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As the solution of above mentioned issues in organizations, by Robert S.Kaplan from Harvard Business School and David P·Norton from Renaissance International Program was jointly introduced Balance Score Card (BSC). Recent surveys indicate that, around forty percent of fortune five hundred companies use BCS as their performance management system.
PRESPECTIVES OF BALANCE SCORE CARD
In the BSC there are four perspectives exist, such as financial, customer, internal business processes and learning and growth. It makes various measurement methods to integrate into an organic whole to evaluate and guide all departments and staff's performance. In each phase covers all aspects of measurements each and every individual required to achieve.
In contemporary management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. It is obvious, if the customers not satisfy with product or service, eventually he find new supplier who meet their requirement from the competitive market. This leads to future declines of market whether current financial performance is healthy.
To overcome it, organizations should develop 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 BSC it addresses and it dedicate separate phase to analyze customer satisfaction based on the products or service organizations are serve.
As explained earlier, financial data plays vital role in traditional performance management processes. Kaplan and Norton also do not disregard the traditional need for financial data as a part of the performance management tool. In BSC also dedicate one phase for those data too. In addition to conventional profit related details, in BSC includes additional financial indicators to ironing out issues came from traditional performance management tools. Among them it includes additional financial-related data, such as risk assessment and cost-benefit data, in this category.
Learning and growth
In current context knowledgeable employees become a voluble asset of any organization. In BSC it has identified and in this perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. With the rapid change of technology, it is becoming necessary for knowledge workers to be in a continuous learning mode. In this perspective it into place to guide managers in focusing training funds where they can help the most effective way. As Kaplan and Norton emphasize that 'learning' is more than 'training' and it helps to long term sustainability of an organization.
Internal business process
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.
USAGE OF BALANE SCORE CARD AS A PERFORMANCE MANAGEMENT TOOL
In the process of the performance management there are four steps exist according to the theory. The first step is the development of performance goal or objectives, this is the initial stage of performance management cycle. In the process of performance planning BSC play a role to link the organization strategy to transform the direction of the development and vision into the indicators which can be easily evaluated. In addition BSC also decompounds indicators and translates into specific action plans to each one of the sector and the staff in the organization. According to the focus of each department, when managers develop the plan, they should pay attention to some focus in the four aspects of the BSC as explained earlier. For example, it should give the higher weights in internal process innovation and the quality of their products of the production sector, and we should pay more attention to the staff's learning, growth and creativity in the human resources department. In the development of performance plans, managers must pay attention to analyze the positions and duties about departments and staffs in order to make the plan to be more effective, objective, and comprehensive.
When having defined goals of the BSC and performance plan, then the managers and staff at all
levels should complete those goals.BSC is the most important element of the performance plan and it records the targets, indicators, the value of index, some action plans and other information. So in the performance implementation, managers can keep a record of the staff's actual working in accordance with the content of the BSC. At the sometime managers should review the realization of the indicators and plans by the BSC, and pay more attention to the key performance indicators and analyze the differences. In the course of implementing the plan, managers should make a record and performance feedback. The synchronized feedback is advantageous to achieve the determination goals by BSC.
Performance evaluation is the third step in the Performance Management Process. In the
performance end of the period, managers and staff should use of the established and reasonable evaluation method and measuring technology to calculate the schedule of the performance in a certain period of time. So performance evaluation is the quantitative and qualitative evaluation of calculation about the performance. The result of the evaluation can be used of the implementation of enterprise incentive and the follow-up to performance management. Also it is an important linking the past and the future in the performance management process. Managers can generally use the information recorded by the BSC to implement the evaluation. In the evaluation, the greater weight indicators should be assessed more accurately. Meanwhile, organizations can be used of a 360-degree evaluation of the performance management to be more comprehensive assessment of staff performance. In performance evaluation, the evaluation is not the main destination to the evaluated itself. But managers should discover the reasons how to make the staff through understanding the main differences about the evaluation and find out its problems of the performance.
Performance feedback is the process to enable the staff to fully understand and accept the results
of performance evaluation and give a guidance on how to improve the performance by the interviews between the managers and staff. In fact, performance feedback is throughout the entire performance management. The combination between the BSC and performance feedback primarily embodies that whether the staff is to contribute him most of the time and energy to the key performance indicators. If the staff made great efforts in the non- essential performance indicators, enterprises would waste of lots of human resources. Also owing to the unfinished key performance, it will affect the performance of entire department and enterprise. Therefore a performance feedback can make the staff to clearly understand the completion of the key performance, and some disparity, then to improve the performance.
