Balanced Scorecard and Capability in Construction Industry in Saudi Arabia - Thesis Proposal Example

THESIS PROPOSAL: THE CULTURAL IMPACT REGARDING TO THE APPLICATION OF BALANCED SCORECARD TO IMPROVE CAPABILITY IN CONSTRUCTION INDUSTRY IN SAUDI ARABIA 2010 I. BACKGROUND OF THE PROBLEM The Balanced Scorecard (BSC) is a performance management system, developed by Kaplan and Norton (1992). The system is based on tracking organisational performance, measured by non-financial indices, which are linked to organisational success. The BSC system is comprised of four processes: clarifying and translating the vision, communicating and linking, business planning and setting targets, and strategic feedback and learning (Kaplan & Norton, 1996a, 1996c, 1996d, 2001a, 2001b). Since its development, the BSC has gained widespread popularity. The Bain & Company Management Tools and Trends 2007 (Bain, 2007) reports that 66% of the respondents were using the Balanced Scorecard (BSC) as part of their strategic decision-making process. Yet fewer than 20% of companies utilising the BSC have realised measurable performance improvement (Williams, 2004). Buytendijk (2007) proposes that the perception that implementation of a BSC, in and of itself, will lead to organisational alignment is a “fairy tale.” Bititci, Mendibil, Nudurupati, Turner, and Garengo (2004, p. 28) posit that the implementation and use of such performance measurement systems is greatly affected by organisational culture and management styles. Denton (2005) reports that 76% of firms place importance on organisational culture, but only about 37% are measuring it. Indeed, Kaplan and Norton (2004, p. 56) observed that companies with successful BSC implementations “had a culture in which people were deeply aware of and internalised the mission, vision, and core values needed to execute the company’s strategy.” A third concept that plays a pivotal role in this relationship is Organisational Learning. Indeed, Kaplan and Norton (2001a) include Learning as the basis from which improvement in all other perspectives grows. Further, Kaplan and Norton (1996c, p. 15) refer to the BSC as a “strategic learning framework,” and outline how the BSC facilitates learning in each of the four processes of the BSC model (Kaplan and Norton, 1996b). Kaplan and Norton (2004) report that the Learning and Growth objective appearing most frequently in BSC’s is “shaping the culture” (p. 60). They link strategy changes resulting from the BSC to changes in culture. These changes are the direct result of organisational learning vis-à-vis the BSC feedback system. Accordingly, the literature indicates that the BSC leads to performance improvement in the presence of the appropriate organisational culture. In BSC terminology, organisational learning and growth leads to internal process improvement, customer satisfaction, and, ultimately, performance improvement. II. AIMS AND OBJECTIVES In spite of the apparent relationship between organisational culture and BSC effectiveness, there has been little research specific to the subject, especially with regard to construction industry. With the widespread use of the BSC and, at the same time, a high level of BSC project failure, future research in this area is warranted. This study aims to close the gap in the existing research through the collection and analysis of survey data aimed at answering the question on a relationship between organisational culture and BSC effectiveness, and the impact of the latter on organisational culture within the construction industry in Saudi Arabia. This research is valuable to managers, given that the link between organisational culture and BSC effectiveness is explicated. Managers will be able to know, up front, if cultural changes are needed and what those changes should be. Further, construction companies’ management will be able to make informed decisions regarding the costs of culture change, if required, along with BSC implementation costs versus the anticipated benefits to be achieved through BSC implementation. In the end, it provides a guide for increasing the probability of BSC success, and ultimately bottom line improvement. III. LITERATURE REVIEW From a historical perspective, the concept of performance measurement systems is relatively new. One of the first systems was developed by Daniel C. McCallum while working for the New York and Erie Railroad Company in the mid-1850s, and consisted of daily reports on volumes, both passengers and cargo, as well as monthly summaries for future planning and control (Wren, 1994). In the 1880s, Frederick Winslow Taylor’s Scientific Management concepts brought performance measurement down to the operations level, with production rates set for workers and daily feedback regarding performance of those rates (Wren, 1994). Peter Drucker’s management by objectives (MBO) concepts, published in the early 1950s, was one of the first to suggest an integrated approach to establishing individual performance objectives for managers, explicitly related and balanced around organisation objectives, and then measuring manager performance against those objectives (Neely, 2007; Wren, 1994). In the 1960s, French academics developed a performance measurement system based on both financial and non-financial metrics called the Tableau de Bord. Unfortunately, the Tableau de Bord was never put into practice, and supporting literature was never translated into English (Halachmi , 2005; Kaplan, 1998). In 1992, Robert Kaplan and David Norton published a Harvard Business Review article introducing the Balanced Scorecard (BSC) as a performance measurement tool. Over time the BSC has developed into a vehicle for communicating a firm’s strategy throughout the organisation, as well as, a performance tracking system. The term balanced reflects the balanced consideration given to