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Just after coming out of recession, management faces tough task on decision making,In complex business environment of maintaining organisational goals, building customer satisfaction, & maintaining employees security.
With this context, a balance scorecard plays vital role for measuring organisational performance. To have a wider look of this concept let us see how it is evolved, the Definition , characterisrtics and the system of operation.
The first balance scorecard was produced by ART SCHNEIDERMAN in 1987 at analog devices, a mid sized semi conductor company.(Art Schneiderman) . He participated in an unrelated research study in 1990 led by Dr. Robert S.Kaplan in combination with Norton. Later, Kaplan and David P.Norton included anonymous details of this use of balance scorecard in their 1992 article on balanced scorecard.(Harvard business review,feb 1992).
The execution of balanced scorecard was first introduced in the harvard business review of January-February 1992 by Rober S. Kaplan, Arthur Lowes Dickenson professor of Accounting at the Harvard business school and David P.Norton. (J.SMULLEN,P.21)
The Balanced scorecard is a strategic planning and management system that is used extensively in business and industry, in non profit organisation to line up business activities to the vision and strategy of the business , improve internal and external communications and monitor organisation performance against strategic goals.( Balanced scorecard Institute)
The basic characteristic of the balanced scorecard is the presentation of combination of financial and non-financial measures compared to a target value within a single concise report. The balanced scorecard asseses organisational performance across four different related prospectives that are arrived from organisations vision, strategy and objectives. They are:
Financial- How is success measured by our shareholders
Customer- How do we create value for our customers
Process- At which process we must surpass to satisfy our customers and shareholders.
Learning and growth- To improve the process, what employee capabilities,information systems and organisational capabilities we need.
(Anthony A. Atkinson et al.)
The balanced scorecard suggests that we view the organisation from four perspectives which is show in form of chart below: ( Harvard business Review)
How the balanced scorecard operates is enumerated herebelow : (Anthony A. Atkinson et al.)
Consider the example of small manufacturing company that suceeds in business on basis of low cost ,high quality products that it consistently deliver on time to its customers.The comapnys main objective is to earn high return on investment, which its places in its financial perspectives.The company expects to increase R.O.I. through increased sales in means of retaining and expanding customers.. Therfore it includes measures in the custome perspective for growth in the sales . The company believes that customes value on time delivery and quality of foods. So, process quality and delivery on time is achieved by improving employee skills.
Financial Perspective - Return on Investment
Customer Perspective- Customer loyalty
Process perspective - Process quality and process cycle time
Learning and Growth Perspective- Employee process improvement skill
This simple example shows how an entire chain of cause and effect relationship among performance measures in the four balanced scorecard show us the business units strategy.
FACTORS AFFECTNG SUCESSFUL IMPLEMENTATION OF BALANCED SCORECARD.
Top Management support- Most of the organisations do not have ideas of implementing BSC, as a result further implementation does not take place. This is one of the major hurdle organisations poses. It is very difficult to make any major changes without having the support of top management.
Poor development of the strategy- While implementing BSC , goals of the organisation, how we are going to achieve this goals, and the strategy is not chalked out properly. This leads to poor planning of the BSC. (J.SMULLEN,P.40)
In balance between Goals and accountability .The people should accept Accountability for realisation of the balanced measures and objectives from balanced scorecards.(Meena Chavan,2009,p393). This is the one of the hurdles many organisations face for matching goals with the objectives
Idea of BSC implementation- Here implementation process is complicated , due to the fact that it is tries to assign the job to lower level without proper providing
Knowledge of the project . Here implementer knows what to do, but Middle /Lower Level is unaware of the project.(Ulf JOHANSON et.al,p845)
Individuals freedom and attraction- BSC increases its productivity through through improved employee learning & motivation. Here, the author argues that individual should be given freedom for motivation & creativity. This is on of the factors that affects the implementation of BSC. (Ulf JOHANSON et.al,p846)
Time dimension is not taken into consideration
Strategy related results are not compared with normative statements- While designing the BSC only four perspectives are taken into consideration, which are termed as strategy while normative aspects such as Job security , environmental aspects are not taken into consideration , which affects the overall strategy of the organisation. ( Heinz Ahn).
Senior Managers are not dedicated: Here the failure occurs when the balance scorecard project is delegated to middle level management. (Anthony A. Atkinson et al.)
Communication of balance scorecard: (Anthony A. Atkinson et al.)
Scorecard is treated as one time event .In many instance, Top executive team spends much more time in designing and launching the BSC, as a result there lacks some missing measures at the time of start of project and launch time. Here BSC implementation fails ,which lacks in considering the review of BSC. (Anthony A. Atkinson et al.)
Poor scorecard design
Poor organisational process.
Lack of broad base of leaders , managers and employees in scorecard development.(Balanced scorecard institute)
BSC viewed as short term project instead of Long term Project.( Balanced scorecard institute)
Too much attention is given on external factors rather than business strength, weakness, opportunities and threats. (BPM Institute)
From this study, and findings, It is apparent that BSC is more effective means of understanding productivity and profitability than traditional management control methods, only if, proper strategies are laid down with the support of top management.
Moreever, above limiting factors should be taken into consideration for smooth functioning of BSC. The essence of the BSC should be to create a set of measurable indicators which reflects the key elements in the strategic process. Furthermore, a strategy developed should be properly communicated to the lower management and shop floor employees.
The four perspectives should be linked properly . The research papers discussed above shows us that the manager has to provide the employees flexible conditions, and delegation, initiative for learning and growth.
BSC should be treated as long term project and one time event.