Performance measurement concerns all stake holders of business. Owners without executive powers are obviously most keen to know how their savings and investments are deployed. Employees, especially the ones with many alternate career options, would also like to know the state of health of their organizations, apart from the aspect of how superiors view their contributions. Suppliers worry about the future prospects of the business of a client because it has cascading effects on their own fortunes.
Finally, regulators use corporate performance as feedback of macro-economic policies; customers also have tangential interests in the well-being of service providers and manufacturers on whom they depend. There is an increasing disconnect between statutory financial reporting and statements by executive teams about the states of enterprises for which they are responsible. There are many significant events in a corporation’s history which do not find places in profit and loss accounts or in balance sheets.
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Further, all statutory reporting is historical, whereas many modern lines of business such as telecommunications are in very fluid states. Everyone wants to know the future impacts of present developments, rather than what has already transpired in the past. There is an explosion of interest in non-financial information (Neef, and Cefola). Trends in customer loyalty and retention, development of more effective human resources, the capabilities of corporation to meet future competitive pressures, and the internal ‘engine-room’ operations are typical areas about which little is known through traditional financial reporting.
While executives must be pleased at the lack of comprehensive business intelligence for competitors, the lack of directional information can lead to poor coordination and loss of control inside a corporation. All levels of hierarchy require guidance in terms of overall strategy, and how broad directions bear on individual jobs. The concept of a Balanced Scorecard is a popular and widely respected method of translating strategy in to specific implementation
This document constructs a hypothetical case of a telecom company, and attempts the application of the Balanced Scorecard methodology to translate the strategy of this company in to reality. The document concludes with an appraisal of the utility of the method. Business Distinctions of Telecom It is useful to consider the broad structure of the global telecom industry in order to construct a hypothetical case of some relevance.
Telecom has shot in to the limelight of late after dramatic developments in technology and extensive consolidation of the industry structure as well. The industry shares a high profile with consumers and regulators alike. The telecom business is integral to modernization of society (Bonocore, 2001). High speed, wireless communication networks have transformed lives, bringing what was almost science fiction to the realm of reality. It is now possible to stay in touch with the world from the comfort of a home, and save on travel and commute times.
Convergence between mobile or cellular telephones and computers is another major trend, and the revolution in the work-place of old is now in the process of unfolding at homes, with developments such as Internet telephones and music downloads from this medium as well. The industry is full of dramatic discontinuities; some of these are due to mergers and acquisitions, while the rest is because of disruptive changes in technology (Bonocore, 2001). The technological changes are likely to continue, with exponential jumps in processing speeds of micro-processors, while costs are headed distinctly south.
The huge and rapid technological improvements keep creating excess capacities (Bonocore, 2001). The fixed infrastructure costs of telecom players are not sustainable, unless price reductions spur major jumps in demand. There is a fierce battle to capture new customers, to induce them to use their telephones as much as possible, and to hold on to them as well. Regulatory changes are breaking restrictions, as between local and long distance telephony (Bonocore, 2001). Large global players can also now break in to new domestic territories.
The industry nature as outlined above makes non-financial parameters as important drivers of success (Neef, and Cefola). It is therefore eminently suited for the application of the Balanced Scorecard methodology (Tenhunen, Ukko, Markus, Oy, and Rantanen, 2002). Hypothetical Case Construction Telephone and Data Systems Inc. is a real company listed on the New York Stock Exchange (Form 10-K, 1998). It is a diversified telecommunications operator in the United States, and participates in both the wireless and line telephone segments.
A hypothetical case has been created in this document on the historical basis of the company’s 10-K statement for 1997, presented to the Securities and Exchanges Commission in 1998 (Form 10-K, 1998). This document details the company’s strategy exactly a decade ago. The Balanced Scorecard methodology can be applied to this historical but factual situation in a hypothetical way. The numbers and facts in the following paragraphs are not entirely factual, with some simplifications made for the purpose of clarity. Telephone Data Systems Inc.
is a relatively small and niche player in the telecom industry. It does not operate at all outside of the United States, and serves customers in only 36 States of its home country. It has less than 10 million customers. The company depends on the United States Cellular Corporation for its wireless services, which includes broad band, and has a wholly owned subsidiary for this line of business. The company operates printing and distribution activities through Suttle Straus, Inc in which it has a controlling stake.
