The Balanced Scorecard by Dr. Robert Kaplan - Article Example

Introduction The Balanced Scorecard (BSC), developed by Dr. Robert Kaplan and David Norton in the early 1990s refers to a new strategic management approach to enable an organization to clarify its vision from different perspectives and create future value for the organization by concretising the metrics and actions necessary for this vision to come true. The basic methodology behind this performance management approach is that an organization should be able to define performance measurement system or metrics based on the organization’s value core drivers which should include everything that enhances the organization’s value (that is customer service), innovations deemed for the good health of the organisation, operational efficiency to meet the organisation’s goals, financial performance that should give the company and customers a better position on the market, and the strategy as set by the management of the company. (Clampitt, 2005) The Balanced Scorecard views an organization from four different perspectives, which includes the learning and growth perspective, the business process perspective, the customer perspective, and the financial perspective.  The focus of this paper will be on the implementation of the Balance Score Card (BSC) at Futura Industries. The Learning and Growth perspective The learning and growth perspective of the BSC relates to the development of the human resources of the company, and includes increasing employee competencies through training and continuous improvement of that knowledge, cultivation of corporate culture within the organization to make every employee feel as part of the organisation, organisational development that the organization has to follow in the future, including the nurturing of corporate experts so as to permit them remain part of the organisation, gurus, and mentors, setting up of fast and efficient knowledge transfer infrastructure between the newly employed and the existing employees, and opening up of communication lines among personnel as to ease their work. This perspective supports the concept that people are a company’s main resource and the most valuable assets that the organization should boast of. It is of great importance that what so ever metrics defined for this perspective by management should be able to measure the various aspects of employee improvement, growth so as to satisfy customer and company goals, and satisfaction on the part of the employees for doing their job. (Ballard et al, 2005) The business process perspective The business process perspective is an internal business processes that show the managers how well their business is moving and whether its products and services confirm to the aspirations of the clients. Managers should take into consideration the various kinds of business process involved, whether it is the mission oriented processes or the support service processes (the most commonly used process since it is easily benchmarked to certain generic metrics). When drafting this perspective, the managers should bear in mind that their main objective here is to meet customer and shareholders demands. This perspective should include both company’s short-term and long-term objectives as well as incorporating innovative process development in order to stimulate improvement. The Customer perspective The importance of customer and customer satisfaction cannot be over emphasized here especially as the company is existing due to the availability of her customers. Recent management philosophy is increasing geared towards realization of the importance of customer focus and customer satisfaction in any business. We should note here that if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective will thus lead to future decline in company profits, even though the current financial picture of the company may look good. Therefore, this perspective is considered by many as the leading indicator of good business management. In developing the metrics for customer satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which the company is providing a product or service to those customer groups. The Financial perspective The importance of the need of timely and accurate need and use of traditional need for financial data should not be disregarded in any business especially as timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data, reason for which most companies stress on the accounting and finance departments to provide them with such information as fast as possible and when needed. Most big companies develop a corporate database to implement their financial processes and make sure that the processing such data is centralized and automated. But it should be realised that over emphasising on the financial aspect of the company may lead to the "unbalanced" situation with regard to other perspectives. To be able to avoid this unbalanced of this perspective in relation to other perspectives, there is that great need to include additional finance-related data, such as risk assessment and cost benefit data, in this category. Building the balance scorecard for Futura Futura Industries is a Clearfield Utah based international company involved in aluminium extruding, finishing, fabrication, machining, and design for over 50 years. The company is trying to use her position on the aluminium market and establish herself as the leading extruder as spelt out in their mission of “Extraordinary Value through extrusions”. To meet this goal, Futura has established herself with two characteristics – reliability in keeping their promises and responsiveness by fulfilling customer needs. Haven established this mission goal, Futura management is trying to build a solid balance scorecard that will help them navigate to future competitive success with ease. This structure is aimed to make Futura: Place an emphasis on the learning and growth perspective since it seen as the area that will keep Futura above all competitors in the industry and marketplace, Increase customer satisfaction (as spelt out in one of their characteristics of responsiveness) by reducing delays in deliveries by up to 90% and reduce returns to the company either due to damages in the process of delivery or as a result of defects in manufacture, By so doing, the company is aiming at increasing shareholder wealth in the marketplace by increasing the share value of the company through improved services offered her customers and through the good image created through her products. Figure 1 We should note here that BSC is a management performance tool and all the four perspectives all interact and the failure of any of them leads to the failure of the others. The above figure shows how the management strategy and vision interacts with each perspective and how each perspective influences the other. The table below shows which areas and what strategies the management of Futura is placing emphasis to help meet the