After a seemingly trial and error changing of strategy for Mobil Corporation's U.S. Marketing and Refining (USM&R), Bob McCool, president of the company decided to initiate Balanced Scorecard Project. This strategy is used with the aim to reorganize and remake strategic directions. Specifically, Balanced Scorecard is a set of measures for the manager to assess company's performance from four perspectives: financial perspective, customer perspective, internal business process, and innovations and learning perspective.
The president initiated the project because their previous strategies and metrics were criticized to be chained in the past and not really linked with strategies for the future. The previous strategies which are fixated on volume and margins at dealer levels and excellent financial analysis were not able to solve or at least pinpoint the problem limiting the growth of the company. No efficient strategy for the company was recognized. Rather, financial analysis and accounting measures often mislead the managers to continuous growth and innovation.
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On the other hand, BSC complements financial measures and operational measures for the benefit of customer satisfaction, internal processes and the organization's innovation and improvement activities. These are drivers are operational measures which also serve as drivers of future financial performance. Moreover, the benefits of BSC include: provision of management report with competitive elements such as customer-orientation, short response time and etc; and helps to avoid sub optimization and encourage full achievement of organizational goals.
2. By choosing Balanced Scorecard Strategy, USM& R again showed it trial and error strategy. The strategy was haphazardly chosen without really trying to check the strategy if suitable to the needs of the company. Nevertheless, the company compensated this by gathering consensus among other stakeholders of the company.
A critical element in the development of the project is the thoughts and opinions of the managers and other important entities within the company. The members of the BSC project include: the president, Mr. Baker and other vice presidents for all functions, division controller, and managers of financial analysis. Expertise on the strategy adopted was provided by consultants from Renaissance Consultants. Workshops and interviews were done among the members of the committee and among the two types of customers: big franchised dealers and millions of customers. However, in spite of workshops and interviews conducted, it is implied that the strategy conceptualization and goal-setting was top-down and not otherwise as claimed.
Another critical element that was satisfied by the company was the formulation of the actual scorecards objectives. The team acknowledged the need to make these objectives narrow and focused on specified aspects of the organization. Hence, the team decided to have eight sub teams to enhance and refine the strategic objectives and measures of the Balanced Scorecard Project. This is important to the consideration of all aspects of the company. Looking it first from the perspective of the lower positions (sub teams) before submitting it on the executive level gave the project some sense of bottom to top approach of project planning.
3. Through linking the Balanced Scorecard to compensation, the employees were able to achieve at least 20% bonus. Employee's base pay reference point was reduced to 90% of the competitive market wages as previously set. The remaining 10% were achieved with average performance based on three conditions: achievement of two corporate financial performance competitive ranking; USM&R Balanced Scorecard metrics; and business unit component based on key performance indicators. Moreover, an additional 20% was given to the employees who showed exceptional performance based on the mentioned conditions.
The main advantage that I observe of linking Balanced Scorecard Project to compensation is a strategy of pay for performance, a compensation scheme based on satisfaction of various criteria set by the company. The main advantage for this type of compensation scheme is the motivational effect to improve performance of the employees and their respective divisions. Knowledge that excellent performance will receive reward can increase competition among employees and divisions. Nevertheless, competition will only be favorable if the criteria used will really be based on output, performance, and end results.
Moreover, this scheme can also help the company to sort the employees and divisions which are highly and low performing. This will help the company to strategize and initiate improvement of the low performing employees and divisions. The output of the employees will be identified precisely and be rewarded accordingly. It only makes fair for the high performing employees to be paid more than the low or average employees. Moreover, this will motivate employees to perform better because they know that their performance will be recognized and rewarded. It should also be taken into account that employees differ in rate of performance and proficiency and it should be the highly performing ones that should be rewarded and given merit.
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On the other hand, there are also downturns of linking scorecard to compensation. This may influence the employees to neglect unrewarded tasks. With the aim to reach the measurable goals, employees may tend to ignore immeasurable and yet important aspects of the job. They may tend to focus on aspects of the job that will enhance their payment appraisal. Hence, efforts and other components for achieving such goals should be recognized and not the actual output only.
Moreover, cost of compensation of the employees will always be uncertain as it will only be known after the evaluation period. USM&R may be vulnerable to budgetary cutbacks in times of economic crisis and may not afford such uncertain costs. Limited salary budgets may not afford sufficient differentiation between employees performing at different rates. Very low differentiation may not be able to suffice to achieve the desired motivation for higher performance and will only develop mediocrity attitude among them.
4. In general, USM&R used its Balanced Scorecard Process as a performance measurement system. The company initially used the Balanced Scorecard Process to substitute accounting measurements, financial analysis and operating measures. These traditional measurement systems specify particular actions and measure how the employees performed based on these actions. On the other hand, Balanced Scorecard performance measurement system pulls the employees towards the vision of the company. Balanced Scorecard is most necessary in measuring company's performance based on its missions and vision. The vision is specifically divided into four important perspectives: financial, customers, internal business, and organizational growth and learning.
Likewise, linking Balanced Scorecard to compensation is a means of performance measurement system. It is a means to measure performance and reward it accordingly. For the USM& R, this is an attempt to use financial incentive to motivate the employees by linking efforts exerted to the rewards receives. The employees are expected to produce more so that they can increase their earnings because the higher is the output, the higher will be their compensation The goal of performance measurement system can be looked into two perspectives. First, pay for performance is claimed to be an effective sorting devise to identify and attract the most capable applicants. Second, in the case of the existing employees, pay for performance is an incentive scheme to maximize the performance and productivity of the employees based on the four perspectives in the Balanced Scorecard Project.
Lastly, the Balanced Scorecard Project was used by USM&R as a performance measurement system because the goals set in it are also a measurement of the company's performance. The achievement of the goals set in the Balanced Scorecard is a success of the company. On the other hand, failure to achieve these goals is also a failure of the company.
Hence, with these, Balanced Scorecard may be considered as a performance measurement system and not as a management system.