Evaluating The BSC As A Performance Management Tool

Abstraction

In of all time altering concern landscape, the concerns face the intensified competition and see the outgrowth of more knowing and demanding clients in a free market epoch. Therefore mensurating organisational public presentation entirely on the footing of fiscal indexs will merely reflect the past public presentation but will supply really small penetration into long term sustainability and therefore considered to be unequal and deceptive. Balanced Scorecard ( BSC ) introduced by Kaplan and Nortan tried to intermix other facets in add-on to the so called fiscal indexs. Consequently, the BSC in add-on to fiscal position introduced cardinal public presentation indexs around three dimensions viz. client, internal concern procedures and larning & A ; growing. However, despite its well rounded and advanced design and broad acceptance in organisations the full potency of it is yet to be achieved chiefly due to evolvement of dimensions in today ‘s context beyond the four positions in its design and besides due to hapless execution. Therefore BSC should continually be refined taking into consideration the cardinal success factors which affects organisational public presentation while beef uping the execution.

Introduction TO BALANCED SCORECARD ( BSC )

Traditionally the fiscal indexs such as net net income, Return on Investments ( RoI ) , Earnings Per Share ( EPS ) , Price Earning ( P/E ) ratio and etc. , as an unwritten regulation, were considered as the basis on which the public presentation or the wellness of organisations was measured which in bend formed the footing on which the public presentation of members at all degrees of the organisations was measured. However, with the intensified competition and outgrowth of more knowing and demanding clients in a free market era the concern landscape underwent a paradigm displacement. Therefore mensurating organisational public presentation and in bend the public presentation of employees entirely on the footing of fiscal steps which efficaciously represent the lagging indexs of past public presentation and holding a small prognostic value was considered as inappropriate. In the sense the past consequences will non guarantee the hereafter public presentation, instead the long term sustainability of any organisation depends upon assorted other factors such as nucleus competences of people coupled with occupation satisfaction and citizenship, strength of client relationship, acquisition and invention, internal concern procedures, engineering, quality and etc. which in bend better topographic point the organisation to bask a sustainable competitory advantage.

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As a consequence, a public presentation measuring system which blends all the facets including so called fiscal indexs was considered as more appropriate since it would let organisations to mensurate yesteryear every bit good as to foretell how the hereafter would look like ( prognostic value ) . In this background, Robert S. Kaplan and David P. Norton in 1992 introduced the construct of “ Balanced Scorecard ( BSC ) ” with a set of steps which complements fiscal steps of past public presentation with drivers of future public presentation and thereby to hold a holistic, incorporate position of concern public presentation. Though the name was new, the construct was an development of assorted constructs introduced under figure of theories and constructs like Activity Based Management, Management By Objectives, Total Quality Management, Strategic Management, Delegation of Authority ( authorization ) , Decentralization of Decision-Making and etc. , but what is alone about BSC is that it combined the critical kernel of all these constructs and theories into an integrated measuring system of public presentation ( Ghosh S. & A ; Mukherjee S – 2006 ) . BSC is a strategic direction system ( non simply a public presentation measuring system ) and enables organisations to incorporate their strategies/visions around specific aims, ends and steps. Then those aims and ends along with the designed public presentation steps ( KPIs ) are shared and communicated across the organisation. Further, Targets are planned and set to aline with strategic enterprises.

Consequently the BSC in add-on to Financial position ( traditional public presentation measuring index ) introduced cardinal public presentation indexs around three dimensions viz. client, internal concern procedures and larning & A ; growing and attempted to reply the undermentioned four cardinal inquiries.

1. How do clients see us?

2. What must we stand out at?

3. Can we go on to better and make value?

4. How do we look to stockholders?

The rational put frontward on these four positions are knowledge & A ; accomplishments of employees is the foundation of all invention and betterments ( Learning & A ; Growth position ) , skilled and empowered employees will better the ways they work ( Internal Process position ) , improved work procedures will take to increased client satisfaction ( Customer position ) and eventually increased client satisfaction will take to better fiscal consequences ( Financial position ) ( Ghosh S. & A ; Mukherjee S.- 2006 )

Since the construct of BSC was foremost introduced in 1992, many organisations globally every bit good as locally adopted the BSC as their public presentation measuring tool due to its advanced attack and besides due to the fact that it has “ balanced ” the cardinal dimensions of public presentation straight associating with vision, mission and schemes. However, this does non propose that all organisations have achieved success and design of BSC is perfect but instead BSC exhibited good rounded attack to public presentation direction.

