Balanced Scorecard in Strategic Performance Measurement

Summary

A financial performance measure aims at providing the company with tangible assets. Tangible assets alone cannot enable a company to maintain a sustainable competitive advantage. A more comprehensive performance measure that cannot only look at financial performance outcomes but can also look into nonfinancial performance outcomes is more preferable. A nonfinancial performance measure generally includes workers’ satisfaction, the quality of products, and innovations. For this type of measure to be quite effective, it is important that it is harmonized with the business strategy of the company. A good performance measure should be focused and should have the objective of contributing to the success of the business.

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A balanced scorecard incorporates both the traditional performance and non-financial performance measures. The drawbacks of the financial performance measure are always put into perspective. With a balanced scorecard, a company can maintain a sustainable competitive advantage. Balanced scorecards do not only look into the creation of tangible assets but they also emphasize the development of intellectual capital of the intangible assets.

Proponents of balanced scorecards address the nonfinancial performance measures by providing three additional factors. They view customer satisfaction as one of the nonfinancial measures. They argue that staff training, innovations, and the internal processes of a business should also be taken into consideration.

Key Learning Points

  • There are different performance measures that an organization can employ to determine the performance of an organization.
  • The limitations of financial performance measure
  • The role of balanced scorecards – the strategic performance measure. The array of measures used in strategic performance to make it balance.

Relevant Statement

Proponents of the balanced scorecard have long suggested the use of nonfinancial performance measures via there additional perspectives i.e. customer internal business process, and learning and innovation.

Critical Analysis

Different surveys have been carried out to investigate the performance of the strategic performance measure. One of the surveys that were carried out targeted top managers and chief executive officers of 83 electronic companies. The outcome of this survey indicated that those companies that implemented strategic performance measures in line with their business strategic plans had better business performances as compared to those that did not.

The majority of the companies sampled had implemented the Total Quality Management Program (TQM). This is a management philosophy that aims at continually improving the quality of products and business processes. To achieve the desired customer satisfaction, the Total Quality Management Program put on board the suppliers, customers, employees, and the management of a given company. It was recommended that by involving its customers in the Total Quality Management Program, a company is able to know their expectations.

Involving the suppliers ensures that they are able to supply quality raw materials that will help in the generation of products that will satisfy its customers. For example, a company exporting French beans should work together with the farmers in order to ensure that farmers produce the quality of French beans desired by its customers. Such a company should go the extra mile to provide quality seeds to the farmers.

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The company should also employ extension officers who can help the farmers in better farming methods for their crops. Other companies were found out to have implemented the Just in Time (JIT) Program. The Just in Time program systems aims at reducing inventory costs. To implement the program thoroughly, a company needs to understand the effects of several factors like behavior change in an organization.

The survey revealed that a direct link exists between better customer satisfaction and the implementation of the Total Quality Management Program and the Just In Time program. The research showed that empowering the employees with skills and knowledge through continuous training would shorten the production span of commodities hence reducing the operational costs. Employees should be innovative and efficient during the process of production. This would serve to achieve a reduced production span of commodities. A company can come up with different training programs for employees.

Some training programs should focus on employee relationships in the workplace, workplace conflicts, dispute management, and time management. Other programs should aim at empowering employees with technical skills. Team building is also necessary because it enables employees to work as teams. To foster team building in a business organization, some companies form clubs in which the membership is composed of its employees. Some of these clubs engage in outdoor activities like football. The objective of the clubs is to create healthy competition among employees in a given company.

Some caution should however be exercised in regard to staff training. Giving too much information to employees may create some form of “information overload” to the employees.

Practical Implications

Different surveys have been carried out to investigate the performance of the strategic performance measure. One of the surveys that were carried out targeted top managers and chief executive officers of 83 electronic companies. The outcome of this survey indicated that those companies that implemented strategic performance measures in line with their business strategic plans had better business performances as compared to those that did not.

