In 1990 Robert Kaplan and Davis Norton carried out a year- long research project with 12 organizations at the leading edge of performance measurement. They came to the Conclusion that traditional performance measures, having a financial bias and being centered on issues of control, ignored the key issue of linking operational performance to strategic objectives and communicating these objectives and performance results to all levels of the organization (Corrigan 1995). Realizing that no single measure can provide a clear performance target or focus attention on all the critical areas of business, they proposed the concept of a Balanced Scorecard as a more sophisticated approach for meeting these shortcomings. Kaplan and Norton are of the opinion that the Balanced Scorecard has its greatest impact when deployed to drive organizational change. In a rapidly changing environment, innovative firms are increasingly using the Balanced Scorecard to identify and communicate key factors that drive future values (Kaplan and Norton 1996) giving better indicators of where the organization is going. If companies are to survive and prosper in a competitive environment, they must use measurement and management systems derived from their strategies and capabilities. The Balanced Scorecard can be seen as a management system that bridges the gap between strategic objectives set at the senior level within an organization, and their operational execution. This is accomplished by translating vision and strategy into objectives and measures, providing a framework to communicate this vision and strategy to employees, and thereby channel the energies, the aptitude, and the specific knowledge of people all through the association towards achieving long-term goals. By developing a set of measures that gives managers a fast and comprehensive view of the organization (Kaplan and Norton 1992), the Balanced Scorecard method strives to focus the whole organization on what must be done to create breakthrough performance. The Scorecard takes the company's vision, translates each key statement into measurable steps and then presents information so that the critical success factors can be evaluated and compared By measuring organizational performance across four balanced perspectives, the Balanced Scorecard complements traditional financial indicators with measures for customers, internal processes, and innovation and improvement activities (Kaplan and Norton 1996)
Get your grade
or your money back
using our Essay Writing Service!
Existing feasibility analysis techniques have limitations as follows.
1) Little consideration to the goals and strategies of the receptor firm
2) Little consideration to the organizational structures of the receptor firm
The procedure of the new approach using BSC is illustrated Figure 2. This model was
made to consider financial factors as well as non- financial factors except existing
validity analysis, adding analysis that used BSC index. Application of this model
proposed a large range of standard to be able to standardize methods of validity analysis, which can happen in the process of integrating scattered technology trade institutions. BSC begins with an in-depth review of the strategy map and strategic and operational objectives.
Balanced scorecard is a management system that enables organizations to translate the vision and strategy into action. This system provides feedback on internal business processes and external outcomes to continually improve organizational performance
and results. Robert Kaplan and David Norton created the balanced scorecard approach in the early 1990s. Most traditional management systems focus on the financial performance of an organization. According to those who support the balanced
scorecard, the financial approach is unbalanced and has major limitations:
1. Financial data typically reflect an organization's past performance. Therefore, they may not accurately represent the current state of the organization or what is likely to happen to the organization in the future. 2. It is not uncommon for the current market value of an organization to exceed the market value of its assets. There are financial ratios that reflect the value of a company's assets relative to its market value. The difference between the market value of an organization and the current market value of the organization's assets is often referred to as intangible assets. (Mykolas Romeris Universitety, 2008)
The Professional Prism
The values of the Performance Prism have been applied constructively in a number of corporations in a byroad variety of industries, with not-for-profit organisations. Although, the primary and almost certainly the most exact operational request so far has been at DHL, the international state courier company. The project was initiated following a discussion between Drew Morris, a Director of DHL UK, and one of the authors at a round table meeting - a mutually supportive learning forum that meets quarterly to share and discuss performance measurement and management issues - organised by Cranfield School of Management's Centre for Business Performance. Following further discussions with the authors, DHL invited us to show how the new framework could work for them. As context, we should note that DHL had previously employed consultants in an effort to implement a 'balanced scorecard'approach, but had subsequently abandoned it. So, gaining acceptance of a new framework was always going to be a challenge. The following narrative outlines the key events that
Always on Time
Marked to Standard
led to DHL's executive team adopting a new performance measurement system for their business by applying the Performance Prism framework. DHL UK began implementation of the Performance Prism in late 1999, when sales for the separation were in excess of £300 million and the commerce employed almost 4000 people, athwart 50 locations. At that time DHL UK's Managing Director, David Coles, and the company's Business Process Director, Drew Morris, had a worry that the division's feat reviews were in danger of fetching too tactical in compass reading. The UK executive team would meet on a monthly basis to review the division's performance. They would examine the UK operation in terms of its ability to achieve 'notional result',
DHL's internal measure of profitability. They would also review the division's operational performance. One of the problems with the latter was that the number of definitions of
operational performance was vast. For DHL, operations can be reviewed in terms of packages shipped (either by weight or number), packages delivered (on time, to the right destination, in one piece), packages collected (before a specified time or
from a specified location), packages lost (or re-routed), and so on. The volume and variety of transactions within DHL meant that the UK executive team could easily get engrossed in incredibly detailed and repetitive reviews of the division's operational performance at their monthly meetings.
