Project-Balanced Scorecard - Essay Example

Project-Balanced Scorecard Contents Contents 2 Introduction 3 Analysis 4 Balanced Scorecard 4 perspective: 4 Internal business process: 6 Learning and growth: 6 Financial perspective: 7 Balance Scorecard and strategy 7 Conclusion 11 References 12 Bibliography 12 Appendix 13 Introduction A Balanced Scorecard is a management system/tool which presents a ‘balanced’ perspective on organizational performance. It does so by providing a synthesis of past financial performances with factors which would drive the performance in future. The proponents of this system were Dr. Robert Kaplan of Harvard Business School and Dr. David Norton. The main point of difference between Balanced Scorecard and general management systems/tools is that these general management tools focus primarily on the financial performance of the firm and that too generally from a historical point of view. But in Balanced Scorecard the performance of an organization is looked into from a broader angle which spans over perspectives like: Financial, Customer, Internal business process, Learning and growth. This is done to integrate the various complexities in the operating environment of a modern-day firm and so that the along with the financial model other factors which have crucial effects on the firm are taken into account. This tool evaluates performance of an organization and provides a framework for guidance. This system is used by organizations, private, governmental and non-profit to examine their performance in relation to their strategic objectives. Using the balanced Scorecard system, it is possible to measure and evaluate the process which is responsible for present and future value creation. This also acts as a guiding framework for managerial decision making in context of areas to be focused upon and resources to be put into in order to create value. Analysis through this system brings forth the ‘value drivers’ in an organization (Balance Scorecard basics, 2009; Kaplan R.S. and Norton D.P., 1996). Analysis Balanced Scorecard Under this system the primary focus lies on four key indicators. These are: Customer perspective, learning and growth, internal business process and financial perspective. Fig.1. Balanced Scorecard Source: Niven P.R., 2002 Customer perspective: The main angles or points of discussion for the organization under the ‘customer perspective’ are identification of their target customers and also their won value proposition which would attract the customers. Identification of the value proposition is crucial because otherwise the organization would surely loose focus. Value propositions might emanate from: Operational excellence- These kinds of organizations get their value proposition from excellence and primary focus only on their operations and generally offer no-frill products or services. Example: EasyJet the European low-cost airline. Leadership through product- These firms depend on constant innovation and research to deliver better products to their customers. They become product leaders and lead the way in the market by always striving to and delivering the best product. Intimacy with the customer- These organizations always look at the long-term view and develop a close relationship with their customers by providing unique solutions and deep customer research. Whatever might be the value proposition of the firm it would have to concentrate on factors like satisfaction of the customer and the ensuing loyalty factor, customer acquisition strategy and market share. Again in context of the Balanced Scorecard system the different indicators of performance are classified into ‘lag’ and ‘lead’ indicators. The former point towards performance in the past while the later indicates those drivers which are responsible for attaining the lag indicators. A proper Balanced Scorecard consists of both these type of indicators because with any of these missing, long term and short term improvements cannot be achieved. Internal business process: In this part of the balanced Scorecard the organization points out the most important businesses process in which the firm would have to excel to create continued value for their customers and other stakeholders such as shareholders. Customer perspective factors cannot be taken care of, if the internal processes of the organization do not function properly. Also internal processes responsible for each of the factors under the customer perspective have to be identified and it might happen that a new process is identified as the existing ones were not serving the purpose properly. These internal processes span over areas like manufacturing, design, product development, production, distribution, after sales service and others. Nowadays some of the processes are outsourced to vendors and inn those cases while forming the internal process perspective, these relationships also have to be taken into account. Learning and growth: The measures under the learning and growth perspective are very crucial to the success of the whole process as these take care of the reaming three perspectives. This can be termed as the base for the whole Balanced Scorecard system. When the first two perspectives are delved into various shortfalls come to the fore in relation to resources and required personnel skill sets. These gaps or shortfalls can only be bridged through introduction of proper measures which would help the organization tide over these. Factors like skill sets and skill levels of personnel, their level of satisfaction, quality of information available and the ease of access to quality information have a place under this perspective. Some organizations though do not put ample importance to this and develop the measures required at the very last moment. But this is not a proper way to look at it as any organization lacking in this perspective would only fall behind its competition. These actually act as the foundation or base for the whole balanced Scorecard model. Financial perspective: In this cut throat age of business profit is the buzz word and therefore financial perspective also maintains a very important place for itself. In fact the financial measures in terms of top line, bottom line and other parameters guide or point out whether the measures under the previous three perspectives are driving the organization towards its objective or not. It would be impossible for any organization to know for sure whether their efforts are delivering required results if they do not take into account the financial perspective and the ensuing factors like revenue growth, profitability. Balance Scorecard and strategy Numerous organizations utilize the Balance Scorecard as a strategic management tool or system to attain long term success. The fact that the scorecard focuses on measurement is put into use by these organizations achieve ultimate objectives by performing complex management processes. These are: Clarification and conversion of vision