Role Of Balanced Scorecard In Production Commerce Essay

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There are not many tools existing that could measure and monitor production and service organisations effectively. Nonetheless every company managers require precise and accurate information to be sure that the decision they made are not based on their emotion and assumptions but that the information with regards to service delivery is accurate and relevant. The idea was developed by Dr Robert Kaplan and Dr David Norton, Kaplan is a Harvard business school professor and David is a consultant and together they did a project to come up to better ways of measuring your performance and as part of this project their got number of companies together and one of those companies had almost a balanced scorecard and they thought this is a good idea to have your measures in a number of different areas of your business to cover all the important parts and this is how the whole concept started. Balanced scorecard is a strategic performance management framework that allows organisations to define their strategic priorities and then design indicators and measures to monitor how well there are executing their strategy. The balance scorecard basically has identified the most intuitive components of a company's strategy and it all starts with your vision and strategy and after you can define objectives in four key perspectives starting of financial perspective where you say what would we want to deliver in terms of profits, where do we want to grow our revenues to, what sort of value do we want to return to our shareholders, to what level to we need to cut our costs and in order to deliver any financial objectives you have to deliver to your customers and this is the second perspective, Customer perspective, there we would articulate objectives in to releasing new product into a new market, increasing the satisfaction of the service and products we deliver or maybe it is about increasing our brand awareness. Anything that is not included in customer perspective will help you deliver your financial objectives and in order to do well in what you do to your customers you have to sit down and identify what is that we as an organisation have to be really good at what are the vital few things we have to extend as an organisation and is called Internal Process perspective and here we might think about our manufacturing plan and anything that you do as an organisation has to articulated in this perspective. Finally looking to intangible enablers of our business and if we get them right if you have to right people the right IT infrastructure and the right organisational culture all of this will then help you to do the right thing internally which will then help to deliver it to the customer and then it will help you to deliver to your financial objectives. The last one Learning and growth perspective is related to human capital so anything related to your people, employees meaning that are they trained do they have the right capabilities, are they engaged to the right level as well as you information capital that refers to any IT systems any information and data you might hold as an organisation as well as your organisational capital things like organisational culture and things like leadership and leadership approach.

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Starting my research I began with a very interesting article "putting the balanced scorecard to work" and in the article there are three big companies which have used balanced scorecard in their companies to succeed. Rockwater a global engineering and Construction Company knew that it has to change something in order to survive in ever-changing environment of business. First step of the CEO of Rockwater was creating a vision to be safest with the highest quality for costumers, but it was only strategic objectives and they had to translate it into tangible goals and actions and thus the balanced scorecard was made. The most helpful balanced scorecard was in helping companies to change. If the balanced scorecard was to put in reaching other goals it is not very helpful as it was with the AMD company which put the balanced scorecard in that way that I had matched to existing mission, strategy and key performance. It was known to everyone and did not help too much and thus company did not improve much. Skills that managers had where not improved as the balanced scorecard was not enhancing it, it did only the skills that where already learned. On the other hand Rockwater had used balanced scorecard and it succeeded as it had built it well to make changes. From these two companies that had more or less success in using balanced scorecard I could say that it really help and is a very good strategic performance management framework but it has to be used to drive company to bigger success to changes that it need in the future and long run, like we can see that AMD did not do a very good job of using it but companies like Rockwater used it benefit and had a great success.

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Scorecard is not just an easy tool to use, by using it you have to learn how to use it "Using the Balanced Scorecard as a Strategic Management System", is a grate journal made by creators of balance scorecard, and it is a continuation of their job. Journal tells us with how to use the balanced scorecard after it is made, how not to make mistakes and go into the right direction, also not only it explains it also provides good examples of companies making or fixing their mistakes. One of the main mistakes was that balanced scorecard was used as covering deficiency of traditional management system - companies could not link long term strategy with short term actions. For solution of this problem balanced scorecard was explained I how to use in four steps:

