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INTRODUCTION
The balanced scorecard has evolved from its early use as a simple
performance measurement framework to a full strategic planning and
management system. The “new” balanced scorecard transforms an
organization’s strategic plan from an attractive but passive document into
the "marching orders" for the organization on a daily basis. It provides a
framework that not only provides performance measurements, but helps
planners identify what should be done and measured. It enables
executives to truly execute their strategies.
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strategic policy formulation and achievement. It emphasized the need to
provide the user with a set of information, which addresses all relevant
areas of performance in an objective and unbiased fashion”.
The idea behind the four perspectives represents a balanced view of any
organization and by creating measures under each of these headings all
the important areas of business would be covered. It is important to note
that the balanced score card itself is just a frame work and it doesn’t say
what the specific measures should be. It is a matter for people within the
organization to decide upon. The set of measures for each organization or
even sections with the organization will be different. Much of the success
of score card depends on how the measures are agreed, the way they are
implemented and how they are acted upon. So the process of designing a
score card is as important as the score card itself.
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NEED FOR THE BALANCED SCORECARD
(BSC)
The balanced scorecard is a way of Measuring organizational, business
unit or department success;
Historically, the measurement system for any business has been financial.
Accounting was considered to be the language of business .Innovations in
measuring the financial performance of the industrial age companies
played a vital role in their successful growth. And financial innovations,
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such as the Return on Investment (ROI) metric, and operating and cash
budgets, were critical to the success of these corporations.
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statement of purpose for a specific period. Basically a strategy is a shared
understanding about how the organization’s mission is to be achieved in a
competitive environment. Strategic thinking will focus on customers and
competitors as well as internal capabilities and resources. It will include
reference to the firm’s competitiveness, quality of output and levels of
customer service. In turn, specified performance measures allow all
employees understand what the strategy is and how their performance is
linked to that overall strategy. The relationship between Mission,
Objectives, Strategy and Performance Measures is depicted in Fig.1.
Fig.1
There are at least three reasons why organizations should, and often do,
measure their performance:
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4 MAJOR PERSPECTIVES OF A BSC
The aim of the Balanced Scorecard is to direct, help manage and change
in support of the longer-term strategy in order to manage performance.
The scorecard reflects what the company and the strategies are all about.
It acts as a catalyst for bringing in the ‘change’ element within the
organization. This tool is a comprehensive framework which considers the
following perspectives and tries to get answers to the following questions
–
Hence, from the above lines we can say that this tool has considered not
only the financial results to be important but also those factors which
actually drive an organization towards future successes as mentioned
earlier. The tool has given stress on the other areas which are required to
‘balance’ the financial perspective in order to get a total view about the
organizational performance and improve the same. The framework tries to
bring a balance and linkage between the –
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(d) Leading and the Lagging indicators.
Kaplan and Norton emphasize that 'learning' is more than 'training'; it also
includes things like mentors and tutors within the organization, as well as
that ease of communication among workers that allows them to readily
get help on a problem when it is needed. It also includes technological
tools.
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In addition to the strategic management process, two kinds of business
processes may be identified: a) mission-oriented processes, and b)
support processes. Mission-oriented processes are the special functions of
government offices, and many unique problems are encountered in these
processes. The support processes are more repetitive in nature, and
hence easier to measure and benchmark using generic metrics.
Kaplan and Norton do not disregard the traditional need for financial data.
Timely and accurate funding data will always be a priority, and managers
will do whatever necessary to provide it. In fact, often there is more than
enough handling and processing of financial data. With the
implementation of a corporate database, it is hoped that more of the
processing can be centralized and automated. But the point is that the
current emphasis on financials leads to the "unbalanced" situation with
regard to other perspectives.
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The Four Perspectives: Cause and
Effect Relationship
The four perspectives as mentioned above are highly interlinked. There is
a logical connection between them. The explanation is as follows : If an
organization focuses on the learning and the growth aspect, it is definitely
going to lead to better business processes. This in turn would be followed
by increased customer value by producing better products which
ultimately gives rise to improved financial performance.
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Figure 2
Performance Drivers
A good Balanced Score Card should also have a mix of outcome measures
(lagging indicators) and performance drivers (leading indicators). Outcome
measures without performance drivers do not communicate how the
outcomes are to be achieved or give an early indication about whether the
strategy is being implemented successfully. Conversely performance
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drivers without outcome measures (may achieve short term operational
improvements) fail to reveal whether operational improvements have
translated into expanded business with enhanced financial performance.
Example (Figure 3)
Figure 3
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Competitive Bench Marks for the measures selected
Short Term and Long term targets for identified measures
Initiatives aligned to the Strategic objectives for execution and
review.
Once the organizational score card is prepared and finalized the scorecard
is to be used as an effective method of alignment see (figure 4).
Departmental, Process, and Individual score cards aligned to corporate
score card will translate your strategy to daily management.
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Balanced Score Card lays the foundation for the implementation of an
effective Six Sigma strategy.
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BUILDING AND IMPLEMENTING THE
SYSTEM USING A BALANCED
SCORECARD
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Step One of the scorecard building process starts with an assessment of
the organization’s Mission and Vision, challenges (pains), enablers, and
values. Step One also includes preparing a change management plan for
the organization, and conducting a focused communications workshop to
identify key messages, media outlets, timing, and messengers.
