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Based on Balanced Scorecard Institute, the meaning of Balance Scorecard (BSC) is a 'strategic planning and management system that is used extensively in business and industry, government, and non-profit 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'. BSC also defined as a 'Strategic planning and management system used to align business activities to the vision statement of the organization' (Kaplan & Miyake 2010). Institutions rely on the BSC so much to live up to the performance of management strategies to achieve all the institutions goals both profit and non-profit organizations. BSC is very important tool to govern and measure the internal and external strategies. In the beginning of 90s, Kaplan & Norton developed the scientific theory of BSC in books and small articles have been published at that time.
Using BSC keeps organization focusing on its sections individually to achieve the goals and strategic aims, e.g. sales department trying to achieve 90% of the strategic target and to make customers satisfied by value added in products and services to achieve high level of sales and profitability beyond employees' performance toward the strategy.
BSC goes beyond the financial measurement. It also includes quality measurement. The following perspectives show the major contains of BSC:
Innovation & Learning
Each perspectives of the BSC include objectives, measures and targets, for example profitable growth measured in terms of net profit. The company may earn in a given period of time. Let say organization target is to increase sales by 5% next year. Therefore, it has to take necessary steps to achieve its target.
BSC can be highly useful tool to convert the high level objectives into operational objectives in executing them successfully and communicate the strategy effectively throughout the organization.
This paper highlights the meaning of BSC and the most important advantages and briefing about its origins. Later on, researchers discuss the BSC of specific company for how the BSC is success.
Each measure in balanced scorecard should relate to the corporate strategy. In turn, each of these measures will be unique and different subject to firm's goals and strategies. According to Ballantine et al (1996) a balanced scorecard can be developed and applied for enterprise system performance measurement in both public and private sector. However, it applied from two different points of view. In private sector, it base on financial indicators as it has to responds to fluctuations in market share or share prices, dividend growth and other changes in financial perspective. In public sector, entities adhered to legislative acts and government authorities. It has noticed that the main difference between the BSC in each sector is the purpose of utilizing. Public sector emphasizes on cost reduction and customer satisfaction whereas private sector is focused on revenue generation and maximize the shareholders wealth.
Epstein and Wisner (2001) concluded that the integration is something like demonstrating how environmental and social issues contribute profitability. Their empirical-anecdotal evidence relates to the Scorecard of the Health Safety and the Environment department of Bristol Myers Squibb. Also, their discussion relates to the integration of the environmental and social issues with the business their main example relates to the use of the BSC tool for the measurement of a Shared Service Unit - the one in charge of overseeing the Health Safety and Environment issues in the whole Corporation such as (Environment, Information technology, Human resources. The very problem for corporation today is in fact their lack of integration.
Pienaar and Penzhorn (2000) aimed to find out how the balanced scorecard strategy is suitable for strategic management at an academic information service. Expatriated researchers to identify the usefulness of BSC, they described and explained the meaning of BSC based on secondary data. They adopted the view of Campbell (1997), the academic information service is of the opinion that the BSC is an idea whose time has come. Kaplan and Norton (1996), the BSC is used as a communicating, informing and learning but not controlling the system. The researchers found that the BSC is well suited to the type of organization which is trying to use the academic information service. Finally, the researchers found that the academic information service is in a constant state of positive change and balanced scorecard is seen as a vehicle, through which a wide range of innovations an improvements in performance can be achieved, contributing to the development and continuance of long term competitive advantages within a constantly challenging environment.
Colomina et al (2003), proposed on how to apply the BSC to the collective investment managerial firms, the study aimed to developing in collective investment management firms. It also aimed to identify their core activities in order to define a brilliant strategy and improve the quality of their services. The final purposed was to increase their return on investment; this study was conducted in Spain because researchers believed it was the right place for that. The methodologies used in their study were descriptive and experimental. To obtain this model they have used dynamic systems theory and other information technology instruments. Researcher noticed that the BSC is not only a useful tool for managing and planning a firm strategy but it is also opens new development potential through appropriate software designs. This tool will be useful to face the changes in this field of activity.
Kaplan (2005), BSC introduced customer metrics into the performance evaluation. The feature of BSC is concerning about the customer value and customer metrics, for examples market share, achievement and retention. However, companies may face problem in achieving their main objective, maximize the profit, by focusing on customers delightfulness. In order to avoid this problem, the organizations have to price their product properly and charge extra cost for additional services requested by the customers.
According to the author to attract customers, companies should become customer obsessed rather than customer focused, this mean that company must found a way that can attract customer. They must know what in customer mind, not just keep watching the customer and focusing on him, companies have to bring attention to customers.
Finally in this research, customer can be provided two methods of purchasing. One when they purchase single service, thus the price will be rise for single service because it is one service and costs will be high. Another way is when company offer to customer wide range of services that will force the cost to be less and this will lead customer to save on bulk purchases. An example of insurance company, customer profitability metrics provide a link, otherwise missing, between customer success and improved financial performance. Many companies have experience in income growth. Scorecard measures of the numbers of unprofitable customers and the amount of losses from unprofitable relationships focus the organization on managing customers for profits, not just for sales, thus making the customer focus align with financial objectives.
It can be noticed that BSC used in different organizations in both private and public sector for different points of view. This is due to the fact that BSC assists the organizations to achieve their targets and accomplish the goals. However, it has its own limitation when the business tends to focus on customer satisfaction without attempt to adjust their products prices as needed for extra services.
