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BALANCE SCORECARD-A TOOL TO MEASURE CORPORATE PERFORMANCE

 INTRODUCTION:

Balance Scorecard was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance. The balanced scorecard is a system of combining financial and non-financial measures of performance in one single scorecard. The popular form of this card includes performance measures from four perspectives: financial, customer, internal business processes, and learning and growth (innovation). It focuses on the link between business processes and decisions and results. Hence, the proponents of the balanced scorecard claim that it is a device to guide strategy formulation, implementation, and communication (Kaplan and Norton, 1996a). It also helps in tracking the performance and providing quick feedback for control and evaluation.

Balanced score card is a new idea that will help restructure Global companies, and help them make it through difficult and changing times. It allows management to focus on those goals and objectives and the measures that will help reach those goals and objective to meet the needs of the impact of Globalization. The best thing about it is that scorecards are unique to the company and will specifically fit the needs of the company, subunit, or individual. Today every organization felt that, Balance score card is considered to be a center stage in performance measurement system in recent years. There are several reasons for the use of balance score card by the companies. For instance it is measured  to be comprehensive tool  to understand  the target customers ,able to articulate  the strategy of  growth with Business excellence  which requires greater focus on Non financial  initiatives .

  The matters involved in balance score card namely strategic mapping, objectives measurement, commitment and support of top management etc., which needs to be considered at large.

Selection Criteria for Performance Measurements

Financial Measures of Success

Sales growth

Earnings growth

Dividend growth

Bond and credit ratings

Cash flow

Increase in stock price

 Customer Measures

Market share and growth in market share

Customer service

On-time delivery

Customer satisfaction

Brand recognition

Positions in favorable markets

 

   Internal Business Processes

High product quality

Manufacturing innovation

High manufacturing productivity

Cycle time

Yield, reduction in waste

   Innovation and Learning

Competence and integrity of managers

Morale and firm-wide culture

Education and training

Innovation

NEED FOR BSC:

Knowing what is going on in their enterprise

Effectively making and supporting decisions regarding Investments, plans, policies, schedules, and structure

Specifically communicating performance expectations to subordinates

Identifying performance gaps that should be analyzed and eliminated

Providing feedback that compares performance to a standard

Identifying performance that should be rewarded 

A good facet of the balanced scorecard is that it is a simple, systematic, and easy-to-understand approach for performance measurement, review, and evaluation. It is also a convenient mechanism to communicate strategy and strategic objectives to all levels of management. The success of the balanced scorecard or a similar device will depend on the clear identification of non-financial and financial variables and their accurate and objective measurement and linking the performance to rewards and penalties.

The proponents of the balanced scorecard assume (perhaps implicitly) that it aligns with strategy leading to better communication and motivation which causes better performance. This assumption could be the single most important reason for the popularity of the balanced scorecard. But, this may or may not be true. This is an empirical question. There is a need to document the experiences of the balanced scorecard companies and establish the cause-effect relationship. No doubt, from the evaluation of BSC, It is clear that it shapes up to attain a well positioned response from the corporate sector at present after the globalization.

    IMPLEMENTATION ISSUES:

    1) A strategic planning move away with all levels of management reaches a consensus on the overall vision, strategic goals, and objectives of the company and identifies the critical perspectives.

    2)   A strategic planning committee formulates objectives for each perspective.

    3)  With the balanced scorecard as a communication tool, committee seeks comments and acceptance from all members.

    4) Revise frequently   balanced scorecard according to the requirements of the company as well as for the dynamic corporate environment.

   5) communicate   the revised version to everyone and then each individual creates their own personal balanced scorecard to supplement the overall goals and objectives described.

    6) Strategic planning committee reviews individual balanced scorecards and revises those as well as the company’s.

    7) Management formulates a five-year strategic plan for the overall organization based on the balanced scorecard. The first year plan is expanded into the annual operating plan for the next year.

    Review individual and company progress quarterly and identify areas that need attention.

    9) Based on personal balanced scorecards, the company evaluates each member’s performance for the past year and makes recommendations relating to retention, promotion, salary increases or other rewards.

    10) Strategic planning committee revises the company’s balanced scorecard and the five-year strategic plan based on external and internal scanning of the current condition and changes in the economic environment.

 Having discussed implementation issues, it is felt tat,  to meet the challenges ahead, companies need to develop a perspective on the role of the legal function in both qualitative and quantitative business terms. They may use a Balanced Scorecard of metrics that integrates the department short-term actions with long-term organizational objectives.