First one was, translating the vision that should help all managers in the company understand what the vision is all about. The second one is communicating and linking should help managers to provide all the work in the organisation to work with long term strategy of balanced scorecard. Third one is Business planning which is hard for managers to implement should help them integrate business and financial plans. The last fourth one Feedback and learning , is based on long term learning of how does scorecard work , if it is successful to work with it and monitor it polish it if it is not , understand what happened wrong and make changes and avoid same issues. The four steps are really helpful in trying to understand the use of balanced scorecard, by the given example of unknown insurance company that implemented balanced scorecard as the vision helped them not only to build a new strategy but also overhaul company's management system. This is much better than financial framework as it also helped to achieve long term strategy that company can focus on. This example shows how balanced scorecard can change not only the strategy of the company but also management of it from the root.

Explaining in more detail of how to use four steps journal provides the first step a great example of engineering construction company where a CEO received a voice call from manager that did not know how to use the vision that was stated in balanced scorecard in appropriate action, thus the CEO realized that there is a huge gap and the thing is that the vision statement in CEO eyes are different not only from manager alone but to all managers in different branches. The company that was stated as Metro Bank, had the same problem, and the solution was to gather all the CEO's of the company to agree on one vision statement, and when it was agreed with all the meaning and how it has to be used, they also have managers to know about it. This in my opinion shows how people do not think of how the strategy they build will work in lower sectors, personally I would never do something and release it without explaining how to use it to my employees. Building scorecard for company to follow its vision has to be done as it was meant to be from the creator of it because later on it is very hard to measure what went wrong in the end.

Communicating and linking has an example of a company that used this step in a very good way by making aware every level of the company of what that CEO expects from them, from employees with customer to the top of CEO. The board participation in creating balanced scorecard is time taking but it has a very good advantage because, managers get a good understanding of the strategy, and after that there are three activities to provide employees to perform on the level as expected to scorecard strategy. These are - communicating and educating is basically as it sounds, it helps to educate to use of implemented strategy. As from the example Metro Bank one of the chief executives declared "The balanced scorecard is both - motivating and obligating". Second activity is setting goals has a good example of a large oil company that developed technique that enable and encourage individuals to set goals for themselves. In that way not only the company will try and encourage people to reach for the goal, but also people have the ability to reach for something in the way that is needed for company, this kind of thing is called in a simple way, personal balanced scorecard that each person is carrying. There is nothing more motivational than seeking something you want than something that is asked from you. The third activity to improve employees work with the balanced scorecard is linking rewards to performance measures, that is a reward system linked to balanced scorecard, it is a good idea to motivate. An example is given of an oil company that was using balanced scorecard for incentive compensation. Company had ties 60% of its executives' bonuses to their achievement of ambitious targets for a weighted average of four financial indicators: return on capital, profitability, cash flow and operating cost. The remaining 40% where based on customer satisfaction, dealer satisfaction, employee satisfaction and environmental responsibility. With this kind of system company is very satisfied and is proud to say that no company has this degree of alignment. Personally I do support it and will use it in my company in future, because, not only it is motivating employees to work for bonus, it also help to support balanced scorecard also. These all three activities help to improve understanding and going into the right direction to use balanced scorecard.

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Business Planning is third step of understanding balanced scorecard. In this step the "caprice" of CEO that looks impossible is planning in the way to be a real deal. For example one company division of the Style Company that was mentioned in the article (not real company name). The CEO of the company forecasted to have doubled the revenue in only five years. It sounded crazy in the beginning, but after careful planning all possible ways, like opening new stores, attracting more clients, making all clients a purchasers etc. all this planning made the ambitious CEO goal to be really real. This step is very important in achieving the goal as to achieve something you have to plan step by step carefully how to achieve it and to know is it achievable and is it not a waste of time.

Feedback and learning is a last step in understanding balanced scorecard which should be used and monitored as much as possible, as this step help to improve always. It should help to monitor short term results and improve them, and reflect it in real-time learning.

All these four helps to improve the usage and understanding how to work with balanced scorecard.

