportunities keep emerging continuously organizations must become capable of “double loop based learning”. “Double loop based learning” has been defined by Argyris (1991), as the learning which causes a change in the assumptions and theories of people about the cause and effect relationships. Financially based tools of management and budget reviews are not able to engage senior executives of the organizations in such double loop learning. This is because these loops address the performance only from a single perspective that does not involve strategic learning. Strategic learning includes collecting feedback, testing the hypothesis, and then making the necessary adjustments. The balanced scorecard is effective in providing or supplying for the three elements which are considered essential for strategic learning. First of all it articulates the shared vision of the company clearly defining the results that the company is seeking to achieve. Secondly it provides for the necessary strategic feedback system, and finally, the balanced scorecard facilitates strategy review which is the essential element for strategic learning. With the particular specifications about the causal relationships between the performance drivers and the organizational objectives the balanced scorecard helps business units and corporate to use their review to evaluate the validity of the strategies and the quality of the strategy’s execution (Kaplan & Norton-a, 1996, p.10-12). Method The Balanced Scorecard is a tool that can be used to monitor and analyze the effectiveness of both financial as well as non financial strategies of a company. A Balanced Scorecard for Progres is shown below: Financial The objectives in this aspect for Progres would involve maximizing returns on investments, ensuring growth and profitability, encashment of the asset base and effective management of operational costs. The main drivers for Progres in this regard would be the revenue growth on implementation of the new project i.e., to new manufacturing units in the form of acquisition of dry docks for making larger ships in new location. In addition to this other drivers would include rate of utilization of assets that would be fixed at 80 percent in the first year and 85 and 90 percent in the next two years. The company would be targeting a revenue growth of 6, 8 and 12 percent on a three year basis. Operating cost per customer would be reduced to about 30 percent per customer and aims would be to generate economies of scale and scope by 5 years. Customer The objectives for this part would involve better customer relations and focusing on customer loyalty. The company would aim to retain 80 percent of its customers by the first year end that would be hiked to 90 percent by three years. Internal Process The main goals or objectives in this part would include focusing on growth of business, increased level of support systems, generating greater service development standards and optimization on the core business areas. The goal of business growth would involve focusing on innovations and research with revenue percentage from de regulated services like maintenance and spares being pegged at 5 percent in the first year to 7 and 10 percent in the next three years. Better support services would mean a growth in the satisfaction index of customers by about 4, 4.5 and 5 percent in three years. Generating efficiency in service would entail creating cross delivery groups, and generate new product take up rate by 20, 25 and 30 percent respectively in three years. Improvement in core areas involves reduction of recovery time to 8 hours, 4 hours and finally in 2 hours by three years. Improvement in employee productivity would involve outsourcing back office and redundant aspect by 2, 3 and 4 percent by three years. Progres would also target employee efficiency to go up by 4, 6 and finally 1 percentage by the end of three years. Learning and Growth The goals for this strategic aspect of the Balanced Scorecard would involve creating market driven employee skill set, generating satisfaction among employees and setting global standards in leadership programs at Progres. The market driven skill set development objective would have a target of increasing the skill based coverage ratio by 65, 75 and 85 percentage in there years. Employee satisfaction would involve increase in training time for employees by 10, 12 and 15 percent by three years. Leadership development implies improvement in satisfaction levels of individuals. These would be measured with an employee satisfaction rating system with improvements in ratings y about 3, 4.5 and six percentage points in a period of three years. Analysis Balanced score card is a strategic tool which is used to monitor and control the organizational activities and measure the organizational performance against the strategic objectives of the organization. Progres the ship manufacturing company is going to expand its activities in the field of manufacturing small ships. Thus the company will have certain financial and non financial objectives to achieve the strategic objective behind the expansion. In this regard balanced scorecard will be very useful in successful implementing the strategy as it will help the company to monitor the progress of the implementation of the strategic actions and also will evaluate the performance of the company against the set standards. Balanced scorecard will help to attain diagnostic and interactive control within the organization. Diagnostic control system comprises of measures and predetermined standards which are used to evaluate the performance of the company (Witcher and Chau, 2010, p.307). Interactive control system comprises information which is used by the managers in decision making (Wiele and Iwaarden, 2006, p.106). It shows the pattern or the trend of the actions initiated to achieve the strategic objective. Balanced score card will provide the company the metrics which can be used to evaluate the performance of the company. It will enable the company to detect any deviation from the planed performance and help in planning necessary actions so that the company could achieve its desired objectives. Balanced score card also includes non financial parameters which will help to control the overall activities of the organizations. While measuring the performance and taking initiatives in controlling the activities of the organization, managers can analyze the pattern and direction of the activities undertaken to achieve the strategic objective. Thus by using balanced score card the Progres will enable to control all its activities and at the same cane analyze whether they are going at the right direction which would help the company to achieve its strategic objective. Recommendations and Conclusion The analysis of the case of Progres shows the importance of a Balanced Scorecard in generating greater efficiency into a system. A Balanced Scorecard is important as it helps firms to not only evaluate their financial strategies but also the non financial strategies that cover a holistic and comprehensive method of evaluation and monitoring of business objectives of an organization (The Balanced Scorecard Institute, 2011). In this case Progres must essentially take up its strategy of making ships with larger dimensions by having a second downstream unit. This would help the company to retain its existing customer base and to cater to the demands of the market. This strategy would help the firm to maintain long term sustainability in the market. In order to remove the bottlenecks in this regard the Balanced Scorecard design developed in the report would largely set goals and objectives that would be specific, measurable, achievable, realistic and time bound in nature. The Balanced Scorecard approach can help the firm analyze the rate of accomplishment of the objectives and also take timely actions that would help in taking care of the issues or bottlenecks in the accomplishment of the object5ives. Such sustained and professional approach and maintaining better customer relationships by understanding their needs would help the firm to emerge as a market leader and maintain long term sustainability with generation of a long term sustainable competitive advantage in the long run in the turbulent business environment. Reference Becker, B., Huselid, M. & Ulrich, D. (2001). The HR Scorecard. [Pdf]. Available at: http://hattonconcepts.com/media/papers/book-summaries/The%20HR%20Scorecard.PDF. [Accessed on October 29, 2011]. Kaplan, R. S. & Norto-a, D. P. (1996). Using the balanced scorecard as a strategic management system. Harvard Business Review. (1996). [Pdf]. Available at: http://mtweb.mtsu.edu/jclark/698/articles/698-UsingtheBalancedScorecard.pdf. 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