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Enterprise systems are software solutions that automate and integrate all the core business processes such as sales, accounting, finance, human resources and manufacturing into single information technology architecture. Organizations invests heavily in these software systems in order to improve their business processes, better manage their Information Technology expenditure, increased customer responsiveness, and , strategic business improvements. But recent surveys has showed that Enterprise Systems has been raising dissatisfaction among business as it is creating financial losses and failed to deliver the expected benefits.
STUDY OBJECTIVE AND DESIGN
Several studies have revealed the extent of damage done by Enterprise Systems, critical success factors of enterprise systems and possible causes of low performance and some of its benefits. Many of these studies have proved that it is important to measure the performance of Enterprise Systems but at the same time it has also been determined that it is very hard to measure benefits of Enterprise Systems financially as high percentage of its benefits are intangible.
"The aim of this research paper is to address 'how Enterprise systems benefits can be usefully measured', with a 'balance' between qualitative and quantitative factors. The ultimate goal is to derive a comprehensive 'Enterprise Systems Benefits Measurement Instrument' to (a) assess the goodness of the Enterprise System and (b) identify where organizations should focus their 'benefits realization' efforts and further investments. The study focuses on the public sector and uses the Balanced Scorecard approach (Kaplan and Norton, 1992, 1996, 2000) to capture both financial and non-financial aspects of Enterprise System measurement. The research questions are:
1. What measures are appropriate for evaluating an ES?
2. Is the Balanced Scorecard an appropriate approach for ES measurement?
3. What perspectives should be considered when measuring the performance of an ES?"(Sedera et al. 2001)
"The study outcomes will significantly contribute to the ES and general MIS arenas by: (1) providing a better understanding of the Balanced Scorecard in the public sector and for ES performance evaluation (a domain previously not addressed with this approach), (2) identifying and justifying specific measures that link to cooperate goals and strategies for successful ES performance measurement, and (3) ultimately resulting in a comprehensive "ES Performance Measurement Instrument"." (Sedera et al. 2001)
REVIEW OF RELATED LITERATURE
Need of an Enterprise System Performance Measurement
Recent studies have indicated that the evaluation and management of the Information system or Enterprise System are of great importance to managers all over the world. The increased role of and dependency on Enterprise System, and the 'uncertainty' of benefits, have in combination magnified the need to monitor and measure Enterprise System performance. (Sedera et al. 2001)
There are several advantages from applying a performance measurement system in ES implementation, especially for top management. These reasons include: (1) ES expenses are significant - as ES expenditure grows and becomes a significant portion of business costs, top management and stakeholders become increasingly interested in being able to [a] compare the value of these expenditure with the obtained benefits and [b] compare those benefits with how other organizations benefit from a similar ES; (2) To find out the benefit generating areas - top management wants to find the benefit generating points (if any) so that they can further exploit these and apply corrective measures where the benefits are small; (3) ES have a 'holistic' impact on every operation in an organization; (4) ES performance measures aid in a competitive thrust - performance measures help top management to obtain and maintain Key Performance Indicators (KPI); and (5) As an aid for innovation - as a consequence of the above, top managers can identify and exploit areas for deploying innovative business strategies (e.g. United Communications Group, 1989; Sethi et al., 1993; Sedera et al. 2001; Parker et al., 1988).
Balance Scorecard: as a performance method
What is Balance Scorecard?
The Balanced Scorecard (BSC) is a measurement system developed by Kaplan and Norton (1992) that includes both financial and nonfinancial information on factors that contribute in achieving the firm's strategic goals and point towards success. This system enables organizations to clarify their vision and strategy and translate them into action. The balanced scorecard is not only a measurement system but it's also a management system which provides feedback regarding the internal business processes and external outcomes in order to continuously improve strategic performance and results. Organization use the balanced scorecard 1) to increase focus on strategy and results; 2) to improve organizational performance by measuring what matters the most,3) aligning organizational strategy with the work employees do on a day-to-day basis; 4) focusing on the critical success factors and improving communication of the organization's Vision and Strategy.( Rohm, (n.d.))