 

CONCLUSION:

 From the aforesaid discussions, it is clear that, an implied assumption in the Balanced Scorecard, with a comprehensive information system to support it, provides a means to make a real difference throughout the organization as a whole.  In addition to that,, Activity Based Costing, Six Sigma, process review and benchmarking systems are specifically designed to support the implementation and ongoing evolution of a Balanced Scorecard measurement system. Hence this tool is expected to emerge one among the best performance measurement system and a strategic tool for corporate decision making.

 

 

 

 

 

 

 

 

 

About the Author

Dr.R.SRINIVASAN is a Post graduate in commerce and Management. He received his doctoral degree from Alagappa University in 1997. He currently teaches financial management and Research Methodology Subjects in Post graduate and Research Department of Corporate Secretaryship at Bharathidasan Government College for Women (Autonomous), Pondicherry University, Puducherry. Before Joining BGCW, he was teaching in SNR College, Coimbatore, Sindhi college, Chennai& T.S.Narayanasamy College, Chennai for eight years. He was with the industry for a short term at Salzar Electronics Pvt. Ltd, Coimbatore. He has about 20 years of teaching experience and having research experience of 15 years. His interests are in Accounting and finance, Capital Market, Quantitative Methods. He underwent the Faculty Development Programme at Indian Institute of Management Ahmedabad during 2000-01. He has presented 20 papers in national and international conferences and has published twenty papers in the areas of Finance and Human resource Management in National Journals. Co-authored a book titled, ‘Investors Protection, published by Raj Publications, New Delhi He has delivered lectures in contemporary finance topics at Pondicherry University. He is involved in consultancy projects for Godrej Saralee, Chennai in the areas of Statistical Applications. He has supervised a number of research projects in the area of corporate finance and Human Resource Management. He is the Board of examiner in corporate Secretaryship and Management for the past two decades.
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Dr. Robert Kaplan – Balanced Scorecard

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Strategy Maps: Converting Intangible Assets Into Tangible Oucomes $11.06 New – Robert S. Kaplan and David P. Norton, authors of “The Balanced Scorecard and “The Strategy-Focused Organization, is a blueprint any organization can follow to align processes, people, and information technology for superior performance.

Strategy Maps: Converting Intangible Assets Into Tangible Oucomes $20.45 New – Robert S. Kaplan and David P. Norton, authors of “The Balanced Scorecard and “The Strategy-Focused Organization, is a blueprint any organization can follow to align processes, people, and information technology for superior performance.

Strategy Maps: Converting Intangible Assets Into Tangible Outcomes $38.59 New – “Strategy Maps” takes readers to the next level of precision in strategy implementation. “Strategy Maps” introduces a new tool that has evolved from Robert Kaplan and David Norton’s ongoing research with hundreds of Balanced Scorecard adopters across the globe, and its premise is simple: if you can visually map your strategy, the people within your organization will better understand it and therefore be better able to execute it effectively. It offers a visual cause-and-effect explanation

Strategy Maps: Converting Intangible Assets Into Tangible Outcomes $58.43 New – “Strategy Maps” takes readers to the next level of precision in strategy implementation. “Strategy Maps” introduces a new tool that has evolved from Robert Kaplan and David Norton’s ongoing research with hundreds of Balanced Scorecard adopters across the globe, and its premise is simple: if you can visually map your strategy, the people within your organization will better understand it and therefore be better able to execute it effectively. It offers a visual cause-and-effect explanation

The Execution Premium: Linking Strategy to Operations for Competitive Advantage $14.28 In a world of stiffening competition, business strategy is more crucial than ever. Yet most organizations struggle in this area–not with formulating strategy but with executing it, or putting their strategy into action. Owing to execution failures, companies realize just a fraction of the financial performance promised in their strategic plans. It doesn’t have to be that way, maintain Robert Kaplan and David Norton in The Execution Premium. Building on their breakthrough works on strategy-focused organizations, the authors describe a multistage system that enables you to gain measurable benefits from your carefully formulated business strategy. This book shows you how to:· Develop an effective strategy–with tools such as SWOT analysis, vision formulation, and strategic change agendas· Plan execution of the strategy–through portfolios of strategic initiatives linked to strategy maps and Balanced Scorecards· Put your strategy into action–by integrating operational tools such as process dashboards, rolling forecasts, and activity-based costing· Test and update your strategy–using carefully designed management meetings to review operational and strategic data Drawing on extensive research and detailed case studies from a broad array of industries, The Execution Premium presents a systematic and proven framework for achieving the financial results promised by your strategy.