However, we witness that universe has changed significantly since 1992 and this is non different when it comes to concern landscape. Therefore it is worthwhile to critically measure whether BSC still holds the all positions to better mensurate the organisational public presentation and what betterments can be made to it to mensurate current public presentation every bit good as to beef up its prognostic value.

CRITICAL EVALUATION OF BSC AND RECOMMENDATIONS FOR IMPROVEMENT OF BSC

The apprehension of BSC and its implicit in doctrine has placed in a better place to critically measure BSC on its positive and negative facets in the current context.

As discussed in the preceding subdivision, the BSC made a major discovery in mensurating public presentation beyond the traditional fiscal steps which chiefly focused on stockholder value creative activity. Puting excessively much trust on stockholders ‘ value creative activity will set force per unit area on direction to concentrate merely on short term consequences at the disbursal of long term growing and success. Further, unlike in the past today organisations are responsible for broad array of stakeholders internally and externally including stockholders. Furthermore stockholders are besides demanding an penetration into long term sustainability in add-on to short term consequences. As an illustration in the recent yesteryear we witnessed several corporate failures such as Golden Key, Enron ( USA ) , Sathyam Computers in India, Lehman Brothers ( USA ) and WorldCom ( USA ) and etc. , due to inordinate trust on fiscal indexs to mensurate public presentation. If I may farther lucubrate the former Chairman of Sathyam Computers informed all concerned parties via his missive dated 7 January 2009 that the Company misrepresented its financials to run into the analysts ‘ fiscal prognosiss and marks set.

Furthermore, unlike the conventional public presentation measuring systems, the BSC clearly communicate the factors that drive public presentation and so ease the public presentation measuring procedure on the footing of drivers indentified under each of four positions.

The application of BSC allows mensurating public presentation from a four broader positions and alining each step with vision, mission and schemes. This has helped organisations to strike a balance between both short term and long term concerns, fiscal and non fiscal concerns, and internal and external concerns.

In add-on to its primary function as a public presentation measuring tool, the BSC besides has been instrumental in puting the foundation for a new strategic direction system enabling organisations to present new administration and renew procedures concentrating on scheme.

BSC with clearly defined KPIs and measurement standards under each position allows direction to measure its strengths and failings and thereby it prompts them to place the root causes of dismaying signals to collar the state of affairss before they get aggravated. As an illustration if BSC indicates that there is an issue in the client service so the Company can turn to before clients shift to rivals. Besides it allows reacting to the challenges posed by competitory and of all time altering environment as organisations are dynamic and see a much broader image of the organisation and its environment.

Further, the rating of concern public presentation with BSC system aid to instill forces subject and motive as in certain cases the employees and even direction do non cognize they are engage in and executing something inappropriate. As an illustration despite the betterments in gross ( fiscal position ) if clients are non happy ( client position ) so it would propose that the organisation should move on this and this besides would bespeak that the organisation performs below its full potency due to client issues.

Despite the positive facets, the BSC besides suffers from major failings and could be discussed as below:

First BSC seeking to break up the organisational public presentation measuring standards into four major positions but in the current context the organisational public presentation and long term sustainability are impacted by factors beyond what were originally introduced. These factors chiefly include the Corporate Social Responsibility ( CSR ) and environmental concerns. The construct of Triple Bottom Line ( TPL – Net income, People and Planet ) has gained impulse in the recent yesteryear which described that organisational public presentation should be measured in footings of a ) economic ( traditional ) B ) environmental and hundred ) societal positions.

The construct of CSR ( societal facet ) in nutshell demands all entities to be socially responsible as a good corporate citizen and should lend towards run intoing society ‘s outlooks. The environmental facet concerns that the activities of the entity should be conducted in a manner that do non harm the environment in which the entity operates. Here the accent is that the mere accomplishments of economic marks with no due attention to other facets will unlikely to guarantee the long term sustainability and growing. As a consequence the focal point on environmental and CSR has been a cardinal portion of today strategic direction procedure but yet to be an built-in portion of BSC. Further, adding more fuel to this is the regular companies describing ( including one-year studies ) contain detail subdivisions about the part towards CSR and entities environment footmark.

Further, the providers, rivals and regulators have besides non been portion of BSC but it can be argued that providers and ordinances could be portion of Internal Process position but in today ‘s concern environment, consciousness about providers and rivals ‘ actions are considered to be critical for endurance and hence mere inclusion within Internal Process position might non do the demand. Further, the impact of ordinances has been widened over the old ages and hence should be a cardinal index to mensurate public presentation.