The majority of the companies sampled had implemented the Total Quality Management Program (TQM). This is a management philosophy that aims at continually improving the quality of products and business processes. To achieve the desired customer satisfaction, the Total Quality Management Program put on board the suppliers, customers, employees, and the management of a given company. It was recommended that by involving its customers in the Total Quality Management Program, a company is able to know their expectations. Involving the suppliers ensures that they are able to supply quality raw materials that will help in the generation of products that will satisfy its customers.

For example, a company exporting French beans should work together with the farmers in order to ensure that farmers produce the quality of French beans desired by its customers. Such a company should go the extra mile to provide quality seeds to the farmers. The company should also employ extension officers who can help the farmers in better farming methods for their crops. Other companies were found out to have implemented the Just in Time (JIT) Program.

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The Just in Time program systems aims at reducing inventory costs. To implement the program thoroughly, a company needs to understand the effects of several factors like behavior change in an organization. The survey revealed that a direct link exists between better customer satisfaction and the implementation of the Total Quality Management Program and the Just In Time program. The research showed that empowering the employees with skills and knowledge through continuous training would shorten the production span of commodities hence reducing the operational costs. Employees should be innovative and efficient during the process of production.

This would serve to achieve a reduced production span of commodities. A company can come up with different training programs for employees. Some training programs should focus on employee relationships in the workplace, workplace conflicts, dispute management, and time management. Other programs should aim at empowering employees with technical skills. Team building is also necessary because it enables employees to work as teams. To foster team building in a business organization, some companies form clubs in which the membership is composed of its employees. Some of these clubs engage in outdoor activities like football. The objective of the clubs is to create healthy competition among employees in a given company.

Some caution should however be exercised in regard to staff training. Giving too much information to employees may create some form of “information overload” to the employees.

For a company to achieve sustainable competitive advantage and ensure its long-term survival in the market, one of the factors it needs to address is the value-added of its products. For example, a company that manufactures copper wires is likely to be edged out of business with time by other companies that use different materials other than copper. Since copper is known to be a good insulator, the company can add value to it with an innovation like copper cladding.

This is where copper is used as a topcoat for other metals to provide insulation. In another example, a company producing yogurt may add value to its product by exploring new flavors that other yogurt producers may not have discovered.

It is important that any company evaluates the market often to attract new customers and get new markets for its products. For example, a national radio broadcasting company that broadcasts using only one language, the national language, may explore its market to find out if some of its listeners would prefer radio broadcasting that is done in in vernacular languages or foreign languages. This can be an ideal way of identifying new markets.

With today’s technological advancements which are changing at very high rates, current employee skills are often challenged and eventually, they can be overtaken by events and time. New companies that may enter into the market may pose challenges to the existing companies especially if they embrace new technologies in doing business. To remain in the market and sustain it, any company should fully address the challenge posed by inadequate employee skills.

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For a company to reap the full benefits of strategic performance measures, a business strategic plan must be laid down. The Total Quality Management Program must also be put in place. Such a program may be delicate to handle especially if the company does not have the capacity to implement it. It is therefore advisable for such a company to engage the services of an experienced consulting firm in this area. If not well implemented and managed, the Total Quality Management Program may not bring the desired outcomes. Some personnel in the organization should also be fully trained on strategic performance measures’ management and implementation.

Some companies are known to engage in strategic performance measures for a certain duration of time. After getting rewarding outcomes from the strategic performance measures the companies somehow tend to put aside the strategic performance measures. This can eventually run down the companies to the extent that one would think that no strategic performance plans ever existed in the companies

Learning Reflections

  • Strategic performance measure involves the uses of an array of other measures both the financial and nonfinancial performance measures.
  • Companies that implement Total Quality Management and Just in Time Management programs posts better performance in the long run.
  • Balance scorecards can turnaround a company from non profit making company to a profit making company.
  • For a company to create and maintain a competitive advantage its core competence must revolve around innovations and continuous employee training.
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