framework that encompasses practically the whole domain of an organization and then High Performance Work Practices (HPWPs) which has the greater flexibility of choosing what is more fitting. The two methodologies are great when applied in different organizations to suit their needs. This paper will strive to illustrate how flexible, encompassing and long-term oriented the BSC and the HPWPs can be. It will compare the two methodologies in these three areas. However, there is no conclusive evidence that one system is better than the other or that one system is more flexible, encompassing or long-term oriented than the other.
The reason is that every organization has a different structure. The needs of the organizations are different from each other, and also their human capital is vastly different from each other. Hence, one framework may be more suitable than the other for a particular organization.
When reading and researching on the BSC and HPWPs, a graphic picture comes to mind. In traditional Chinese medical halls, there is usually a gigantic medicinal cabinet with small pull out drawers. These pull out drawers are supposed to number a hundred. Literally translating, the name of this gigantic cabinet is 'hundred precious compartments'. Out of this hundred-drawer (usually less these days, due to space constraints) cabinet, each drawer contains different Chinese herbs. With the doctor's prescription, the 'pharmacist' will pull out the drawers and take out the relevant amount and types of herbs needed and then pack them together as the medicine prescribed. The BSC is like the gigantic cabinet which holds these little drawers together. The HPWPs should be like the little drawers, each containing different Human Resource Management (HRM) resources and practices. Each drawer is then pulled out and the contents to be put or "bundled" (Ashton and Sung, 2002) together so that the end package is put into effective use.
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The BSC and the HPWPs are two methodologies that can be used as performance measurements. This paper will attempt to discuss which of these is more flexible,
encompassing and long-term oriented. Instead of utilizing each on its own, perhaps a combination of these two methodologies could proof to be a viable option. These two methodologies focus on different organizational measures, and should be more effective to utilize the strength of one to supplement or complement the weakness of the other.
This paper will start off, in each to identify their definitions, strengths and weaknesses. A comparison will also be made between BSC and HPWPs, following suggestions on areas of supplementing or complementing each other. It helps to bear in mind, that no one particular measure or methodology is a bullet-proof structure for all organizations, since every organization is different, especially since their human capital is different from each other. This paper will also bring out the issue of Generation Y (Gen Y) and their work attitudes and values; and discuss how the flexibility, encompassment and long-term oriented drive of the BSC or HPWPs can affect their work attitudes and values since the Gen Y is forming the bulk entrants into the workforce. As organizations move
forward into being a Boundaryless (Jack Welch) and Learning Organization (Peter Senge), BSC and HPWPs can affect the performance measurements and standards.
Organizations are in business with the ultimate objective of earning a profit. One of the most basic methods of measuring the organization's profits is by looking at the profit and loss statement of their annual financial report. However, an organization's total assets are not measured only in terms of profit and loss. There are also fiscal capital, landed capital, knowledge capital, intellectual property capital and also the human capital to be accounted for. Organizations need the human capital to run the business, no matter what business they are in. Hence, to measure the profitability of an organization, there is a need to measure their human capital too. To measure human capital is to measure how the employees perform their duties and evaluate how their productivity affects the organization's profitability. This performance management is not something new. In fact, Koontz (1971) noted that a parallel of performance management existed in China's Wei Dynasty which was around 221 - 265 AD. He furthered that a structure was formalized by Ignatius Loyola for the Society of Jesus (the Jesuits). This is the start of human capital performance measurement or management. Hence, there is a need for organizations to measure performance as performance will ultimately affect
Always on Time
Marked to Standard
the profit line of their businesses.
THE BALANCED SCORECARD
The ancient Chinese scholar and founder of Taoism, Lao Tzu, between fourth and sixth century BC, was often quoted: "Give a man a fish; feed him for a day. Teach a man to fish; feed him for a lifetime." Commenting on the difference between other measurements and that of BSC, Kaplan and Norton (2006: 282) said: "the Six Sigma teaches people how to fish, whereas the Balanced Scorecard teaches them where to fish."
Traditional measurements concentrated mainly on financial measures which do not typically encompass all domains of the organization. Kaplan and Norton has been quoted several times from their Harvard Business Review article, that "what you measure is what you get" (The Economist, 2009). They believe the BSC "as a strategic management system" and that "building a scorecard can help managers link today's actions with tomorrow's goals" Kaplan and Norton (1996).
Adapting from Kaplan and Norton, The Balanced Scorecard Institute (BSCI) reiterated that the "Balanced Scorecard is a strategic planning and management system" (BSCI) used by different sized commercial and industrial organizations, even "government and non-profit organizations" (BSCI) globally. The purpose of the Balanced Scorecard is "to align" (Kaplan and Norton) the functions and daily operations of the organization "to the vision and strategy of the organization" (Kaplan and Norton). The Balanced Scorecard should assist to "improve internal and external communications" (BSCI), and match the measurable "performance against strategic goals" (Kaplan and Norton).
By this statement alone, one can conclude that the BSC is a flexible methodology which can be used by different and different sized organizations. It furthers that this methodology encompasses a broad spectrum of measures in order to be utilized effectively by different organizations, since each organization has varying needs. In 1992, Robert Kaplan and David Norton identified four significant domains of an organization and formalized a system, the Balance Scorecard (BSC). They reiterated in Harvard Business Review, January - February 1996, Kaplan and Norton (1996: 1) reminds that the BSC encompass "three key non-financial areas" that are not in "traditional financial measures". These three areas "relationship with its customers, its key internal processes, its learning and growth" add together will give a "broader perspective" on the organization as a whole. Kaplan and Norton further stresses that the BSC is a "sophisticated instrument panel for coordinating and
fine-tuning a company's operations and businesses so that all activities are aligned with its strategy" Kaplan and Norton (1996: 1)
In the same article, there is a reminder that "The scorecard wasn't a replacement for financial measures; it was their complement." Kaplan and Norton (1996: 2). Kaplan and Norton's original BSC was based on four quadrants or perspectives:
1. the financial perspective
2. the customer perspective
3. the internal processes perspective
4. the learning and growth perspective
The financial perspective is ultimately to measure the profitability of the organization using hard data such as the amount of customers and sales generated the revenue and frequency of sales, the risks and costs associated with the production of new products etc. The question to answer in this quadrant is 'How do the shareholders see us?'