long- and short-term objectives, financial and non-financial measures, leading and lagging indicators, and external and internal performance perspectives (Hendricks, Menor, Wiedman, & Richardson, 2004; Kaplan & Norton, 1996b, 1996c). The basis for the BSC was the causal linkage of performance measures, both financial and non-financial, from four different perspectives: innovation and learning perspective; internal business perspective; customer perspective; and last, but not least, the financial perspective (Kaplan & Norton, 1992, 1996a, 1996b, 1996c, 1996d, 2001a, 2001b). As a performance measurement system, the BSC combined a multitude of performance measures, related to different strategic objectives, into a single report. At the same time, the BSC helped top management avoid “sub-optimization” (Kaplan & Norton, 1992, p. 72), by creating a picture of how changes implemented to produce improvements in one area can adversely affect another area. Kaplan and Norton (1992, 1996a, 1996b, 1996c, 1996d, 2001a) define four processes involved in implementing the BSC. Translating the Vision is the first step of BSC implementation. It requires the senior management team to translate the corporate vision and strategy into unambiguous strategic objectives. This starts with establishing financial objectives that are meaningful, from a long term standpoint. These would include Return-On-Investment, not just Profit and Loss. The perspective of the customer is addressed through specific customer-related objectives which must be accomplished to achieve the financial objectives. This includes definitively choosing the customers to be served and identifying what it is that will attract those customers. Next, internal processes are reviewed for those processes the firm must possess expertise in to achieve the financial and customer-related objectives. Finally, learning and growth objectives are developed based on resources needed to meet those objectives developed in the analysis (Kaplan & Norton, 1996a, 1996c, 1996d, 2001a, 2001b). According, to Kaplan & Norton (1996a), learning can occur only when these cause-and-effect linkages are specifically defined. Along with the objectives, the team must establish performance measures which drive the accomplishment of those objectives. These drivers are leading indicators rather than the lagging indicators found in traditional performance measurement systems, such as P&L’s or customer satisfaction surveys (Kaplan & Norton, 1996a). Often there are disparate views among the team as to those objectives. As Porter (1985) notes, a successful strategy requires a firm to recognise and intelligently make trade-offs. Denton (2005) acknowledges that “it is probably impossible, to make a series of choices that maximise customer service, quality, improves speed, lowers cost, makes money, improves employee involvement, while enhancing control, and yet makes work more enjoyable” (Denton, 2005, pp. 284-285). Consensus must be reached that these objectives are the true indicators of future performance for this process to be effective going forward (Denton, 2005; Kaplan & Norton, 1996a, 1996c). Kaplan and Norton (1996c) suggest that BSC’s are most effective when they set targets that require the firm to reach beyond prior performance levels to achieve. According to Albright, Burgess, Davis, and Juras (2007, p. 70), for these “stretch goals” to be effective, as with the choice of the performance drivers noted above, it requires the consensus of all levels to be attainable. Kaplan and Norton (2004, p. 56) report that companies that successfully implemented the BSC had a culture in which “people were deeply aware of and internalised the mission, vision, and core values needed to execute the company’s strategy.” Kaplan and Norton (2004) caution that managers should expect some differences in subcultures among departments. They illustrate such differences by comparing cultural aspects that might be exhibited by an R&D department versus a manufacturing department. So while certain values must be identified at the corporate level and transmitted throughout the organisation, specific units may have values that are unique to their group. Kaplan and Norton (2001a) further assert that using the BSC will result in changes in organisational culture to one focused on the corporate strategy. The Learning and Growth objective appearing most frequently in BSC’s is “shaping the culture” (Kaplan & Norton, 2004, p. 60). This is an indication of companies’ perceptions that strategy changes often require changes in their culture if the company is to achieve those strategies. These changes are the direct result of the feedback system proposed by the BSC Model. Bititci et al. (2004, 2006) posit that factors affecting the success of performance measurement systems, such as the BSC, include organisational culture and management styles. Bititci et al. (2004, 2006) further suggest that successful implementation programs may require a power culture at the outset. A power culture is defined by Bititci et al. (2004) as output oriented, with a rewards/punishment basis. Ultimately, a transformation to an achievement culture, one characterised by a people orientation, with self-motivated members, will ensue as the project progresses. Similarly, an authoritative management style may be required, initially, but this leads to a more participative, consultative style over time. Additionally, Bititci et al. (2006) studied the impact of performance measurement systems on organisational culture and management styles. Four cultural models, based on Hofstede’s (1980) dimensions, were used as the basis for the study. These included role culture, power culture, achievement culture, and support culture. Bititci et al. (2006) found evidence that successful performance measurement systems result in a transition toward