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Chief executive officers are often challenged to initiate strategic changes within their respective organizations because of recurring poor organizational performances. Bob McCool inherited Mobil USM &R division when both expenses and capital employed had doubled and in addition the organization's margins had flattened while volumes were heading down prompting him to initiate the strategic change. The essence of the balanced scorecard project was to bring cultural transformation that involved putting customer satisfaction as top priority in the organization's strategy. Measurement had motivating effect to the employees of an organization and thus the use of balanced scorecard project as performance measurement tool ensured placement of the strategy at the core of the management process and this facilitated Mobil USM &R implementation of strategies quite rapidly and reliably, (Kaplan 1992).
The survey conducted by the Mobil USM &R division before implementation of the balanced scorecard revealed that employees had misgivings in internal reporting requirements, administrative processes and top-down policies which prevented creativity and innovation from taking place in the organization. Furthermore it was observed that the relationship between the organization and its customers was that of adversarial and the employees worked scarcely towards augmentation of reporting outcomes of their individual functional units. McCool was convinced that for the organization to grow it had to focus its attention intensively to customers, knowing what they want in the market rather than depending on the functional specialist in the organization, engaged in thoughts about what customers might need.
McCool revered the balanced scorecard regarding it as strategic chart of accounts for Mobil USM&R division as it captured both the financial and non financial elements of the organization's strategy and provided clarification on the cause and effect relationships that drive organization outcome. The new system of performance measurement provided McCool with great opportunity as the division's planning process could be linked to actions; encouraging employees to engage in activities the organization had committed itself to, (Forego and Krumwiede 1997). The balanced scorecard allowed the division to focus on the future through use of leading indicators instead of looking into past using lagging indicators.
2. The scorecard development progress is quite challenging but its implementation guarantees efficient and effective running of organizations. The critical elements of balanced scorecard project that would guarantee its success include:
Mobilize change through leadership. Breakthroughs often happen as a result of clear strategy, execution and leadership. In driving change it is imperative for the executives to develop a case for change and a vision and strategy regarding the course an organization has to take. The presence of genuine senior leadership in the balanced scorecard initiative is critical for its success. The executive leadership should actively participate in the balanced scorecard development, implementation and management process. The top management demonstration of commitment to the process will lead to successful balanced scorecard organizations.
Translate the organization's strategy into operational terms. The balanced scorecard and strategy map involves taking of the corporate strategy and translating it into provisions understandable to the organization so that it can be effectively acted upon. The critical phase in this process is the determination of the key objectives, measures, targets and initiatives for driving the strategy.
Align the organization with respect to the strategy. After successful creation of the balanced scorecard at the top management level of an organization, it should subsequently be extended down to the operating and support units. This enhances each area of the organization understanding of their contribution to the strategy. It is recommended for organizations to also develop external alignment with their customers and partner balanced scorecards.
Making organization's strategy everybody's work. The deployment of balanced scorecard across an organization facilitates development of strategic awareness amongst organization's employees. The successful implementation of the balanced scorecard necessitates active participation and contribution from every employee of an organization as they engage in making decision regarding their day to day work. Top management need therefore to share business strategy with employees as this will build employee satisfaction and loyalty. Communication and education is very important and as such organization should try to communicate and educate change to its employees in a language that is understandable to them and this might involve calling meetings and distributing emails. Otherwise alignment of incentives and personal objectives is equally crucial in determining the success of the development and implementation of the balanced scorecard.
Make the strategy be a repetitive process. Balanced scorecard has the characteristic of allowing strategy to occur recurrently. The linkage between balanced scorecard and planning and budget systems facilitates the development of an organization that frequently reviews strategy.
3. It is a good idea to link the scorecard to compensation in that it helps in removing ambiguity that might arise from judgment and dispensation of rewards. The scorecard gives clarity regarding the objectives that have to be attained by the organizations, the success of which result to rewards for the employees achieving the set targets. Individual employees will therefore be rewarded according to their performance with respect to a given task assigned by the organization. The linking of scorecard to compensation in essence strengthens the element of fairness with regard to effecting procedural justice. The scorecard ensures that any employee who has performed within the expectation of the organization is rewarded accordingly without bias, (Simons 2000). The linking of scorecard to compensation has the impact of bringing about rapid and robust organizational change and this can be facilitated through adoption of personal card which connects the achievement of overall organization goals and the compensation practices that directly influences individuals. Generally linking scorecard to compensation drives an organization to higher levels increasing its competitive edge and thus ensuring absolute domination of the organization in the industry. An organization will always be challenged to come up with changes that are vital for the growth and the employees will respond adequately to them knowing clearly that achievement of set targets will result to greater rewards in terms of accumulated bonuses.
Nonetheless risks also arise with linking of scorecard to compensation. In fact the use of scorecard in an organization requires thorough training and cost of its poor application can be significant. Organizations that are at early stages of development are recommended not to implement the scorecard tool as it might be a route to their collapse. It has been observed that the use of manifold performance measures causes managers to concentrate their energy on too many objectives resulting to reduction in the effectiveness of the incentive plan. The addition of more performance measures to incentive plans more so reduces the effectiveness of the scorecard-based compensation plans.
The linking of scorecard to compensation has some negative impact on organizations output as employees get frustrated by the high targets set by the management. Increased pressure on the employees' performances reduces their productivity as it affects their mental health which is crucial for production. In the long-run, the linking of scorecard to compensation result to biasness in the compensation plan in that management will be tempted to reward employees that are non performing thus encouraging malpractices in an organization.
4. The scorecard used at Mobil USM&R division was a performance measurement system as it was intended to improve Mobil organizational performance. Bob McCool took over the Mobil USM &R division when both expenses and capital employed had doubled and in addition the organization's margins had flattened while volumes were heading down and these posed great challenge to him prompting him to initiate the performance measurement system that would turn around the Mobil Organization's misfortunes. The scorecard provided business unit managers with relevant, balanced and succinct information leading to the reduction of time used for digestion of information and increasing the time for decision making.
In the financial perspective, Mobil USM&R defined its financial objective of increasing return on the capital employed and this involved improving its high level of return on capital employed measured through using productivity and growth financial themes. The productivity financial theme involved cost reduction and asset intensity with cost reduction measured by operating cash expenses relative to the industry. Higher asset productivity enabled Mobil USM&R to handle greater volumes from its growth strategy avoiding the need of expanding the organization asset base. In achieving this objective, Mobil USM&R selected a measure of cash flow, net of capital spending to indicate the benefits from generating more cash from the existing assets. Mobil USM&R set the financial growth objective of developing new sources of revenue and this was measured by non-gasoline revenues and margins, (Kaplan and Norton 1996).
In the customer perspective, Mobil USM&R observed that dealers form a critical part of the new strategy. The Mobil organization decided to adopt an objective that would increase the dealers' profits and in effect setting a stretch, targeting its dealers to become the most profitable franchise operators in the country attracting and retaining the best talent. The Mobil USM&R balanced scorecard emphasized creation of a positive-sum game thus increasing the size of reward shared between USM&R and dealers making the relationship a win-win. The Mobil USM$R hence set an objective of creating a win-win relationship with the dealers measured by the gross profits divided between the Mobil USM$R division and the dealers.
Learning and growth perspective formed the foundation of Mobil USR&M scorecard strategy and entailed skills and motivation of employees and the role of information technology. In this aspect, Mobil USR&M identified specific skills and information that each employee should posses in order to enhance internal process performance and deliver value proposition to the customers. The measures for these included strategic competency availability percentage and strategic systems availability.