A balanced scorecard can be described as a strategic planning and management system that is used in business and industry. It can also be used in government as well as non-profit organizations to support business activities towards the achievement of the vision and strategy of the organization. It also improves internal and external communications as well as monitoring organization improvement against strategic goals. According to Kaplan and Norton balanced scorecard is a system that is used as a performance measurement framework. The balanced scorecard combines both the strategic non-financial performance procedures and the traditional financial measures to provide managers and executives with an extra balanced view of organizational performance (Kaplan, 2006, p.873).
Background of balanced scorecard
It evolved in the 1990s with the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers. The French engineers created the Tableau de Bord i.e. dashboard of the performance measures in the early part of the 20th century. Balanced scorecards evolved from a simple performance measurement framework to a complete tactical planning and managing system. It was used for changing the strategic plan of an organization into marching orders for the organization on daily basis. A balanced scorecard gives a structure that can provide performance measurement as well as help planners in identifying what should be done and measured (Schneider man, 2004, p.737).
A new approach to strategic management was invented by Kaplan and Norton referred to as the balanced scorecard. This management approach was invented to reduce the weaknesses and ambiguities that were found in the previous management approaches. It provided a clear description of ways in which companies should measure their performance to balance their financial perspective. The balanced scorecard is a measurement system as well as a management system that enables organizations to explain their dream and plan and put them into action. A balanced scorecard plays the role of giving feedback to the internal business procedures and external results towards the improvement of strategic performance and results. A good arrangement of the balanced scorecard enables the transformation of strategic planning from an academic application into the middle of an enterprise.
The description of balanced scorecard by Kaplan and Norton
According to Kaplan and Norton, a Balanced scorecard serves the purpose of retaining traditional financial measures. Financial measures describe issues concerning past events concerning industrial age companies where investments in long-term capabilities and customer relationships were not critical for success. These financial measures are considered inadequate in the sense that, when guiding and evaluating companies, they have to look for ancient information for the creation of future value by investing in consumers, sellers, employees, procedures, expertise, and originality.
The operation of a balanced scorecard
A balanced scorecard works in four different perspectives to effectively manage processes in an organization. These viewpoints are both educative as well as growth perceptions; others may include business process view, customer view, in addition to the financial view. A balanced scorecard provides procedures that can be used to view the organizations into four perspectives.
Learning & Growth Perspective
The learning and growth perspective is concerned with the training of employees and the cultural outlook of the company. It is concerned with individual as well as corporate improvement. In an organization, people are required to embrace a learning attitude where managers are encouraged to provide training funds for the learning of workers in the organization. Kaplan and Norton emphasized the essence that learning is more than training. Learning is concerned with guiding and training within the organization as well as enabling easy communication among workers.
Business Process Perspective
This perspective deals with the internal business processes which involve methods that are used by managers to measure the progress of the business as well as the conformity of products to customer requirements. The procedures are supposed to be devised by people inside the company and know them well.
The Customer Perspective
This perspective deals with customer focus to satisfy their requirements. The customer is seen as the leading factor in the business. Failure to satisfy customers with our services then they will look for different suppliers. Hence, customer focus should be the leading aim in the business failure to which there is a future decline although the current financial situation is seen to appear goods. Procedures for customer satisfaction should be devised according to the kind of customers to be served.
A balanced scorecard ensures that financial data in the organization is provided in a timely and accurate manner. Managers are required to have good ways in which this data is provided to the customer. This perspective deals with methods with which financial data can be provided to the users in the required time. Here, managers use an automated database to process the financial data fast to meet the customer demands on financial information. A balanced scorecard takes into consideration risk assessment and costs benefit data into its financial data which is not reflected by other perspectives.
A Balanced scorecard for the organization
In order to implement the balanced scorecard in the organization, we have proposed that our focus here be on people. We need to translate the vision into operational goals and communicate the vision and link it to individual performance. We need to set the business planning index. We have decided that feedback and learning should be enhanced and then adjust the strategy accordingly.
The researcher has taken a case study of Pickering’s lift company in the research. This is among the oldest engineering companies in England which were established in 1854 as a result of Jonathan Pickering’s efforts. The company’s reputation was established after Jonathan Pickering who invented the Pickering block won the Businessman of the Year Award in the North East Business Executive Awards. The company was named at the Tees Valley company of the year in April 2005 at the North East business. This invention came with the enhancement of Hoisting Appliances that improved the quality of the products of the company. Pickering’s is the foremost corporation to find out the successful Hand Lift as well as Service Lift and emergent of the Belt-Power plus Hydraulic Lift. We designed and manufactured our first Electric Lift in 1888 and this was installed at the Middles rough Co-operative Society. A considerable achievement was made in 1896 when the company invented the first fully automatic push-button lift in the lift industry.
John Pickering died in 1891 and was succeeded by John Fothergill who was an independent marine engineering consultant. Till now our company is at present in its fifth age bracket of family possession and administration. It was January 2008, when the corporation opened an Escalator partition for the reason of the provision of a different customer foundation that could suit their needs. In addition, new corresponding businesses have since been added including the Supply Chain maintenance which takes care of all loading, access, and distribution requirements. In our company, we use Low Carbon Systems Support as a new technology that would reduce carbon emissions for our customers.
The company’s vision is to lift a business with which everyone is ready to work.
The Pickering Company we are aimed at adding tangible customer value and exceeding our customer’s expectations in all of our activities. We do this by working as one team at every level to deliver outstanding customer service and quality products through exceptional people whilst maximizing shareholder value.
Our goal in this project is to improve knowledge management in our organization.