and strategy – The whole process is initiated when the management starts to convert or translate the overall vision of the business or business unit into smaller and precise objectives in terms of strategies. For example in case of customer perspective, the management team has to specifically indentify what customer segment it wants to cater to and what particular segment of market it wants to compete in. Then the team moves on to the financial perspective and has to decide what parameter or parameters it wants to focus on. It might be cash flow generation, revenue or profit. Likewise the other two perspectives are also delved into and measurement indicators are identified. One of the crucial factors while specifying the objectives is to Fig.2. Balanced Scorecard and strategy . Source: Kaplan R.S. and Norton D.P., 1996 Try and arrive at a consensus within the management otherwise a lack of consensus would give trouble later on. Linking the strategic goals and measures through communication- Once the specific objectives have been identified then these are communicated through the different levels of the organization through various means and medium. This id done to ensure that the employees understand and give importance to these objectives and goals. Sometimes it is better to break these objectives into even smaller ones for each department or level so that they can focus on these only. These specific objectives should be then linked to specific tasks in terms of operation. For example in case of a restaurant, if the specific strategy is to ensure that food will always be served warm then this strategy must be linked to the operations at the kitchen. These local level actions (as in case of the kitchen) are very crucial to achieve the specified objectives at the broader and long term level. Setting up plans, targets and then aligning the strategic processes- Balanced Scorecards can be utilized to successfully drive long term growth and achievement if and only when the management establishes plans, set required targets and align the strategic inputs which are required. Setting of targets should be done on a long term horizon (3 to 5 years) and it should be such that once they are achieved, the firm will be positively transformed in terms of performance. For example the goal might be to increase revenue by 200% by the end of three years. To achieve this management would have to set plans and link the internal processes, financials, customer centric parameters, etc. Again each of these factors would have their own set of sub targets to be achieved which would again entail their own sub plans to be formulated and executed. This is a crucial process as it facilitates the organization to quantify the objectives. Increasing feedback and learning in context of these strategies- This stage which is also the final one deal with strategic learning and feedback. Some experts even consider it to be the most significant amongst all the processes discussed. This process enables the management and the mangers to clarify their doubts and also to check whether their strategies and the hypothesis on which these strategies were based upon are working properly or not. They do it through the Balance Scorecard mechanism and are able to pinpoint diversions and make adjustments as and when required. This process actually spans over the previous three as learning and feedback form a crucial part of the model itself. Continued learning and feedback generated at each and every level of strategy implementation streamlines the process and curbs chances of diversion from the specified paths. Fig.3. Need have Balanced Scorecard Source: Kaplan R.S. and Norton D.P., 1996 Fig.3. shows the relationship between the practical world of business and the Balance Scorecard system. At the learning and growth level the employees gain their skill sets and training which they use to perform their work. This work which they perform in context of set objectives and is measured in terms of productivity levels which again has been specified by the management. The management does so to ensure that their set objectives are met. For example if the specific objective is to have on-time-delivery of pizza the at the internal process level they would have to ensure that the quality of processes at the kitchen level and also the cycle time of process is well within the specified parameters. If it is achieved then on-time-delivery of Pizza would happen which would then take care of parameters like customer satisfaction and ensuing probability of customer retention and loyalty. All these processes if carried on correctly would ensure that the ultimate financial objective of the company would be met; in this case it might be measured in terms of ROCE or Return on Capital Employed. Conclusion Balanced Scorecard is a very useful strategic management tool and system which can be used by the management to enhance their success by utilizing it as and guiding framework for strategic analysis. The factors of measurement of performance in terms of different perspectives, tangible and intangible make it a 360° view of the operational processes and helps it to indicate the key areas of focus. References Balance Scorecard basics, (2009), [Online], retrieved May 27, 2009, from http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx Kaplan R.S. and Norton D.P., (1996), The Balanced Scorecard: Translating Strategy Into Action, Published by Harvard Business Press, ISBN 0875846513, 9780875846514. Bibliography McNamara, C., (2008), Organizational Performance Management, [Online], retrieved May 27, 2009, from http://managementhelp.org/org_perf/org_perf.htm#anchor113411 Balanced Scorecard, BSC and Performance Improvement, (No Date), [Online], retrieved May 27, 2009, from http://www.organizedchange.com/balancedscorecard.htm Performance Management Collaborative, (May 2001), Public Health Foundation, Washington DC, [Online], retrieved May 27, 2009, http://www.phf.org/infrastructure/resources/PMCToolkit/pmc-balanced-scorecard.pdf Niven P.R., (2002), Balanced Scorecard Step By Step: Maximizing Performance and Maintaining Results, Published by John Wiley and Sons 2007-08 Balanced Scorecard Metrics, (2008), University of Virginia Library, [Online], retrieved May 27, 2009, http://www2.lib.virginia.edu/bsc/metrics/all0708.html#finance Stewart C.A. and Hubin C.A., (2000-2001), University of Wisconsin Madison , [Online], retrieved May 27, 2009, https://oqi.wisc.edu/projects/ Kaplan R.S. and Norton D.P., (No Date), Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, [Online], retrieved May 27, 2009, http://portal.sfusd.edu/data/strategicplan/Harvard%20Business%20Review%20article%20BSC.pdf Kaplan R.S. and Norton D.P., 2006, Alignment: Using the Balanced Scorecard To Create Corporate Synergies, Published by Harvard Business Press. Appendix Fig.1. Balanced Scorecard … Pg. 4 Fig.2. Balanced Scorecard and strategy … Pg.8 Fig.3. Need have Balanced Scorecard … Pg.10 Read More