company strategy and vision. Integration of the four facets of the BSC It is of great importance that organizations understand how their activities are faring. To do this, management at Futura need to understand how customer, business processes, and growth/learning affect the organisations financial goal. Below is how the balance score card can be implemented at Futura as to meet the company strategies and vision. Learning/growth perspective Business process perspective Customer perspective Financial perspective New orders placed. Shows an increase in the number of customers, therefore increase in business processes and consequently growth in business Cash sales. Of great interest to Futura if cash sales are high since growth of the company will depend on how much benefits they make. Number of new customers. If increase, means the company is working well and customers are happy with the services they receive Bank loans and other liabilities. If this aspect is low enough, it gives some credibility to shareholders that their investments are faring well and indicator of much dividend in the future. New products introduced. Means growth in company since they are able to generate new products New outlets created. Generates more finances for running the business and consequently, the business process will run well Number of products per customer. Increase customer products means increase customers especially when these products are beneficial to the customers Pre-paid orders, increase Futura’s credibility as it shows how financial sound the company is since profits are made from the pre-paid orders Employee training hours. Increase learning aspect of employees to better serve the customers Employee satisfaction. Good for the company since the employees will be more committed to meeting the objectives of the bank Customer satisfaction. Means good management of the customers that may lead to recommendation for new customers to join Employee turnover. If this increases in the course of time, this means good profitability for the company since they are making more money Customer retention. Means growth of company through increase learning aspect from the part of employees Calls to potential customers. Leads to increase business activities Thank you calls/cards to new and existing customers. This leads to customer satisfaction on the services they receive Cross selling. In the case where the customer accepts the multiple products satisfied, then that is making good profits for the company Cross selling. This means the employee has a good idea of the products and is able to sell to a customer who needed just one product. All of this can be achieved through training. Referrals. Good customer satisfaction as at the end the customer will get the required information needed Implementing the learning and growth perspective at Futura Futura, Utah based international company for more than 50 years has been involved in aluminium extruding, finishing, fabrication, machining, and design. The company has made a 50% increase in revenue from 1996 to 1999 from implementing customer service, financial, and internal operations of the BSC without adding personnel aspect of the BSC. After realizing that Futura has made it all in the other perspectives of the BSC, the president, Johnson now saw the learning and growth perspective as that area that should keep them above all competition in the industry’s saturated marketplace. To quote from her stressing on the learning and growth perspective of the BSC she said; "….it is our employees that differentiate us from all other extrusion companies," she says. "We need great people, not just great machines."1 Johnson has used the balanced scorecard’s learning, innovation, and growth dimension as the cornerstone to build Futura’s ability to attract and retain key talented employees. Focus on recruitment and retention of employees at Futura is made using measures of turnover, which the company has decreased by 33% since 1998, and over 50% in the industry as a whole, with a rate of 10.7% turnover YTD. No organization can meet her objectives if the employees are not well motivated. Futura basing on increasing employee satisfaction by treating “employee as an individual, a family member, and a member of the community” often leaves them motivated to do their jobs especially with the surveys through which every employee has that opportunity to give his/her feelings about the work place. This is just the best method for the organization to meet objectives using employees, since through this means, it will be hard for employees to leave your organization for the other since they re treated as members of the family and community. (Edenborough, 2005) No organization can succeed without putting in place a conducive work environment for employees. The absence of this will push employees to change jobs thereby making it difficult to recruit new employees and even in the case where there is available labour, the organization will have to keep training new employees but at the end loose them to competitors. Therefore, the approach used by Futura based on learning and growth perspective of the balance score card instead of the financial or other aspects gives the company that edge over her competitors Implementation of the business perspective at Futura Instituting a fast turnaround time so as to meet customer demand is their very first objective. The company is targeting a 90% increase in delivery times of requests for all customers. To achieve this, the company has to therefore involve all members of the company working at the fabrication and factory, seek their opinions as to how they think this can be done. At this level of information gathering, all should be encouraged to participate and no such issues as I am the boss and should talk more. This is an idea that will obviously benefit all. Another factor to take into consideration also is customer perception if they should have their orders delivered on time and with the right specifications. After this information gathering stage, employees should be trained on this new fast delivery time will be implemented, since they are the people who have to serve the customers. We should realise here that if the delivery times are made faster, it will reduce cost of parking for long hours for delivery vans of the company, thus meeting the objective of satisfying shareholder objective of making profits. It is often a problem at some companies to be able to meet customer orders on time and with the right specifications. Therefore Futura is trying to cut on this time for vans where some even come back to the factory with non delivered stock or stocks with defects. This means vans will be able to deliver their stock to the customers on time and without defects. To be able to do this, personnel are needed, who will do the fast rounds of delivery. A system of communication should be established between the employees and drivers, and all administrative staff