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The balance scorecard is a tactical planning and management system. It knows as the balanced scorecard because it balances the use of financial and non-financial performance measures to assess performance. BSC present an organization's objective and strategy into a set of performance measures. BSC often applied in business processes, government and non-profit organization. Balance scorecard does not aiming on achieve short-run financial objectives but it focused on non-financial objectives that a company must succeed and meet its financial objectives. The balance scorecard included four perspectives , which are (1) financial, the profits and value created for shareholders; (2) customer, the success of the company in its target market; (3) internal business processes, the internal operations that create value for customers; and (4) learning and growth, the people and system capabilities that support operations. It is used to balance monetary and non-monetary performance measures to evaluate short-run and long-run performance in a single report.
Background of Company
There are six companies that have been carried out for this survey which are Innovatex Sdn Bhd, KK Apparel Sdn Bhd, Cycletech Sdn Bhd, Pasaraya Watan Sdn Bhd, Kamal Ismail Associates Sdn Bhd and WY Management & Design Consultants Sdn Bhd. All of the companies are non-listed private sector company. Innovatex Sdn Bhd is supplier for PU and PVC leather for furniture fabricators. KK Apparel Sdn Bhd is the cloth supplier. Cycletech Sdn Bhd and Pasaraya Watan Sdn Bhd involved in the same field, which is consumer industry. Cycletech Sdn Bhd selling spare part and motor vehicles while Pasaraya Watan Sdn Bhd is selling daily necessities. Kamal Ismail Associates Sdn Bhd and WY Management & Design Consultants Sdn Bhd involved in the same industry which is construction or property industry. Kamal Ismail Associates established as an architect firm. WY Management & Design Consultants involved in interior design of a building.
The size of organization (turnover/sales) Pasaraya Watan, WY Management & Design Consultants and KK Apparel are in the same category, which is less than RM250, 000 whereas for Innovatex, Cycletech and Kamal Ismail Associates fall at the same group, which is between RM 250,000 to RM 10,000,000. The organization age for Innovatex, KK Apparel, Cycletech, Kamal Ismail Associates, WY Management & Design Consultants is between 5 to 20 years whereas for Pasaraya Watan is between 21 to 35 years. All of the above companies have the same number range of employees which is between 5 to 49 full time employees. Companies that used manual system to process their data are Pasaraya Watan, KK Apparel and Cycletech whereas for the rest of the companies is using centralized computer information system.
Performance evaluation were needed to collect and assess information relative to operating aspects, and in particular to the subject discussed in the survey. Results from performance evaluation will allow the measure of actual performance against expected performance in the companies. Thus, data of the companies were analyzed in order to enhance the efficiency of the organizations. There are three main purposes of performance evaluation which are planning, controlling and decision making. Based on the survey, there are three companies fulfilled all criteria above which are Innovatex, WY Management and Design Consultant and Pasaraya Watan. KK Apparel does not meet the controlling standard but achieved planning and decision making. On the other hand, Kamal Ismail Associates and Cycletech only matched the controlling purposes.
Besides that, this performance evaluation also adopting three main components of marketing strategy which are cost leadership strategy, differentiation strategy and focus strategy. Cost leadership strategy is a strategy used by businesses to create a low cost of operation within their position. The main purpose of this strategy is to increase an advantage over competitors by deducting operation costs below that of others in the similar industry. Differentiation strategy is a method of which a firm aims to develop and market unique products for different customer segments. A differentiation strategy is appropriate where a firm has clear competitive advantages, the market is competitive, and the firm has unique resources and abilities which allow it to fulfill these needs in ways that are hard to copy. Whereas for focus strategy it is a method in which a company focus its resources on entering or expanding in a narrow market with a narrow scope or industry segment. A focus strategy is usually applied where the company knows its sector and has products to competitively that meet the needs of the target market.
WY Management and Design Consultant, Innovatex, Pasaraya Watan and KK Apparel have adopted for the differentiation strategy. While Kamal Ismail Associates adopted focus strategy whereas for Cycletech adopted cost leadership strategy.
Furthermore, the performance evaluation can be done in different kind of level such as company level, divisional level and activity level. Based on the all six companies that have been surveyed, their levels of performance evaluation were categorized as company level.
(1) From the survey I have carried out, it showed that different companies using different performance evaluation measures. Generally, all six companies often use return on investment, residual income, economic value added and cash flow as their performance evaluation measures. On the other hand, balanced scorecard, budget variance analysis, controllable profit, divisional profit, market share, non-financial/ qualitative measures, production processes, team performance, employees attitudes, ongoing supplier evaluations and customer satisfaction surveys is rarely or never use by them in evaluation measures.
Besides than performance evaluation measure that often used by companies stated above, Innovatex Sdn Bhd and Kamal Ismail Associates Sdn Bhd also frequently using balanced scorecard and budget variance analysis in company performance measures but for Innovatex Sdn Bhd in addition with production processes and ongoing supplier evaluations. They rarely use what have stated above except for budget analysis.
KK Apparel, Cycletech, WY Management and Design Consultant and Pasaraya Watan also often used evaluation measure stated previously. However, KK Apparel, Cycletech and Pasaraya Watan also practicing ongoing supplier evaluations while WY Management and Design Consultant does not contribute in the aspects above. KK Apparel and WY Management and Design Consultant also always use production process. All these four companies do not or rarely use performance evaluations measure as stated above except for ongoing supplier evaluations and production process.
