Assignment

on

Balance score card

Of

business performance measurement

SUBMITTED TO SUBMITTED BY

RAMAN GUMAN KOMAL

M.COM 2(3RD SEM)

5449

History

It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers (who created the Tableau de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century.

Meaning and definition of balance score card

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The “new” balanced scorecard transforms an organization’s strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Perspectives

The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

1. The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems."

2. The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.

objectives Specificmeasures

Manufacturing excellence Cycle, time, yield

Increase design productivity Engineering efficiency

Reduce product launch delay Actual launch vs plan

objective

manufactruing learningproduct focus

time to market

specific measure

time to new process maturity%of product representing 80% of salestime compared to that of compititors

3. The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

  In customer perspective two umbrella-objectives:

Add and retain high-value customers. We need to support (see below how) this objective with customer value proposition details, such as product quality, shopping experience and other.

Achieve and retain win-win partner relations. This umbrella objective need to be supported with the specific objectives that form the value for the partners, for example reduced product price, product availability, and a partner support program.

4. The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. 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. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

Strategy Mapping

Strategy maps are communication tools used to tell a story of how value is created for the organization. They show a logical, step-by-step connection between strategic objectives (shown as ovals on the map) in the form of a cause-and-effect chain. Generally speaking, improving performance in the objectives found in the Learning & Growth perspective (the bottom row) enables the organization to improve its Internal Process perspective Objectives (the next row up), which in turn enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows).

Building and implementing balance score card

1. Preliminary assessment: the balance score card building process starts with an assessment of the organization’s mission and vision, challenges, enablers, and values.This step also includes preparing a change management plan for the organization, and conducting a focused communication workshop to identify key messages, media, outlets, and timings.

2. StrategyStep Two (Strategy) is about determining the strategic themes, including strategic results, strategic themes, and perspectives, which are developed to focus attention on the customer needs and their value proposition. The most important element of this step is to ensure that you have unpacked what your customers are looking for from your organisation in terms of function, relationship and image to determine whether you are providing value to your customers.

3. ObjectivesStep Three (Objectives) is about determining your organisation’s objectives – that is your organisation’s continuous improvement activities, which should link to your strategic themes, perspectives and strategic results.  

4. Strategy Maps The objectives designed in Step Three are linked in cause-effect relationships to produce a strategy map for each strategic theme. The theme strategy maps are then merged into an overall corporate strategy map that shows how the organisation creates value for its customers and stakeholders.

5. Performance Measures In Step Five, the performance measures are developed for strategic objectives. Performance measures should be defined clearly, differentiating the outcome and output measures, as well as the leading measures (future expected performance) and lagging measures (past performance history). In this step, you will also design your performance targets. This might be perceived as the most difficult and confusing step, so it is important that a bit of time is apportioned so that the performance measures will be meaningful.  

6. Strategic InitiativesIn Step Six, the strategic initiatives are developed that support the strategic objectives. This is where the projects that have to be undertaken to ensure the success of the organization (the extent to which the organization fulfills its mandate or vision) are drafted and assigned. To build accountability throughout the organization, performance measures and strategic initiatives are assigned to owners and documented in data definition tables.

7. Software and AutomationStep Seven (Software and Automation) involves automating the Balanced Scorecard system, and consists of analyzing software

8. CascadingThe enterprise level scorecard is cascaded down into business and support unit scorecards, meaning the organizational level scorecard.

9. EvaluationIn this step , balance score card is now evaluated considering the issues like: whether organizational strategies have been effectively working or not?

Utilising the balance score card as a strategic management tool:

The balanced scorecard relies on four processes to bind short-term activities to long-term objectives:

1. Translating the vision.

The first new process—translating the vision—helps managers build a consensus around the organization’s vision and strategy. Despite the best intentions of those at the top, lofty statements about becoming “best in class,” “the number one supplier,” or an “empowered organization” don’t translate easily into operational terms that provide useful guides to action at the local level. For people to act on the words in vision and strategy statements, those statements must be expressed as an integrated set of objectives and measures, agreed upon by all senior executives, that describe the long-term drivers of success.

2. Communicating and linking.

The second process—communicating and linking—lets managers communicate their strategy up and down the organization and link it to departmental and individual objectives. Traditionally, departments are evaluated by their financial performance, and individual incentives are tied to short-term financial goals. The scorecard gives managers a way of ensuring that all levels of the organization understand the long-term strategy and that both departmental and individual objectives are aligned with it.

3. Business planning.

The third process—business planning—enables companies to integrate their business and financial plans. Almost all organizations today are implementing a variety of change programs, each with its own champions, gurus, and consultants, and each competing for senior executives’ time, energy, and resources. Managers find it difficult to integrate those diverse initiatives to achieve their strategic goals—a situation that leads to frequent disappointments with the programs’ results. But when managers use the ambitious goals set for balanced scorecard measures as the basis for allocating resources and setting priorities, they can undertake and coordinate only those initiatives that move them toward their long-term strategic objectives.

4. Feedback and learning.

The fourth process—feedback and learning—gives companies the capacity for what we call strategic learning. Existing feedback and review processes focus on whether the company, its departments, or its individual employees have met their budgeted financial goals. With the balanced scorecard at the center of its management systems, a company can monitor short-term results from the three additional perspectives—customers, internal business processes, and learning and growth—and evaluate strategy in the light of recent performance. The scorecard thus enables companies to modify strategies to reflect real-time learning.

Benefits of Balanced Scorecard

The benefits of the balanced scorecard approach in measuring performance are:

Gives the complete picture of the employee as well as the organizational performance. It guides users in determining the critical success factors and performance indicators.

Strategic review or analysis of the organizational capabilities and performance.

Focusing the whole organization on the few key things needed to create breakthrough performance.

Integrating and directing the performance and efforts from the lowest levels in the organization to achieve excellent overall performance.

Disadvantages of Balanced Scorecard

Balanced Scorecard performance is subjective. Unlike quality levels, it cannot be quantified except by surveys or management opinion. Mandating a specific number of training hours per year to meet an “learn and innovate” doesn’t necessarily mean all employees take courses that help them in their jobs or that attending classes to fill in the quota is better than working on the assembly line. Demanding high employee moralecan hurt managers, since morale is not always a manager’s purview. Setting a goal of high morale along with lay offs to save money is counter-productive.

Balanced Scorecard does not include direct financial analysis of economic value or risk management. Goal selection under Balanced Scorecard does not automatically include opportunity cost calculations.

Because Balanced Scorecard can add a new type of reporting without necessarily improving quality or financial numbers, it can seem to be an additional set of non-value-added reporting or, worse, a distraction from achieving actual goals.

Overly abstract Balanced Scorecard goals are easy to reach but hard to quantify.

When a company is failing to meet its Balanced Scorecard goals, the goals may be re-interpreted to the current state of affairs to meet success or avoid failure. Altering the acceptance criteria for a good balanced scorecard is easier than altering the acceptance criteria for mechanical parts and hence the reject rate.