APPLYING THE PERFORMANCE PRISM: THE
In the book, we identify four fundamental processes that underpin the development and deployment of a performance measurement system: the Design process; the Plan and Build process; the Implement and Operate process; and, finally, the Refresh process. For the Design process, we also recommend the application of several helpful techniques to assist the process. Among the most critical of these in relation to this case example are:
Success Mapping - a workshop-based process of identifying what each key stakeholder's wants and needs are and how these are (or will be) satisfied through the
organisation's strategies, processes and capabilities.
Measures Design Template - a formal process of defining each measure selected, its data source, its frequency, how it will be used, and so on.
The Ten Tests - a validation process for evaluating whether the measures selected will actually do what they are intended to do (especially in driving the desired behaviours). During the plan stage, the executive team at DHL contributed in a series of workshops where they explored their shared understanding of the organisation's strategy and plans for the future. The first round of workshops was structured so that the executive team documented the desires and requirements of their stakeholders (and their contribution to the business). The outputs from this first round of workshops were unavailable as the inputs to the second, where the executive team were asked to recognize the strategy, process and capability the organisation would require to have in place in order to please the wants and needs of each of its stakeholders.
E.g. customers as a stakeholder. DHL had to begin by recognising that the organisation had several different kinds of customers. Broadly speaking, they categorised their customers into three separate and distinct segments - benefit, usual and Ad Hoc - based on customer needs.
One of the most practical ways of developing the success map is to continue to iterate through this process of identifying the appropriate strategies, processes and capabilities for each stakeholder - and distinct stakeholder subsets, such as the
customer segments described above - in turn. Clearly, there can be some repetition within each of the subset success maps but, provided it helps to define the relative importance of satisfying particular stakeholders' wants and needs, this should
not be an impediment. The other advantage of developing separate success maps for
each stakeholder is that this starts to reveal the hierarchy of stakeholder wants and needs. In DHL UK's case, for example, it became apparent early in the process that a significant stakeholder for the business was the European regional head office, located in Brussels. The head office's primary requirement was that DHL UK hit its budget and delivered the agreed 'notional result' (DHL's internal measure of profitability). In fact, head office's demands were a proxy for its investors' wants and needs. To deliver this, DHL had to execute its strategies for growing business volumes, maximising margins while optimising expenditure and working capital. Growing business volumes and maximising margins involved the business developing an excellent understanding of its customers' wants and needs, and then delivering against these - hence the link with the customer segment success maps. So delivering to the head office's needs was not just about delivering to customers' needs. DHL UK also had to seek ways of continually improving its operating efficiency, by enhancing its business processes, often through the application of information technology.
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
The balanced scorecard (BSC) approach has been used extensively in for-profit organizations since its popular inception with the work of Norton and Kaplan in 1992.1 Only recently has the approach been advocated in public sector organizations by such groups as the Balanced Scorecard Interest Group sponsored by the American Society for Public Administration.2While there have not been many controlled experiments that provide convincing proof of the efficacy of scorecard use, the scorecard is built on solid principles that have demonstrated their effectiveness through various rigorous research designs. The efficacy of goal setting, the alignment of quantified targets across departments, the use of contingent reinforcements based on performance, and the development of commitment through effecÂtive two-way communications are all principles that have been demonstrated as effective business tools and are part of the balanced scorecard philosophy. Government organizations are like businesses; businesses that may not be run for profit but rather are organized to meet a social goal in an effective and efficient manner. In this report, we focus on two federal organizations and report on their use of the balanced scorecard. Our goal is to show what each organization did to make the program successÂful and what they are doing to sustain and improve their efforts using the balanced scorecard approach. We also consider the "lessons learned" in their adaptation of the balanced scorecard. In the final section, we take the lessons learned coupled with our analysis of their success and provide our own road map of action steps to guide the leaders of other public sector organizations who may be thinkÂing of applying a BSC approach or are grappling with some of the issues in using the scorecard. Reliance exclusively on financial performance measures is similar to "trying to drive an automobile by looking in the rearview mirror rather than the road ahead." The balanced scorecard, or BSC, is an attempt to achieve a more proactive, forward view to managing an organization while still taking into account traditional measures. Traditionally, performance measures used to assess success were financial in nature. This allowed only one view of what happened. The measure is comÂplete only at the moment, and there are limited indications where current operations are effective or ineffective as the measures are historical in nature. Financial measures are outcome measures that show what has happened in the past. A more forward-looking set of performance measures, like those used in the BSC, tells managers and employees where they are headed, what aspects of the organization are succeeding, and what aspects need improvement to effect future successful outcomes. For example, customer satisfaction levels tell us something about the future predisposition of customers to use our service in the future, which relates to future finanÂcial measures. In the same manner, if we know there is a connection between meeting customer requirements and internal process measures that are tracked, then we have a clear sense of what we need to do in managing our processes in order to meet customer needs.