Another position is the ethical behaviour and adhering to core values of the organisation in accomplishing the aims. In this it is of import to measure how the aims are achieved without simply looking at how much was achieved.

The above suggest that BSC should non be limited to its original positions which would hold been sufficient and appropriate given the environment prevailed at the clip of its debut but instead it should be a dynamic procedure whereby parametric quantities are continually refined ( non inactive but dynamic ) to run into the demands of the of all time altering environment and to better topographic point organisations to accomplish their schemes. However, adding more positions will ensue in BSC go more complex and will take to more steps being included ensuing in issues at execution.

Another observation is that the positions in BSC may non be every bit applicable and hence may non portion equal weights or prominence for all organisations and even all divisions within an entity. The BSC should be driven by overall concern schemes and hence companies may be bias towards the dimensions in BSC that closely relate their strategic purpose. As an illustration the comparative importance of positions for an investing company and fabrication set up will be different. Further, a division like Research & A ; Development will hold really small fiscal accent other than pull offing within allocated budget bounds in contract the Finance & A ; Treasury Division.

All the above suggest that the BSC should be broadened to include new dimensions but this exercising should to be done with a careful idea procedure otherwise BSC would be “ bias ” instead than “ balanced ” and finally go more complex. My recommendation to efficaciously manage this demand is to do increased specialisation and thereby to hold industry specific BSC formats and assign weights to different steps ( both fiscal and non-financial ) on the footing of their importance to the industry sector is concerned. The delegating equal weights to all positions are non practical and appropriate. Further, the organisations who have adopted BSC have been delegating weights in order of importance. Furthermore, with all these contentions the mechanization of balanced mark card should non be overlooked and for it to move as a uninterrupted monitoring tool and supply feedback, the organisations should ever seek to automatize the BSC.

Another point I have noticed is inclusion of big figure of fiscal and non fiscal steps within BSC doing it really complex to supervise and give feedback on a regular basis ensuing in the organisations are happening it hard to acquire the full benefits. Therefore it is recommended that merely cardinal steps are considered which guarantee smooth execution. The mechanization suggested supra would assist in turn toing this concern.

Apart from betterment points discussed above the undermentioned recommendations could besides be used to do the execution of BSC successful ( Zairi M. & A ; Jarrar Y – 2010 ) :

An organization-wide acceptance of BSC, i.e. covering all cardinal organisational maps ;

Use BSC to supply nonsubjective informations for concern determinations ;

Ensure committedness, to and buy-in for, the BSC at all organisational degrees, peculiarly at the top ;

More accent on preparation ;

Align the wages and acknowledgment system straight with BSC ; and

Facilitate execution by interrupting down organisational barriers which hampers its successful execution.

Decision

Despite superior design and fullness concentrating on broad array of positions which have a direct bearing on current and future public presentation of organisations, the BSC is yet to accomplish its full potency due to issues related to its design and hapless execution. However, BSC still prevails as an influential and widely used and recognized model for measuring of public presentation. The most appropriate manner to travel frontward, to prolong BSC popularity and to acquire the best consequences, is to continually polish the BSC on the footing of critical success factors act uponing organisational public presentation. It is disputing to interpret the BSC with of all time altering concern demands but the hereafter of BSC depends upon how it changes itself to suit in the current expression.

Further, the debut of specialised BSC formats based on the different sectors could besides be utile to hold a proper mix of public presentation steps under each position in order of importance. Last but non least the mechanization of BSC would assist to get the better of most of the issues associated with execution.

Mentions AND BIBILIOGRAPHY

Armstrong, M. ( 2008 ) , Performance Management: Key schemes and practical guidelines, ( 3rd ed. ) India: Kogan Page

Ghosh S. & A ; Mukherjee S. Article on Measurement Of Corporate Performance Through Balanced Scorecard: An Overview in the Vidyasagar University Journal of Commerce Vol. 11, March 2006

hypertext transfer protocol: //histrategy.blogspot.com/2011/02/balanced-scorecard-tool-in-strategy.html retrieved on 04 May 2011

Letter issued by Ramalinga R. B. ( Former Chairman of Sathyam Computers Services Limited ) on 7 January 2009

hypertext transfer protocol: //www.ecbpm.com/files/Performance % 20Management/Best % 20Practice % 20for % 20Implementing % 20the % 20Balanced % 20Scorecard.pdf retrieved on 13 May 2011 – Research Paper: RP-ECBPM/0027 by Zairi M. & A ; Jarrar Y. on Best Practices for Implementing the Balanced Scorecard ( 2010 )