TDS is focused on rural and suburban USA. It has about 11 thousand employees. Its basic approach is to combine organic growth with appropriate acquisitions. It operates each lines of business through a company which it either owns wholly or controls. The company has proprietary access to technology which reduces noise, provides seamless inter-connections, and which also offers cost advantages. Its network is capable of upgrades for value-added services. However, the company does also need to enter new technology areas.
The company focuses on geographic clusters in order to control costs, but emphasizes full customer satisfaction in its chosen clusters. Overall, the broad strategy of Telephone Data Systems Inc. is to hold a leadership position in rural and suburban America, making necessary investments to support such a competitive advantage. An Overview of the Balanced Scorecard Concept It is useful at this junction to consider the general nature and principles of the Balanced Scorecard before the concept is applied to the hypothetical case constructed as above.
The Balanced Scorecard is essentially a way of translating strategic concepts in to action (Keyes, 2005). It can also be used for holistic performance appraisal of an organization. The Balanced Scorecard seeks to integrate the contributions of all stake holders and levels of an organization for the joint implementation of strategic goals (Kaplan, 2002). It eliminates gaps between visionary thinking at the top of an organization and the daily actions of people up to the periphery. The Balanced Scorecard makes a large corporation nimble and responsive.
The Balanced Scorecard was first introduced in the early 1990, and is now used by about half of all U. S. corporations (Neely, 2002). Measurement is crucial for building teams and common commitments (Kaplan, 2002). This is at the heart of the Balanced Scorecard system. These measures are a part of a cause and effect link pning the entire organization; each measure is linked to an organizational outcome. The Balanced Scorecard is built along 4 axes: the financial perspectives drive customer values, while the internal perspectives focus on productivity, and value creation.
The customer perspective gives body to differentiation, while the learning and growth perspective dwells on human resources, systems, business climate, and organization culture. Overall the Balanced Scorecard is a means of implementing strategy, and works primarily through simple and transparent measurement of financial and qualitative goals (Neely, 2002). Implementation Priorities and Sequencing This section relates to the hypothetical case constructed earlier in the document. Telephone Data Systems Inc.
is ready with a strategy and would like to use the Balanced Scorecard to ensure measured and effective implementation. The process must start with widespread communication of the evolved strategy, because this has been prepared by a mere handful of the most senior and trusted executives in the company (Mai, and Akerson, 2003). Telephone Data Systems Inc. has more than 11 thousand employees, and the Balanced Scorecard system requires that each of them understands what their company wishes to achieve and how (Kaplan, 2002).
Some people are formally employees of owned or controlled, but independent entities: they must also be carried in the massive effort to implement the strategy quickly and well. Share holders, financiers, and technology associates are other stake holders with important roles in strategy execution, so they too must know the direction their company has chosen to take. Finally, competitors also need to be aware of the nuances of company strategy since the industry is in a phase of consolidation.
Overall, the management should make special efforts to carry people with them by integration with the Human Resources Management strategy (Kearns, 2003) and by viewing the organization as a living being Communication with such a large and diversified audience is likely to suffer from both dilution as well as distortion (Segil, and Goldsmith, J, 2002). Further, the subject matter is a top management prerogative, so any word from anyone other than the Chief Executive Officer, will not carry adequate weight or authority (Kaplan, 2002)
This communication issue is also an opportunity for the company to showcase its strengths. The Chief Executive Officer, apart from physical one-on-one meetings with the most influential stake holders, decides to use email and video conferencing infrastructure to communicate interactively with each stake holder directly. The core message is that Telephone Data Systems Inc. will be the leader in telecommunications within rural and suburban America. The company will back this super-ordinate aim with all the financial and non-financial investments needed for its realization.
The Chief Executive Officer and the core strategy team have decided to launch the Balanced Scorecard on a pilot basis before extending the methodology throughout the Group (Tenhunen, Ukko, Markus, Oy, and Rantanen, 2002). This will serve as a learning process and will help the company deal with the potential problems which such a process may entail. Telephone Data Systems Inc. is new to the Balanced Scorecard, and it is known that some phases of the process, such as tying personal remuneration with measured goal achievement may cause instabilities.
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