The customer perspective is accounted for by the increase in customer volume, customer referrals, customer satisfaction, the frequency of their purchases, the
on-time delivery of the goods and services to the customer, etc. This quadrant puts forth the question: 'How do the customers see us?'
The internal process perspective question is 'How do employees see themselves?' This quadrant focuses on process such as manufacturing, reduction in production time, reduction in wastage, reduction in production costs etc.
The last quadrant focuses on the learning and growth perspective and the question is 'How can employees improve and develop'? This perspective comprises of training and development for individual and corporate improvement.
The above is a short overview of the four perspectives in the BSC as initially
prescribed by Kaplan and Norton (1992)
The following is a typical model of the BSC initiated by Kaplan and Norton.
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(Adapted from Robert S. Kaplan and David P. Norton, "Using the Balanced Scorecard as a Strategic
Management System," Harvard Business Review (January-February 1996): 76).
It is obvious that the BSC is a carefully thought out strategic measurement plan that is very detailed and comprehensive. It encompasses different domains of the organization that directly or indirectly affects the profitability of the company. Time is needed to get the data of these four domains together before the full BSC can be executed, hence, this would translate into the BSC being a long-term oriented measurement process. In addition, since the BSC is used to align these processes with the organization's mission and vision, it is therefore concluded to be long-term oriented as no organization would change their mission and vision every year or so. Bullard (2004) estimated that for strategic development and planning to be successfully implemented in any organizations, a time line of three to five years is needed.
Some of the strengths of BSC are that it is a better strategic plan for the organizations as the strategies can be seen in quantitative parameter. The BSC improves the communication and execution of all in the organization as communication is much needed to convey the needs and wants from each of the four domains. The objective of the BSC is to align employee goals to the organization's mission and vision, the constant feedback during the planning process will result in successful implementation of the BSC. It helps to bear in mind that the BSC is not a short-term measure. Those using the BSC as a short-term measure are just wasting their time and efforts. The BSC needs reasonable time for data collation and it also needs time for strategic planning to develop an appropriate scorecard for the organization. Organizations who buy scorecards off the shelf are short changing themselves. They essentially do not understand that the essence of BSC is based on the financial and non-financial measures of their own organization and off-the-shelf products are just a mechanistic measure and more often than not, do not portray the right measures for the organization. Tailor-made BSC programs are also a dime too many online. The tailor-made BSC; are designed by outsiders who do not have thorough understanding of the intended organization. Another weakness of the BSC is that while communication and planning can start within a short time, the actual process of planning and execution takes a relatively longer time and needs to be carefully segmented. In addition, unless the intended organization has their own well-defined strategy, it is meaningless to implement the BSC based on generic concepts.
Communication plays a very important part in the BSC. This can be seen from the General Motors case when the then CEO, Roger Smith was trying to align the employees so that they share the same vision with their company:
"I sure wish I'd done a better job of communicating with GM people. I'd do that
differently a second time and make sure they understand and share my vision for the company. Then they would know why I was tearing the place up, taking out whole divisions, changing our whole production structureâ€¦ I never got this
across" (Roger Smith, CEO of General Motors, cited by Person, 2009)
Researches and studies have been made on the number of companies using the BSC. The Advanced Performance Institute (API) indicate that "the Gartner Group suggests that over 50% of large US firms had adopted the BSC by the end of 2000. A study by Bain & Company finds that about 44% of organizations in North America use the BSC". By 2004, Bain and Company estimated that there were about 57% of global companies utilizing the BSC. Some of the large corporations that have been known to use the BSC are IBM, AT & T, General Electric, Veolia Water North America, National Marrow Donor Program (USA), Citigroup, US Army Medical, Hilton Hotels Corporation Worldwide (USA) and Ricoh Corporation (USA). Other US government agencies known for using the BSC are the Defense Financial Accounting Service and the Federal Aviation Administration Logistics Center. This proves flexibility that the BSC can be used by varying organizations.
BSC stresses on the importance of strategic planning. The definition of strategy is:
"â€¦ the direction and scope of an organization over the long term: ideally, which
matches its resources to the changing environment and in particular its market,
customers or clients so as to meet stakeholder expectations."
(Johnson and Scholes, 1993: 10)
Kaplan and Norton (1996) conclude that when objectives and measures are rightly identified and matched, BSC can be successfully implemented. Otherwise, investments, time and energies on BSC would only go waste. It is seen from the above that the BSC is a flexible methodology as it can be used by different organizations, be they large corporations, government sectors, non-profit organizations or small and medium companies. The BSC encompasses a wide magnitude of different measures that of external - market share, product sales, customer satisfaction etc, to internal measures of reduction in production time and wastage, employee learning and growth etc.
The fact that the BSC encompasses four different domains of an organization means that time is needed to communicate inter-department and to arrive with a well-defined strategy for the organization and again time is needed for these strategic plans to be successfully implemented. The BSC can be used, and have been used as a short-term measure. However, its effectiveness lies in the fact that it is a long-term methodology.