Balanced Scorecard
The balanced scorecard identifies and integrates four different ways of looking at performance (financial, customer, internal business, and innovation and learning perspectives) (, 2002, ). The Balanced Scorecard (BSC) was first devised by and (1992) as a measurement framework that was expected to overcome some of the deficiencies of traditional performance systems. It gives a holistic view of the organization by simultaneously looking at four important perspectives (financial, customer, internal processes, innovation and learning). Apart from being a measurement framework, the BSC achieved recognition as a strategic management system (, 2002, ).
The BSC is distinct from other strategic measurement systems in that it contains outcome measures and the performance drivers of outcomes, linked together in cause-and-effect relationship ( and , 1996, cited in , 2002, ). One of the reasons the BSC is such a powerful tool is precisely that it stresses the linkages for achieving outstanding performance in related measures, rather than concentrating on isolated measures. As some people suggest, ‘the added value of the balanced scorecard is in the drawing together of all the key business areas and identifying the linkages that deliver success’. Thus, the scorecard helps to fight sub-optimization by forcing managers to consider all key measures that collectively are critical for the success of the organization and highlighting the need to analyze trade-offs (, 2002, ).
Balanced Scorecard in a Service Firm
The organization is a service firm that gives its customers with managed business solutions such as integrating outsourcing options with systems design and support. The company has developed a customized information system that effectively incorporates diverse outsourcing options with the client’s on hand internal support systems. The management had helped the highly skilled, highly trained, and highly independent staff of consultants to become an exceptional team of experts, capable of handling the most difficult customer demands. Development of strong interpersonal relationships had become the defining characteristic of the organization. Thus, the company’s success depended on the internal relationships the staff maintained among themselves as much as the external relationships they built with customers. The management and the staff had created a vibrant, knowledge sharing, collaborative work community that thrived on the lifelong-learning and personal growth initiatives that had become so familiar to anyone involved in the company. The company’s growth called for a more effective measurement system that will not harm what the management and the staff have worked for. The main concern of the management is to protect the company’s autonomous, collaborative work environment while continuing to grow the customer base and the staff. When the company was just starting out, the management had no difficulty assessing the progress of the employees through individual observation and the related company results. However, the number of the employees has grown and the one-on-one type of performance measurement that the management used to employ is not effective and efficient anymore. Now that the company’s corporate intellectual assets (the employees’ collective knowledge and strengths) were well established as the company’s primary competitive advantage, the management was searching for a way to measure and guide the process of sutaining that advantage.
The company uses a customer-intimacy strategy, which emphasizes the value of long-standing customer relationships. This strategy seeks to create and maintain customer loyalty by continually tailoring services to the precise needs of the customer. Customer-intimacy requires flexible and responsive business processes and a highly educated, capable and empowered, staff who partner closely with customers to develop and implement solutions that work. The company’s effective and efficient development and implementation of system solutions for customers depended on knowledge sharing among employees. The management developed four specific strategic objectives:
1. Company growth
2. Understand customers’ needs
3. Promotion of knowledge sharing
4. Maintain an open and collaborative culture in order to attract and retain employees
Balanced Scorecard Alignment
Balanced scorecard could be used to align an organization’s strategy with key performance measures, providing forward-looking performance management with adequate consideration of employee contributions to corporate success. The balanced scorecard can be used to address the performance criteria typical of organizations competing with intellectual assets. The firm was able to attract experienced employees who are complex problem solvers capable of dealing with very diverse , dynamic situations. The management recognized that these talented, motivated employees could easily find employment elsewhere, potentially at a higher salary. To succeed with a customer intimacy strategy, the firm had to retain its expert staff. These highly skilled consultants needed a collaborative, supportive environment with considerable freedom at the point of customer contact in order to make effective decisions in a timely manner. The firm’s core values provide the foundation and infrastructure to accomplish its customer intimate mission. These core values are:
1. Balance
2. Authenticity
3. Service over Self Interest
4. Empowerment
5. Diversity
The recent growth of the company forced the firm to employ a new performance measure that is more effective and efficient. The management chose the balance scorecard as an innovative performance measurement process. The strategy and vision of a firm is the center of the balanced scorecard. These strategic objectives are translated into measures that the management use to track how they create value for customers, how the internal processes of the business can be improved, and how the investment in people supports improved future performance.
Balanced Scorecard Perspectives
Source:
1. Customer Perspective – focuses on the external environment to understand, discover and emphasize customer needs. Common measures are customer satisfaction, customer loyalty, and customer retention.
2. Internal Business Processes Perspective – focuses internally along a value chain comprising innovation, operations, and post sale service processes. Common measures are research and development expenditures, sales from new products, productivity, cycle time, and throughput efficiency.
3. Learning and Growth Perspective – provides the foundation, or infrastructure, needed to meet the objectives fro the other two operational perspectives. Common measures are employee satisfaction, dollars spent on training, and voluntary turnover.
4. Financial Perspective – Focuses on shareholders. Common measures are economic value added, return on investment, and net income (, 2001).
The balanced scorecard may be the appropriate tool to link performance measurement to the essential internal elements that have led to the firm’s success with a customer-intimacy strategy.
The significance of the balanced scorecard is that it aids in the progress of an agreement around the firm’s vision and strategy, permitting managers to communicate the firm’s strategy throughout the organization and forces managers to focus on the most critical measures. This communication guarantees that employees comprehend the long-term strategy, the relations between different strategic objectives, and the connection between the employee’s actions and the selected strategic goals. The balanced scorecard can also aid firms in the allocation of resources and setting priorities based on the initiatives’ role in achieving the long-term strategic objectives. It is also expected to give strategic feedback and promote learning through the monitoring of short-term strategic results ( and , 1996 cited in and , 2003 ). A successful balanced scorecard program should be a change process ( and 2001 cited in and , 2006 ). The balanced scorecard can help an organization in six ways ( and , 2006). These are:
1. Promotion of Growth – owing to focus on long-term strategic outcomes, not just short-term operational results
2. Performance Tracking – individual and collective results can be tracked alongside targets in order to correct and improve
3. Focus – when measures are aligned to a few critical strategies, the balanced scorecard gives focus on what is vital to the company
4. Goal Alignment – alignment occurs across the organization when the important factors to success are measured and the measures support each other
5. Goal Clarity – the balanced scorecard respond to the question, “How does what I do daily contribute to the goals of the enterprise?”
6. Accountability – individuals are assigned as owners of metrics in order to provide clear accountability for results
The business balanced scorecard are often employed by consultants especially those with financial services backgrounds as a change lever to help organizations build the cornerstone of their strategic management system. It is used as a means to translate an organization’s vision into operational actions. It provides a balanced approach for uniting strategic, operational, and organizational perspectives in planning. It offers guidelines for integrating performance management into strategy, organization, and operations components. In translating the vision into these components, the organization’s behavior is guided, the components are linked in meaningful ways, and strategy is operationalized in ways that are significant to the organization’s members (, 2002 ).
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