(2) There are four major perspectives for balance scorecard which include financial, customer, internal business and learning and growth. Although those four companies do not using balanced scorecard but they still concern on financial perspectives measures. From my observations, Cycletech and KK Apparel have often focused on percentage of revenues from new products, percentage reduction cost in unit and return on investment. While WY Management and Design Consultant often focus on percentage of revenues from new production, sales growth percentage for targeted segment, percentage to total revenues of selling administration costs and return on investment. These four companies rarely or sometimes concentrate on percentage of revenue from new customers/ markets and economic value added.
(3) The customer perspective measures, in descending orders, Innovatex was the most focusing on percentage market share, followed by Cycletech, KK Apparel and Kamal Ismail Associates, and lastly rarely focused by Pasaraya Watan and WY Management & Design Consultants on the aspect above. Innovatex, Kamal Ismail Associates and Cycletech often concentrated on percentage growth in business from existing customers, followed by Pasaraya Watan and WY Management & Design Consultants, and rarely focused KK Apparel. Innovatex, WY Management & Design Consultants and Kamal Ismail Associates were sometimes focused total sales to new customer aspect, followed by Cycletech, KK Apparel and Pasaraya Watan which rarely focused. For customer survey satisfaction ratings and customer profitability analysis, Innovatex and Kamal Ismail Associates were often focused, while WY Management & Design Consultants was sometimes, followed by Cycletech and Pasaraya Watan which rarely, and never focus at all for KK Apparel. Kamal Ismail Associates sometimes focused on customer survey product functionality rating scores, followed by Innovatex, Pasaraya Watan, WY Management & Design Consultants and Cycletech which rarely focused, and KK Apparel which never focus at all. For the aspects price relative to competitors, percentage returns from customers and percentage on time deliveries, Pasaraya Watan and Innovatex were often focused. Followed by Cycletech, WY Management & Design Consultants, Kamal Ismail Associates and KK Apparel, which sometimes or rarely focused on the aspects mentioned above.
(4) In the internal business perspective measures, Innovatex, and KK Apparel are more focus on this area. They often concentrate on new product introductions versus competitors, development cycle time, total quality costs as a percentage of sales, percentage of defective output, unit cost trends and manufacturing cycle efficiency. For Kamal Ismail Associates and WY Management & Design Consultant also emphasis in three areas include percentage of sales from new products, new product introductions versus competitors and percentage of sales from new markets. Cycletech only focus two areas which are percentage of defective output and unit cost trends. While for Pasaraya Watan, does not emphasis much on this internal business perspective measures.
(5) In learning and growth perspective measures, all of these six companies sometimes and rarely focused on employee satisfaction survey ratings, annual percentage of key staff leaving, percentage processes with real time feedback capabilities and percentage of customer-facing employees having on line access to customer and product information. But for Innovatex and Kamal Ismail Associates often use sales revenue per employee, number of suggested improvements per employee and number of suggestion implemented per employee. The remaining four companies sometimes and rarely use those components as stated above in addition with sales revenue per employee, percentage of employees with personal goals aligned to the balance scorecard and percentage of employees who achieve personal goals. But for WY Management & Design Consultant often concentrate on number of suggested improvements and implemented per employee.
(6) Kamal Ismail Associates and Innovatex will continue use balanced score card as their performance evaluation measures whereas for KK Apparel Sdn Bhd and WY Management and Design Consultant Sdn Bhd stated that they would consider using balanced scorecard in the future for business expansion. For Cycletech Sdn Bhd and Pasaraya Watan Sdn Bhd, they would not consider using balance scorecard in future because there are obstacles will be facing.
Implement balanced scorecard in business processes is not an easy task. There will appear some obstacles which listed in this survey form as stated below:-
Lack of technological support, including training and staffing
Lack of information
Lack of commitment from top management
Ambiguity within strategies
Re-organization of existing practices and policies
There are there companies ticked all the obstacles that listed in the survey form which are Cycletech Sdn Bhd, Pasaraya Watan Sdn Bhd and KK Apparel Sdn Bhd. For WY Management and Design Consultant Sdn Bhd and Innovatex Sdn Bhd, they have ticked two main obstacles faced on using the balanced scorecard. The obstacles include ambiguity within strategies and re-organization of existing practices and policies. Kamal Ismail Associates has faced the same difficulties as the companies above, in addition with the lack of information problem.
Balanced scorecard is a useful tool to evaluate a company performance measure and increase the communication and feedback process between the workers and management technique. This balance scorecard is commonly used in many companies. It is use to achieve the company's performance to its vision and goal. Furthermore, it is also used as a tool to observe performance of the organizational target. Based on the survey, two out of six companies are using balanced scorecard which are Innovatex Sdn Bhd and Kamal Ismail Associates Sdn Bhd. Overall, this two companies are doing well in all perspectives but Kamal Ismail Associates Sdn Bhd should emphasis more on internal business perspectives measures. The remaining of the companies are not using balanced scorecard as their performance evaluation measures. They should consider using it because it is really bring benefits to the companies.