Balanced Scorecard Perspectives
Balanced scorecard includes the firm's critical success factors in four different perspectives. One of the perspectives is financial and the other three are nonfinancial:
Financial Performance measures the firm's profitability and market value indicating how well the firm satisfies its investors and shareholders.
Customer Satisfaction measures quality of products, service provided by the firm and low cost indicating how well the firm satisfies its customers.
Internal Processes measures the efficiency and effectiveness through which the firm produces its product or service.
Learning and Growth measures the firm's ability to develop and utilize human resources to meet its strategic goals.
Why companies need Balanced Scorecard?
Balanced scorecard is rapidly increasing in demand and is being used by various businesses all over the world. More and more companies in different industries have adopted balanced scorecard approach to achieve their strategic goals and measure performance. At the same time balanced scorecard is also in high demand in government and nonprofit organizations. Now with all this said we may ask us a question that why balanced scorecard is so much in demand or why businesses need Balanced Scorecard? It seems like there are so many performance measurement tools in the market but the companies just want to use Balanced Scorecard as a performance measurement tool with just one aim in mind - is to optimize the company performance in order to increase its value. There are 4 major signs which indicate that the company needs the Balanced Scorecard
1. The company has both strategy and mission but lacks top management involvement in strategic planning. (BSC Designer - Balanced Scorecard Software. (n.d.))
2. Company's personnel do not understand strategic goals of the company and thus fails to participate in implementation of these goals.Â
3. The companies with no common strategic goal use of Balanced Scorecard system are highly recommended.Â (BSC Designer - Balanced Scorecard Software. (n.d.))
4. There isÂ no operational controlÂ on implementation of strategic goals.Â (BSC Designer - Balanced Scorecard Software. (n.d.))
Mistakes in implementing balanced scorecard
1. Balanced Scorecard will not work effectively in the company where there is no clear and comprehensive strategy.Â
2. Before implementing Balanced Scorecard company should have clear budgeting, human resource management and compensation systems
3. Mostly the company's implements the balanced scorecard but its employees are not ready for it or do not want to use the balance Scorecard in their day to day work routine.
4. Also the companies should not apply the Balanced Scorecard in special circumstances but should use it across all the business processes in the organization in order it to work effectively.
Benefits of using Balanced Scorecard
1. The primary benefit of a balanced scorecard is the balance itself. Rather than focusing on a specific area of performance---usually financial---business leaders learn to consider the full spectrum of business performance. In addition to financial measures, they look at measures ofÂ customerÂ experience, employee development and retention and process efficiency. ( Wiesenfelder, H. (n.d.).Â )
2. Generally balanced scorecards reflect overall company performance at the highest level. But an advantage of the scorecards is that they are scalable: the same or related metrics can be used at different levels of operations to assess performance. (Wiesenfelder, H. (n.d.).Â )
3. The balanced scorecard inherently highlights the customer perspective, rather than focusing solely on internal business goals and financialÂ outcomes. Understanding and responding to customer requirements is a critical component of quality methodologies, and is a prerequisite for implementing sustainable improvements to processes and products. (Wiesenfelder, H. (n.d.).Â )
4. Business leaders who incorporate a balanced scorecard also gain insights into the employee experience. Metrics in the growth and development area provide information about employee satisfaction, which ultimately affects employee retention and thus business productivityÂ and profitability. They may also include assessments of the success of employee development and succession planning efforts, which are necessary for business growth. In addition, many employees appreciate that their performance metrics are tied in a direct way to overall business performance, making the measurement system seem more fair and appropriate. (Wiesenfelder, H. (n.d.).Â )
Balance Scorecard: as a Public sector ES evaluation method