achievement culture. Since the effects are bi-directional, Bititci et al. (2006) suggest that both culture and performance systems need to be adapted to the specific organisation. IV. RESEARCH METHODOLOGY A. THEORETICAL PHASE Based on the literature review, it is apparent that the BSC has become a widely-used management tool. Kaplan and Norton (1996c, 2001a) listed numerous examples of anecdotal evidence to support the idea that the BSC can be useful in communicating corporate strategy throughout the organisation and facilitating the implementation of that strategy. Empirical evidence further supports the position. However, there is evidence to the fact that many, if not most, BSC implementation projects are not successful. The literature further points to organisational culture as being the key mediating factor in BSC effectiveness as measured by performance improvement. Behaviours alone cannot account for BSC success or failure. If merely measuring performance resulted in performance improvement, would not all companies be successful? Finally, the literature suggests that the mechanism that fosters performance improvement vis-à-vis the BSC is organisational learning. One might infer from the literature that the BSC provides the quantifiable evidence that learning has, or has not, taken place. As with the BSC, organisational culture is the key mediating factor for organisational learning. The literature suggests that the BSC leads to performance improvement in the presence of the appropriate organisational culture. In BSC terminology, organisational learning and growth leads to internal process improvement, customer satisfaction, and, ultimately, performance improvement. Accordingly, the research questions that guide this study are 1. What is a relationship between organisational culture and BSC effectiveness within construction industry of Saudi Arabia? 2. If so, what is the nature of that relationship and what is the impact of BSC effectiveness on organisation culture and organisational learning in construction industry of Saudi Arabia? B. EMPIRICAL PHASE For the purpose of this study, the target population is construction companies operating in Saudi Arabia. In particular, this investigation aims to survey employees working in various departments in Saudi Arabia construction companies that have implemented a BSC. This is a field type study utilising Balanced Scorecard Cultural Survey as a survey instrument. Respondents (n=75) are administrative, professional, supervisory, and management personnel in the various departments of construction companies. Respondents are notified by companies’ representatives via internal emails that the study is taking place and requesting their participation. Notice of the survey is then to be distributed via email to the participants. Participants are asked to respond via an online form hosted by Zoomerang.com. The dependent variable in this study is BSC effectiveness. BSC effectiveness is measured via self-assessment. It is appropriate to use such a measure for this variable since it has been found that subjective measures of performance correlate to objective measures (Fey & Denison, 2003). Organisational culture as measured by the Denison and Neale (2000) Organisational Culture Survey Instrument (OCSI) is the independent variable for this study. The OCSI breaks down organisational culture into four traits, each with three indexes. This will permit further analysis of the relationship of each of the four traits to BSC effectiveness. Additionally, the Adaptability trait measures include an index for organisational learning, permitting the isolation of this key factor in the BSC process and analysis of its relationship to BSC effectiveness as well. C. STRATEGY The primary data analysis techniques employed by this study are descriptive statistics, analysis of variance (ANOVA), and correlation analysis. Descriptive statistics are used to analyse demographic information collected. Additionally, they are used to gauge the consistency of the self-assessment and culture measures within the companies. These statistics include means and standard deviation. It is not possible to test the sample data with population data since such data is not made available. However, a comparison of the distribution of responses by department utilising a Kruskal-Wallis Analysis of Variance test of the population and sample is to be performed. D. FRAMEWORK DEVELOPMENT The survey instrument is based on one utilised by Ewell (2004). In his instrument, Ewell utilised a 5-point Likert scale to measure success of Business Process Reengineering (BPR) projects based on a self-assessment. He asked respondents to assess their agreement with a statement that their firm’s BPR effort had been successful (Ewell, 2004). He then asked the respondents to indicate their agreement with a statement that their firm’s BPR effort had been unsuccessful. Responses with contradictory statements were not considered in his analysis (Ewell, 2004). Additionally, Ewell (2004) incorporated the OCSI into his survey instrument to measure organisational culture. A similar approach is used for this study. The OCSI considers the four hypotheses or traits: Involvement, Consistency, Adaptability, and Mission. Each of the dimensions is further broken down into three indices as follows (Fey & Denison, 2003): (1) Adaptability: Organisational Learning; Customer Focus; Creating Change. (2) Mission: Strategic Direction and Intent; Goals & Objectives; Vision. (3) Involvement: Empowerment; Team Orientation; Capability Development. (4) Consistency: Coordination and Integration; Agreement; Core Values. Involvement suggests that when members are encouraged to participate, a sense of ownership and responsibility develops, leading to commitment to the organisation. According to Denison, Janovics, Young, and Cho (2007), the