so that they know if there is any problem that should hinder the fast delivery of customer orders. This will increase customer satisfaction and some savings for the company. Some companies often have delays because the employees working at the factory do not finish nor do their jobs fast enough. This means an increase in defects and returns from the delivery vans meaning cost incurred. Management should put in place a short term objective which for the main time is maximum 30 minutes for any delivery per customer. But in the long rum, the company should implement a policy whereby the customer orders can be delivered either through some faster means or increase the number of delivery vans to shorten time. Tasks be assigned to particular employees and give them the confidence that they are capable to perform the task. Like this, the company will be able to cut down on stock returns, delays and defects that occur during delivery. Know that such delays are not only detrimental to the company in terms of cost, but also customer dissatisfaction. In conclusion, since the main aim of the business process perspective is to meet customer satisfaction and maximisation of shareholders wealth, management should be aware that it is not just an issue of one person, but a follow up to make sure that the targets set are met. Data should be kept for analysis to see if any of the targets failed and reasons for such failures be sort for improvement. Realise here that, the business process perspective involves the other perspectives, learning/growth, customer, and financial perspective. Special care be made here because, if one of the areas is weak, therefore, the others will be bound to fail. Business processes perspective involves all of the others and each target be monitored carefully and corrective actions be taken on time. Implementation of the customer perspective at Futura In order for Futura to maintain her leading position on the aluminium supplies market, the company is placing huge emphasis on her customer satisfaction. This is the reason why the company is trying as much as possible to increase the number of delivery channels to her customers and make sure that supplies are made with little or no damages. To do this, the company is trying to set a short term policy to increase the number of delivery vans and at same time create a system of communication with the administrative staff and the drivers of the delivery vans so as to know as fast as possible when there is any problem during delivery. On the other hand, employee motivation and the learning perspective is very much stressed to make sure that customer orders are met with little defects and on time. This is the reason why new management is stressing much on staff training. In conclusion, the customer perspective is very vital for the growth and functioning of the company. Futura should be geared mostly at increasing customer relations either by implementing just in time services that will help the company meet customer delivery times. At same time, checks and balances should be put in place to check on may the recklessness of some drivers during the delivery process. The company should at same time put in place a responsive system with their customers as to get their perception of the services they are offered. This will greatly help the company to improve on the quality of services and products the customers are offered. Where possible, the company should come up with some kind of incentive system for the drivers who carry out their duties with care and do not make errors that may be costly to the company. Implementation of the financial perspective of the BSC at Futura Companies that fail to take into consideration the need of proper and accurate analyses of financial data often face that risk of loosing their share market. This is because, finances in any company play the leading role for the business as those who risked their funds for the investment need some return on their investment. To run the affairs of the company, finances are required to meet these targets. When the company may in future need more funds to increase the activities of the companies, banks and other credit institutions will require seeing the financial situation of the company before making such loans. At Futura, even though their main objective is to meet 90% target in their delivery times and increase customer satisfaction, the company is stressing on proper analyses of financial data and that is reason why the company decided to put in place an adequate financial corporate system that centralises and makes the analyses of their data automated. At the same to time, to avoid creating a gap between other perspectives, the company is trying to integrate the analyses of risk assessment factors and carry out a cost benefit analyses into their financial data system. In conclusion, the financial perspective does not only mean what should add value to the share holders, but how this value added should enhance the functioning of the company. This means that, the financial perspective should encompass all areas that deal with the smooth and proper function of the company from tips to diligent and well behaved workers , to departments that work well to make sure that the company is running well, to customers incentives based on their volumes of purchases from the company. The financial perspective should concentrate on making sure that the company share capital and market value increases as the company grows in size. This is what exactly what will make the company look attractive to credit institutions and shareholders when capital may be needed for further investments. In conclusion, the balance score card has great advantages in companies that implement it. These include: This helps company focus on the few key things that needs to be improved as help management to create breakthrough in their performance. Helps the company to integrate various corporate programs, such as quality, re-engineering, and customer service initiatives. Helps the company to break down company’s strategic measures to local levels so that unit managers, operators, and employees can see whats required at their level to roll into excellent performance overall. The Balanced Scorecard approach provides the company with the most needed mechanisms to drive organizational alignment, that will help in sustaining improvements and changes brought about by company management and maintain equilibrium across the enterprise. References Andra Gumbus, Susan D. Johnson; (2003): The Balance Score Card at Futura; A relentless commitment to employee results in Company success. Strategic Finance, 37-41 Chuck Ballard et al, (2005): Business Performance Management. San Jose, CA Phillip G. Clampitt (2005): Communicating for Managerial effectiveness. Thousand Oaks, California: Sage publications 3rd Edition Robert Edenborough (2005): Assessment methods in Recruitment, Selection and Performance. London, Kogan Page Read More