Moving on with the evaluation of balanced scorecard I was reading an article "An empirical study of the Balanced Scorecard as a flexible strategic management and reporting tool" it analysed theoretical background, where balanced scorecard could adapt to various situations, after that author was talking about Research method and Strategy map also balanced scorecard model.

Theoretical background had an example of Sushil that used balanced scorecard to help translate strategy into action, and they adapted it to help in multiple fronts, short and long-term objectives, financial and non-financial measures, lagging and leading indicators and internal and external performance perspectives. Also they mentioned that as balanced scorecard may look like its balanced but still there are number of areas that need to be balanced like, balance of enterprise and customer factors, balance of continuity and change force, balance of reactive and proactive drivers, balance of internal and external actors, and balance of internal and external processes. As we can see there are quite some things mentioned, but in my opinion it's not something to be considered as not being in balanced scorecard, because balanced scorecard gives the idea and help, but companies on their own have to implement and do what is needed and would be best for the company.

The article explained how flexible, adjustable balanced scorecard is to different types of organisations and different levers layers of organisation and now I will evaluate couple of production and service organisations.

First journal in that I could read on was "A plain-speaking guide to modern management" I this journal author is speaking of several performance indicators in which there is balanced scorecard.

It is explained that only 30% of firms gets success by using those tools but nonetheless, going through whole article it is clearly stated that it's not the fault of tool but fault of workers who work with them. I do agree with it and I would say that you do not have to rely on only using something blindly you has to understand it and implement it to work for you.

Second journal was "Harvard Business School guru says 'think long term'" in the journal R. Kaplan was in accountants conference in which he was speaking about balanced scorecards reward system. He was speaking about CEO's retirement income after leaving the company that would be based on the person which CEO will pick to take his place. This is a very good idea for reinforcing CEO to pick a the best choice because income will be based on that, also next CEO can get good pack of support from last one as retired one would like to get bonus.

A very interesting example of one of the balanced scorecard perspectives are demonstrated in this article "Get employees behind your unified strategy", here R. Kaplan explains with the example of how important for you employees to know what are you aiming for and how to encourage them. Employee has to be encouraged to follow the strategy by providing bonuses for doing what you need, in my opinion it's a very good thought because it motivates in the right direction. The example was with Southwest Airlines who most profitable company in the country by increasing flight times per day. It was profitability based and Kaplan mentioned that they better focus on improving costumer experience and profit will follow. I do agree with the thing that you have to improve customer experience and profit will follow, but what that the airline did was increasing profit in real time and improving customer experience could follow after. Like Ryan air is still profit based for more than 9 years it is successful even though it is not customer friendly.

On my journey to find good examples I met a very good webpage www.balancedscorecard.org in the web page there are various good examples of companies implementing balanced scorecard. Company called Shat-R-Shield's started to analyse the company in following ways like swot, vision mission and etc. After the effect of strategy they felt that they need to go further and went for balanced scorecard. After working with it and making it for them they realised how good it is and said "Over the next 3-4 years, we were successful because for the first time we were measuring things that were really important across the entire company." When they perfected balanced scorecard in 2010 by the end of the year they have stated that they have netted more income than in the history of the company. The example shows how good balanced scorecard is in achieving goals and planning in to the future.

Other company that was interesting with implementing balanced scorecard was service Company, The Northwest Fire District. The company was using strategic planning since late 90' but they were not successful. Company grew and it needed a better strategy that could reflect to budget as well and then they used balanced scorecard. They grouped a strategic planning group of 40 employees who represented all levels of the organization and provided them with all the training they needed and they had smaller group responsible for the mission, vision and values. The balanced scorecard overall was made not only by the heads of the company but by whole company and all opinions where considered. This is a good example for Service Company to listen to people's needs and build up a strategy rather than Production Company is more often working with higher levels and only after it introduces the strategy for people to follow.

The balanced scorecard is a powerful tool which can lead to success if only it is used in the right direction. Every company, service or production has their different needs of values, missions and vision. For example charity companies will not go for profit, but for other companies profit is the main goal. Balanced scorecard is providing the framework for your vision of how to accomplish what you want, to make strategy on all levels of the company to work and that is the key to success.