OCSI measurements for Involvement include Empowerment or the authority, responsibility, and initiative granted to and displayed by the individual relative to managing their own work; Teamwork or the amount of effort the organisation places on the team to accomplish goals; and Capability Development or the emphasis placed on developing new skills to improve competitive position. Consistency is indicative that when the organisation’s culture, comprised of shared beliefs, values, and symbols, becomes internalised, consensus and coordination are more effectively achieved. Denison et al. (2007) assert that the OCSI measures Consistency through Core Values, or the degree to which members of the organisation have those shared values, identity, and expectations; Agreement, or the ability of the group to arrive at agreement and reconcile differences; and Coordination and Integration, or the way that diverse elements of the organisation are able to work together to achieve organisation goals. Adaptability is the need for the organisation to be able to recognise changes in the external and internal environment, and then make the appropriate responses to accommodate those changes. Denison et al. (2007) define the measures of Adaptability as Creating Change, or the ability to adjust to the changes in the external environment; Customer Focus, or the degree to which the firm is driven by customer satisfaction; and Organisational Learning, or the ability of the organisation to translate information from both the internal and external environments into actionable knowledge. Finally, Mission is indicative that in the presence of a clearly communicated, broadly shared mission, the organisation finds purpose and meaning as well as direction. According to Denison et al. (2007), the OCSI measures for Mission include Strategic Direction and Intent, or the degree to which the organisation’s purpose is clearly stated and understood by each member; Goals and Objectives, or the degree of linkage of goals and objectives to mission, vision, and strategy; and Vision, or the degree to which the organisation has a shared view of the future that is based on the core values of the organisation. Based on this discussion, the OCSI contains all of the elements of the BSC. Perhaps most importantly, it includes a measure for organisational learning. Accordingly, the OCSI was determined to be the best match for this study. The Balanced Scorecard and Culture Survey Instrument that is used for this survey measures Balanced Scorecard effectiveness vis-à-vis a self-assessment through two questions. As in Ewell (2004), first question asks the respondent to assess the proposition that “the Balance Scorecard was effective in helping my department achieve its objectives.” Similarly, second question asks the converse: “the Balance Scorecard was not effective in helping my department achieve its objectives.” It should be noted that the responses to both questions, requiring evaluations have been found to be unaffected by order in the survey instrument (McFarland, 1981). In any event, Czaja and Blair (2005) suggest that they should not be dispersed throughout the questionnaire. The Balanced Scorecard and Culture Survey further measures organisational culture in total of 60 questions. These questions are in fact the Denison and Neale (2000) OCSI. As stated previously, the OCSI measures organisational culture in four traits, each broken down into three indices. E. COMPARATIVE ANALYSIS Denison et al. (2007) report on a study to establish the validity and reliability of the OCSI. Their sample included some 35,474 responses from 160 different companies. The coefficient alphas for all 12 indices ranged from .7 to .85. Factor loadings for the 12 indices ranged, in general, from .60 to .75. Similarly, the factor loadings for the four traits ranged from .70 to .99. Additionally, root-mean-square error of approximation (RMSEA), goodness-of-fit index (GFI), adjusted goodness-of-fit index (AGFI), and comparative fit index (CFI) were used to evaluate the model. Denison et al. (2007, p. 21) found “strong support for the validity of the organisational culture survey as a set of measures for the constructs in the theoretical model.” Based on the findings of the study as well as the broad body of work that has been based on the OCSI, the OCSI is an appropriate instrument for use in this study. V. RESEARCH SUMMARY The primary aim of the study is to examine a relationship of organisational culture and BSC effectiveness within construction companies of Saudi Arabia. In addition, this study aims to identify the impact of BSC effectiveness on organisational culture and organisational learning. This study aims to survey employees working in various departments in construction companies of Saudi Arabia that have implemented a BSC. A self-assessment of BSC effectiveness is to be utilised. It is assumed that, while the scope of the study is going to be limited to the construction industry of Saudi Arabia, the results may be generalised over a wide range of organisations, industries and countries. Further, it is assumed that the respondents are going to provide an unbiased assessment of the BSC effectiveness. It is also assumed that the companies to be studied have an appropriate strategy for their specific business environment, and that the BSC is built around goals and objectives consistent with the organisations’ missions, visions, and strategies. IV. PROPOSAL TIMETABLE CHAPTER I: INTRODUCTION 7 Days CHAPTER II: LITERATURE REVIEW 20 Days CHAPTER III: METHODOLOGY AND DATA COLLECTION 30 Days CHAPTER IV: ANALYSIS AND DISCUSSION 14 Days CHAPTER V: CONCLUSIONS AND IMPLICATIONS 10 Days CHAPTER VI: REFERENCES AND APPENDIX 10 Days REFERENCES Albright, T., Burgess, C. M., Davis, S. B., & Juras, P. E. 2007. 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