When the organizations dominant coalition requests what different departments accomplished over the past period, the leadership team wants to know how each department has contributed to the goals. Functions such as purchasing, manufacturing or sales are quite plain to measure because their contributions are tangible (Rus, 2010).
Accounting typically operates with tangible assets, which are those assets that have a material or physical form, such as plants, equipment, and machinery, and are capable of being appraised (Mykolaitiene, Vecerskiene, Jankauskiene, & Valanciene, 2010).
Nevertheless, in many organizations, the real value of the firm lies in its intangible assets, those assets, for which a firm can allege ownership, but are not physical properties. These include intellectual property, employee knowledge, brand recognition, customer loyalty and many other factors that are hard to imitate and which yet provide for the organization's competitive advantage (Kaplan & Norton, 2004).
As intangible assets often are of little value on their own, it makes measuring them quite difficult. It is crucial how the business utilize them. The culture of a company alone provides no benefit, but when the culture enables employees to maximize its other intangible and tangible assets, it can become extremely valuable. Intangible assets create value when they are combined with other assets. For instance, combining state-of-the-art equipment (tangible asset) with an innovative work culture (intangible asset) (Kaplan & Norton, 2004).
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Many organizations have looked for ways to measure their intangible assets. One popular method is the Balanced Scorecard, developed by Kaplan and Norton (1999). Kaplan and Norton argue that traditional accounting measures such as return on investment and earnings per share measure historical performance, and can therefore be misleading. Traditional accounting methods cannot measure activities that lay the groundwork for future improvement, such as investments made in programs that are designed to foster innovation and growth. The Balanced Scorecard suggests focusing on four areas that drive the organization's long-term value. These are the financial, business process, customer, and learning and growth perspectives. Together, they create operational measures that drive future performance (Kaplan & Norton, 2004, 2007).
Kaplan and Norton (2007) note that improvements in those areas should convert into improved financial performance. If no improvements can be made, it indicates that managers have selected wrong processes to measure. The importance of selecting the right measures is relevant not only for the Balanced Scorecard, but also for measuring the effectiveness and improvement of communication (Langbaum & Langbaum, 1999).
According to Kaplan and Norton (1999) the Balanced Scorecard model has been used by some organizations to validate cause-and-effect relationships. One interviewed company found that increased employee morale led to significant increases in customer satisfaction, which furthermore decreased accounts receivables, thus raised return on capital employed. Additionally higher employee morale led to reduced rework, which decreased operating expenses and thereby increased capital employed again (Kaplan & Norton, 1999).
I think, while the balanced scorecard methodology is an important model for managing employees to deliver the goals of the business, it requires a whole organizational commitment. Implementing the Balanced Scorecard is not something that a single department can do on its own. In addition leadership must not miss to motivate people to give their best to achieve an aspiration, and to be successful on the whole.
Employee morale is the relation between employees and the organization. This includes all levels of employee satisfaction and is reflected in the work employees produce. High employee morale means employee happiness and high motivation to drive organizational performance and productivity. When employees are pleased with their jobs, they are significantly more motivated to work harder, more precisely and contribute the best of their capabilities toward goal achievement. They are willing to develop and to sustain a positive attitude with their co-workers, customers and anyone they come in contact with (Sher, Bakhtiar, Muhammad, & Ali, 2006).
Apart from that, low employee morale usually has a negative impact on organizational performance. If an employee is dissatisfied with the job the chance that he/she creates a frustrating environment, where other organizational members cannot function well, is rather high. The worker cannot share knowledge or ideas and is afraid of being derided or unaccepted. Generally low employee morale is a strong sign of job dissatisfaction and it often results in organizational failure, which leads to customer disappointment and further on to lower financial results (Sher et al., 2006).
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Research has shown that corporations who appreciate high staff motivation as a driving factor of organizational success are indeed successful with high profitability and excellent performance, which will, among other things, be reflected in an increased market share (Sirota, Mischkind, & Meltzer, 2005).
For instance, analyzing the stock market performance of 24 publicly traded companies in 2005, the research concludes that companies with high level of employee morale (when average overall employee satisfaction is higher than 70%) have managed to outperform the industry average. So the stock prices of the high morale companies increased by an average of 19.4% while the industry average has risen by only 8%. On the contrary, stock prices of companies with medium and low employee morale and consequently low levels of job satisfaction increased on average by 10.1%, whereas those of others in the same industries increased by an average of 19% (Sirota et al., 2005).
In conclusion, human capital is the most significant asset of any organization. No people, no products. No products, no profit. No profit, no firm. Employees need to feel significant in their job in order to be able to contribute their best knowledge and skills to reach organizational goals. Companies communicating effectively with their employees have an engaged workforce, which leads to increased work quality and reduced mistakes. That will raise customer satisfaction and reduce labour costs. As a result it will lead to higher revenues which in turn results in better financial results and a higher market share.
Kaplan, R. S., & Norton, D. P. (1999). The balanced scorecard: Measures that drive performance.
Kaplan, R. S., & Norton, D. P. (2004). Measuring the Strategic Readiness of Intangible Assets. (cover story). Harvard Business Review, 82(2), 52-63.
Kaplan, R. S., & Norton, D. P. (2007). Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review, 85(7/8), 150-161.
Langbaum, E., & Langbaum, S. (1999). Measuring communications performance.
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Mykolaitiene, V., Vecerskiene, G., Jankauskiene, K., & Valanciene, L. (2010). Peculiarities of Tangible Fixed Assets Accounting. Engineering Economics, 21(2), 142-150.
Roberts, H., Bronn, P., & Breunig, K. (2003). Intangible assets and communication.
Rus, L. (2010). Basic and Alternative Rules In Evaluation of Tangible and Intangible Assets. Annals of the University of Petrosani Economics, 10(3), 273-282.
Sher K., Bakhtiar K., Muhammad B. K., & Ali B. K. (2006), Motivation and its impact on Job Performance. Journal of Research Gomal University, 22.