The BSC is as the tool for the core to improve enterprise performance management. So managers
should efficiently implement of the BSC from the strategic, organization, process, etc, to establish an effective performance management process based on the BSC.BSC includes in the financial indicators to show the produced result. Meanwhile, the BSC can promote the future financial performance by customer satisfaction, internal processes, learning and growth for the business indicators. Then the performance management based on the BSC, on the one hand raises the current enterprise performance, while balances the future performance of the enterprises, so that enterprise has been in a high-speed development.
EFFECTIVENESS OF BALANCE SCORE CARD AS A PERFORMANCE MANAGEMENT TOOL
BSC can measure the overall performance of enterprises, because BSC is more emphatic on the
achievement of balanced from a different perspective to evaluation all-round performance.
BSC not only evaluates the internal indicators, but also pays more attention to the external
indicators, including shareholders and customers.
Organizations should clear their pursuit of the results (such as profits, market share) and the reasons of the results (such as staff training, information updates, the development and investments of the new product).So managers only find the right motivation, organizations can be effectively accessed to the results. BSC is in accordance with the causal relationship and a combination of inter-related indicators.
Quantitative indicators (such as number of customer complaints, profit, employee turnover) is inherent objectivity and many data were based on the past matter. Therefore, quantitative analysis of the data needs to "trend can be forecasted" as a precondition. However, organizations are increasingly facing the future with uncertainty. And qualitative indicators are quite subjective, even external, therefore the quantitative indicators attaches more importance to the qualitative indicators in the application. But it does not affect the relevance and reliability of the qualitative indicators. And performance evaluation needs the combining of the two natures.BSC makes up for deficiencies of the quantitative indicators by introducing the qualitative indicators.
Even though BSC has above plus points , it is required certain requirements and rules which need to be observed. Since strategic decisions make by top managements and it flows to lower levels. Accuracy of line manager's decisions depends on the creativeness of top managers decisions. To overcome there is no measurement in BSC. That's mean BSC is just a tool in hand of business owners and top managers.
Also it has centrally driven targets based on the nature of the BSC development. It may leads to "destroy innovation and experimentation" in individual basis. But it is one of the essential part for long term sustainability of an organization. When consider the implementation of BSC , it takes a very long time to built and implement the model. Also since this is a organizational development project, it is required to get consultancy and support from experience party outside the organization. It is a very expensive task , since consultancy is expensive.
In addition to long term goal in an organization there are short term goals also exist, this model is not perfectly match with measure short term goals.
When practicing the BSC organizations use many matrices, some time they are not applicable to their organizations and situations they have. It leads to It is vitally important when using balanced scorecards to make the information being tracked applicable to your needs. Otherwise, the metrics will be meaningless
HOW WE CAN IMPROVE BALANCE SCORE CARD AS A PERFORMANCE MANAGEMENT TOOL
Since BCS is a some sort of performance management tool, we have to develop it to overcome above mentioned issues, according to my opinion there should have a standard ways to develop matrices in each perspective rather than open it to define own way. It may reduce number of matrices within the organizations and it will enhance the effectiveness of the objectives of BSC implementation.
Also there should be a mechanism to balance the weight in each perspective based on the processes, industry and other key factors effect to the sector or industry. It should have a standard methodology to give wattages to each perspective rather than give based on the subjective approach by individuals. Subjective approach of individuals may create improper outcomes in the results.
Since in current context, rather than customers there are other stake holders also major forcing parties for organizations. There should be a mechanism to includes there inputs also in the one of the perspective or BCS should be modified accordingly. As an example competitors and suppliers should be a part of the perspective of the BCS. Their force is considerable for any organization in current context.
As explained earlier organizations strategies are taken by top management and owners of an any organization. Line managers set subordinates goals based on the top management strategic decisions in most cases. There should be a mechanism in BSC to evaluate objectives set by organizations are correct or not.
Also in BSC should have perspective to measure to way of organization going to face future challengers such as green concepts and corporate social responsibility etc. Since current environment is more focus on those aspects. It can be introduced by adding additional perspective or by introducing separate sub section to existing perspective.