A fundamental feature of the Balanced Scorecard is that it requires that each measure should relate to the corporate strategies and to each other in a cause and effect relationship. The individual measures at each instance would be unique depending on corporate goals and strategies. Thus, identifying the corporate goals and strategies in relation to the core perspectives is a critical preliminary step in a Balanced Scorecard approach. (Sedera et al. 2001)
The Balanced Scorecard is applied in Private and Public sectors from two different viewpoints. In the Private sector, the main emphasis is on financial indicators for managing the organization. The Private sector responds to fluctuations in market share, share prices, dividend growth and other changes in the financial perspective. In the Public sector however, entities must respond mainly to legislative acts and are responsible to higher Government authorities. The most common difference between a Private sector Balanced Scorecard and a Public sector Balanced Scorecard lies in the purpose of utilizing the Balanced Scorecard. Public sector focuses on cost reduction and customer satisfaction, while Private sector is mainly focused on revenue generation and profitability. (Sedera et al. 2001)
CASE STUDY: QUEENSLAND GOVERNMENT BENEFIT REALIZATION
This section describes an initiative by the State Government of Queensland to realize the 'full potential' from their implemented ES - SAP. In late 2000, the Queensland Government, through the initiative of the Office of Financial Systems and Training (OFST), initiated a 'Benefit Realization Network', aimed at maximizing benefits from the Enterprise System (SAP R/3) investment. The Queensland Government's Benefit Realization Network (QGBRN) is a voluntary association of agency representatives, who seek to share SAP benefits realization experiences and 'learn from each other'. The QGBRN has recognized the importance of the Balanced Scorecard and has integrated this into a framework for deriving increased benefits of Enterprise System. (Sedera et al. 2001)
The Queensland Government approach was very much focused on using the Enterprise System as a common reporting and financial management tool (Queensland Treasury, 1998,2000a). The objectives of the QGFMS (Queensland Government Financial Management System) are to provide a financial management system to Queensland Government agencies that will: (1) support the Managing for Outcomes (MFO) framework and financial management improvement activities, (2) encourage best practice resource management across Queensland Government, (3)facilitate the consolidation of Queensland Government financial information, (4) meet the business needs of agencies and (5) achieve economies of scale in main operations (Queensland Treasury, 1998, 2000a). (Sedera et al. 2001). The Queensland Government has chosen to utilize the Balanced Scorecard approach to evaluate the performance of their SAP Enterprise System and to guide its agencies to maximize benefits through strategic decisions. There are three main "tools" that the Queensland Government uses to maximize benefits and thus achieve business objectives: (1) a clear vision of the strategic management plan, (2) a Balanced Scorecard, and (3) a benefit realization plan (Sedera et al. 2001).
The Queensland Government's Balanced Scorecard approach is tightly integrated to the "Managing for Outcomes" (MFO) budgetary system. The expected benefits from the Queensland Government Balanced Scorecard are to: (1) understand the management approach in a holistic manner, (2) relate strategy to performance and action, (3) set performance targets, (4) focus, communicate and coordinate effort, (5) reduce /eliminate blind spots, and (6) Improve management and performance of the organization. The proposed Balanced Scorecard will cover all quadrants (Financial, Customer, Internal Process and Learning and Innovation) and a wide spectrum of information needs. The smaller business units (i.e. organizational entities) need to link their Balanced Scorecards to the overall corporate Balanced Scorecard and lower level strategies should be aligned with the Queensland Government mission and vision (Sedera et al. 2001).
The goal of this paper was to propose the Balanced Scorecard as an appropriate approach for measuring the performance of Enterprise System employed in the public sector. It introduced the design and objectives of the research, and then justifying the need for a balanced Enterprise System performance measurement. The Balanced Scorecard approach was then introduced, proposing its appropriateness for Enterprise System performance evaluation in both private and public sectors. Finally, the Queensland Government Balance scorecard approach was discussed describing the overall goals and techniques of applying a balanced scorecard in the public sector. (Sedera et al. 2001).