The usage of BSC in Novo Nordisk
Background of the Company
Novo Nordisk is a Danish international health care (pharmaceutical) company which producing mainly drugs diabetes care. It is public limited liability company with more than 85 years of experience. The company is often hugely invested in intangible assets and research and development. To ensure whether the company is moving on right track after all of these spending, the CEO tuned to use BSC 13 years ago. The reason behind implementation of BSC was partly due to the culture of the Novo and partly of the business environment in pharmaceutical companies.
Implementation of BSC for Novo Nordisk
The illustration bellow will be showing the balanced scorecard of Novo Nordisk. The actual data is based on 2009. The target is set till 2014.
The least developed country as defined by the UN.
Measured by external consultancy firm.
Based on e-Voice, an employee survey using scale of 1-5 with 5 being the best.
These general objectives were cascaded through the organization and the BSC had been prepared through software. As result, Novo Nordisk external report produced from data processing in this system.
It can be noticed that how the BSC attempt to helped this pharmaceutical company to link their objective with desire achievement. As result, it has successfully achieved the target requirement or it was close to its long term target before the due date expires.
The usage of BSC in an Omani Company -
Qalhat Liquefied Natural Gas Company (QLNG)
QLNG is one of the newly established and leading companies in Oman. It was established to own the third LNG train in the Sultanate. The project started in 2002 and the LNG shipments successfully started in December 2005. The plant is located in Sur where the LNG is exported to Far East and Europe via LNG ships.
QLNG use BSC to assess the yearly performance of the company against a number of Key Performance Indicators which are developed in line with company long term objectives or specific projects for a particular year. The aim of developing BSC is to focus on the important matters in the business and encourage management and staff to strive in achieving the best results as they will be rewarded based on the results of the company. After the year is over, the actual results of the BSC are calculated to assess the company performance.
The BSC of QLNG consists of 7-9 Key Performance Indicators (KPIs) with different weightings and four performance categories or bands with specific points of each based on the achieved deliverables. Each KPI is clearly defined in term of goals/purpose, benefits and measures/deliverables. Based on the importance of the KPI the weighting is assigned. The performance band specified the minimum set of criteria that should be achieved to score that band. At year end the actual results are compared with the measures in the scorecard matrix in order to report the score of each KPI. The results of each KPI are added to report of company performance in the year.
Based on our research, we found out that BSC generally focuses on four important perspectives which are listed and briefly explained below.
Financial - measures financial aspects such as return on capital, revenue and market share
Customer - concerns about product quality, on time delivery, customer service and competitive price
Innovation & Learning - measures new product introduction versus competition, investment in innovative products and percentage from new product
Internal business - measures include manufacturing cycling time, efficiency, process yield, and quality measures
We have applied the above four perspectives to Qalhat LNG BSC by identifying the goals and measures under each perspective as shown below:
Achievement of sales level and business plan revenue
Number of LNG cargoes produced and delivered during the year
Number of cargoes sold at higher price than what originally agreed as a result of Marketing creative diversion and swap opportunities
Shipping cost saving
Percentage of LNG usage to run the ship comparing to the use of fuel oil which is more costly.
Deliver right quality and quantity on time
Number of cases of delay in delivering LNG cargoes to the customers
Number of complains or dissatisfaction of customers if the quality of LNG is not in line with the agreed parameters
Internal Business perspective
Improve efficiency, business processes and controls
Percentage of audit recommendations which are completed and satisfactory closed before the agreed due date.
Reduce Health, Safety & Environmental exposure to the company
Number of HSE programs / trainings implemented during the year.
Number of HSE audits carried out during the year
Innovation and learning perspective
New creative marketing ideas that increase the revenue of the company
Number of new Master Agreements with prospective buyers
Complete the required studies on time
Carry out Investment studies suitable for the company and execute selected opportunities
Satisfactory completion of investment proposals to the Board of Directors on time
Source: interview of a senior staff in the company and www.qalhatlng.com
Overall, Qalhat LNG believes on the importance of BSC in improving the performance of the company and encouraging all staff to do their level best and come up with innovative ideas, and improving the efficiency of its operations.
In today's world of information technology every organization needs a system which balances between the objective and subjective measures. It is absolutely not enough by establishing a system that are performance or result oriented , but also a system to drive these through a proper channels to achieve future results. BSC tool would certainly be helpful in establishing such a system which definitely fills the existing gap between internal and external measures. No doubt there are several systems that are established in order to run any business operations effectively and efficiently, but BSC is a system designed to take care a broader array of elements like customer satisfaction and hence focus on their retentions on one side and employee satisfaction and their retentions on the other keeping in mind the Business operations under considerations. Lastly, any organization by implementing this system of BSC definitely shall benefit after all they are all learning organizations.
Firstly, companies are advised to send their managers to institutions that have knowledge of BSC so they can learn the benefit of this tool which influences them to perform better and develop their organization.
The top management of the companies must be willing to spend and ready to accept the system of implementing BSC for which a complete understanding the outcome and its impact along with cost should be worked out.
Besides, it is recommended for the organizations to implement this system of BSC step by step which would help in having control over the system.
Also the system of BSC should be customized according to the requirement of the type of industry and nature of production/service organizations.
BSC system must be made mandatory at least for some of the organizations where there is public interest and thereby achieve success and growth.