The Execution Premium: Linking Strategy to Operations for Competitive Advantage $39.95 In a world of stiffening competition, business strategy is more crucial than ever. Yet most organizations struggle in this area–not with formulating strategy but with executing it, or putting their strategy into action. Owing to execution failures, companies realize just a fraction of the financial performance promised in their strategic plans. It doesn’t have to be that way, maintain Robert Kaplan and David Norton in The Execution Premium. Building on their breakthrough works on strategy-focused organizations, the authors describe a multistage system that enables you to gain measurable benefits from your carefully formulated business strategy. This book shows you how to:· Develop an effective strategy–with tools such as SWOT analysis, vision formulation, and strategic change agendas· Plan execution of the strategy–through portfolios of strategic initiatives linked to strategy maps and Balanced Scorecards· Put your strategy into action–by integrating operational tools such as process dashboards, rolling forecasts, and activity-based costing· Test and update your strategy–using carefully designed management meetings to review operational and strategic data Drawing on extensive research and detailed case studies from a broad array of industries, The Execution Premium presents a systematic and proven framework for achieving the financial results promised by your strategy.

The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment $39.95 When Harvard business professor Robert Kaplan and consultant David Norton unveiled their Balanced Scorecard system in 1992, they viewed it as a way that companies could measure the “leading indicators” of financial performance. But after examining the turnarounds experienced by several early adopters of their methodology, Norton and Kaplan concluded that something else was happening: the Balanced Scorecard approach was turning users into strategy-focused organizations. “The scorecard allowed these successful organizations to build a new kind of management system — one designed to manage strategy.” This instructive book shows executives in the private, public and non-profit sectors how they too can boost their organizations' effectiveness by relentlessly focusing on strategy. Highlights: Distills the experiences of organizations that have utilized the Balanced Scorecard system into “Strategy Maps,” which are templates showing ways of “transforming intangible assets into tangible customer and financial outcomes.” Details ways the Balanced Scorecard and strategy-focused organization approaches apply to e-commerce companies. “If, as we believe, success comes from aligning all employees, decentralized units and initiatives to the strategy, fast-cycle companies should find the Balanced Scorecard an ideal management tool for quickly realigning the organization to a new strategy.” Illustrates ways a focus on executing strategy can become institutionalized over time, with cultures, organizational structures and management systems being modified to reinforce that perspective. Advantages: Kaplan and Norton drawextensively from the experiences of numerous real-world companies and institutions that have adopted the Balanced Scorecard system — including Mobil, Cigna, UPS, and the University of California at San Diego — to illustrate their points and principles. The coauthors offer

The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment $0.11 When Harvard business professor Robert Kaplan and consultant David Norton unveiled their Balanced Scorecard system in 1992, they viewed it as a way that companies could measure the “leading indicators” of financial performance. But after examining the turnarounds experienced by several early adopters of their methodology, Norton and Kaplan concluded that something else was happening: the Balanced Scorecard approach was turning users into strategy-focused organizations. “The scorecard allowed these successful organizations to build a new kind of management system — one designed to manage strategy.” This instructive book shows executives in the private, public and non-profit sectors how they too can boost their organizations' effectiveness by relentlessly focusing on strategy. Highlights: Distills the experiences of organizations that have utilized the Balanced Scorecard system into “Strategy Maps,” which are templates showing ways of “transforming intangible assets into tangible customer and financial outcomes.” Details ways the Balanced Scorecard and strategy-focused organization approaches apply to e-commerce companies. “If, as we believe, success comes from aligning all employees, decentralized units and initiatives to the strategy, fast-cycle companies should find the Balanced Scorecard an ideal management tool for quickly realigning the organization to a new strategy.” Illustrates ways a focus on executing strategy can become institutionalized over time, with cultures, organizational structures and management systems being modified to reinforce that perspective. Advantages: Kaplan and Norton drawextensively from the experiences of numerous real-world companies and institutions that have adopted the Balanced Scorecard system — including Mobil, Cigna, UPS, and the University of California at San Diego — to illustrate their points and principles. The coauthors offer