In Step Three, the strategic elements developed in Steps One and Two
are decomposed into Strategic Objectives, which are the basic building
blocks of strategy and define the organization's strategic intent.
Objectives are first initiated and categorized on the Strategic Theme level,
categorized by Perspective, linked in cause-effect linkages (Strategy
Maps) for each Strategic Theme, and then later merged together to
produce one set of Strategic Objectives for the entire organization.
In Step Four, the cause and effect linkages between the enterprise-wide
Strategic Objectives are formalized in an enterprise-wide Strategy Map.
The previously constructed theme Strategy Maps are merged into an
overall enterprise-wide Strategy Map that shows how the organization
creates value for its customers and stakeholders.
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identified, expected targets and thresholds are established, and baseline
and benchmarking data is developed.
In Step Six, Strategic Initiatives are developed that support the Strategic
Objectives. To build accountability throughout the organization, ownership
of Performance Measures and Strategic Initiatives is assigned to the
appropriate staff and documented in data definition tables.
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In Step Nine, an Evaluation of the completed scorecard is done. During
this evaluation, the organization tries to answer questions such as, ‘Are
our strategies working?’, ‘Are we measuring the right things?’, ‘Has our
environment changed?’ and ‘Are we budgeting our money strategically?’
Hence, from the aforesaid model, it is clear that the following are to be
done so as to utilize the Balanced Scorecard as a strategic management
tool :
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2. Measures of performance are required to be identified under each of
the objectives which would help the organization to realize the goals set
under each of the perspectives. These would act as parameters to
measure the progress towards the objectives.
3. The next important step is the setting of specific targets around each of
the identified key areas which would act as a benchmark for performance
appraisal.
4. The appropriate strategies and the action plans that are to be taken in
the various activities should be decided so that it is clear as to how the
organization has decided to pursue the pre-decided goals. Because of this
reason, the Balanced Scorecard is often referred to as a blueprint of the
company strategies.
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Hence, the above paragraphs show that all the four areas have been given
equal importance in measuring performance level. The measures and the
objectives, however, depend upon the type of business the organization is
in. The financial indicators are complemented by the non-financial ones.
Since, objectives and goals are set for each of the critical success factors
under each of the heads, it brings about a focus on the strategic vision.
Thus, all activities would be directed towards achievement of the longterm
goals which have been set by the top management. The identification of
the key result areas (KRAs) help an organization in moving towards the
right strategic direction. This tool creates a link between objectives,
measures, targets and initiatives. It is, therefore, absolutely clear that the
Balanced Scorecard acts as a focal point for the organisation’s efforts,
designing and communicating priorities to the managers, employees,
investors and the customers.
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FEATURES OF A GOOD BALANCED
SCORE CARD:
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ADVANTAGES OF BSC
The balanced scorecard tool is being used by several organizations
throughout the world because of certain advantages it has been able to
deliver as below:
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DISADVANTAGES OF BSC
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UTILISING THE BALANCED SCORECARD
AS A STRATEGIC MANAGEMENT TOOL
The tool has become a weapon for organizations to identify the pressure
points, conflicting interests, objectives setting, prioritization of objectives,
planning and budgeting. The four main important steps that need to be
taken care of are –
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Just communicating the vision and the strategies is not an end in itself.
The strategic goals and the measures to be set in the different areas have
to be decided upon. The long-term strategic goals have to be translated
into both departmental and individual goals which should be aligned to
each other in order to realize the long-term goals. In fact, each and
everyone at different levels in the organizational hierarchy needs to be
educated about the action plans and reasons for accepting the same. The
tool contains three levels of information:
3. Business Planning
This step helps in the resource allocation process. One has to keep in mind
that objectives form an important criteria in deciding the quantum of
resources that are required to be allocated to the various departments,
activities and the processes. No strategy can bring successful results to an
organization if the allocation is not in line with what is required to meet
the results. This allocation is dependent on the budgeted estimates which
are decided on the basis of the said
objectives. Hence, through this step the Balanced Scorecard tries to bring
about an integration between strategic planning and the budgeting
exercise. The short-term milestones are also needed to be figured out
which in totality brings about a linkage between strategic goals and the
budgets. This procedure helps in actualizing what has been set by the
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organization. Thus, this step brings about a shift from the ‘thinking’
exercise to the ‘doing’ stage and the organization tries to achieve the
long-term goals through the short-term actions.
CONCLUSION
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The Balanced Scorecard is therefore a very important strategic
management tool which helps an organization to not only measure the
performance but also decide the strategies which are needed to be
adopted so that the long-term goals are achieved. Thus, in other words,
the application of this tool ensures the consistency of vision and action
which is the first step towards the development of a successful
organization. Also, its proper implementation can ensure the development
of competencies within an organization which will help it to develop a
competitive advantage without which it cannot expect to outperform its
rivals.
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REFERENCES
www.valuebasedmanagement.net.
http://en.wikipedia.org
www.thebalancedscorecard.com
www.managementhelp.org
ucsfhr.ucsf.edu/files/implementationguide.doc
www.managementparadise.com
www.citehr.com
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