At Pickering lifts, we are going to focus on people to achieve our goal.
At Pickering’s, the company considers our values to be innovative, working as one team, being supportive to one another, honest and open, being passionate about Pickering lifts, flexibility, acting with integrity, effectiveness, accountability and incorporating other people to do business together. The company provides its services 24 hours throughout the year to meet customer support when in need.
We’re a UK company which is closely linked to our customers where we work side by side with them as one team. Our products pass through different steps of production to produce products that are of high quality to the customers. Products will pass-through design, manufacturing and installation through to servicing and repair stages to ensure good services to our customers. Our products are differentiated to provide the exact standard according to customer specifications. Our management is concerned with meeting the customer’s needs by meeting their expectations.
The company’s strategic objectives are:
- Becoming the largest and leading independent lift company in the UK.
- To be a leading independent lift manufacturer
At Pickering’s, we are going to introduce a particular working framework that is to be used by employees. Employees are going to work for six days a week with an off for one day. We will have day and night workers and this will enable the company to achieve the production demands for our customers. We will conduct customer surveys annually to establish the areas of weakness that may be affecting our employees. This will enable us to keep on track the control system in the organization. Performance appraisal will be done on 1-1 basis with the employees every three months. We are going to implement a training and development plan that will be undertaken twice a year.
Having a company that is market-led, service-driven and people-focused will ensure that there is teamwork in the company. This will enable the company to achieve excellent customer service as well as quality products by working with excellent and motivated workers. Pickering lift will add customer and company value through fully integrated business systems. At Pickering’s we believe in mutual benefit business relations that come with the quality of service with the easiness in doing business which is measured by the repeat orders that come from customers. This will enable us to win the majority of our business through repeat orders from satisfied customers. The company will also achieve its objectives through being the company of choice in the market niches in which we choose. We have a workforce that is committed to working towards customer service by producing products with the value that is expected by the customer. The company is striving to add substantial customer value and exceeding the customer expectation for all its activities to achieve an independent lift manufacturing company
The business is taking into consideration to make confident business decisions by improving the leadership perspective of the business management software, consulting and training. We are committed to building and adding talents to the minds of managers. It is very wrong to ignore the value of human capital which we are incorporating into our activities. In order to increase our customer loyalty by 25% in the next quarter of the year we are aimed at overcoming the challenges that come with change for the achievement of success. Through customer relationship management we will be able to get the picture with which is expected by the customer for our products. The analysis of customer information from every customer transaction will provide enable us know the customer behaviors and customer needs. This will enable us to achieve an extra 50% of the customer need specifications for meeting their demands.
Improvement projects: Balanced scorecard
We are obtaining executive sponsorship and commitment in a balanced scorecard management system that can help in increasing sales by 10% in the next three months. We are committed to involving a broad base of leaders, managers and employees in scorecard development to enable the achievement of the targeted strategies. The use of new expressions in advertising our products will enable us increase our customers base by 15% in the next six months. We have to choose the right balanced scorecard program champion will help in the improvement of the management by 10% in the next year. The company is working through mission, vision, strategic results, and strategy mapping first to evade rushing to judgment on measures or software. We are viewing the scorecard as a long-term journey rather than a short-term project for the achievement of the expected results. We are also embracing planning and managing change in our company to achieve customer satisfaction. With the use of a disciplined implementation framework we will be able to be a better-managed organization than before (Missroom, 2005, p.782).
The organization is required to look at the organizations’ performance on the return on investment. We have proposed that our employees will be well monitored on their operations to increase the return on investment by 10% in the next six months. We have to enhance the expenditure system by cutting unnecessary expenditures to increase the cash flows by 20% in the following year. The return on capital employed is expected to increase by 5% in the next three months. We are going to initiate new methods of bookkeeping by ensuring all records are kept faithfully. We are also going to release the financial statements after every six months to ensure that all taxes are calculated in advance.
Internal business processes
In the organization, we are going to allocate fewer activities numbering to three tasks to each of the management functions. This will ensure that all tasks in the organization are met before deadlines. We are going to avoid any duplication of activities across the management functions by having a narrow span of control and long-short chain of command where each department will be responsible for the tasks given. We are going to specify the type of job for each department to avoid confusion and people colliding when doing similar jobs. We are going to employ new technology with the use of computers for record-keeping and machines for our processing. Our main aim here is to be a world-class supply chain.
Learning and growth
We have decided that, in order to improve the expertise of our employees we will undertake training for our employees on various areas of production to increase the production of the output. The training will also enable the employees to get new skills for producing quality products. With the increase in the need for more production due to demand for our products we will recruit new employees twice every year. We will also ensure that unproductive or old employees are retrenched immediately. We will give our employees good wages to keep them motivated for the value of their work. This will ensure that our employees are satisfied with their job. We will always encourage our employees to learn throughout by ensuring that training courses are offered after every six months for our employees. This will enable the employees to have training opportunities that will enhance their productive skills.
Customers are our main purpose of operating in this business. We will acquire more ships that will ensure that deliver services to customers are met. We will also employ the services of air crafts where necessary to ensure customer demands are met according to their specifications. Through this we are expecting to achieve an increased customer satisfaction rate of 25% in the next six months. We will also be able to increase customer retention by 30% in the next year.
The lessons learned from the balanced scorecard
From the use of a balanced scorecard, the management can understand that an organization’s activities should be aligned as both the small scale operational activities with the larger-scale objectives in terms of vision and strategy. The management should focus on financial outcomes as well as operational, marketing and developmental inputs. The reason for this is that balanced scorecard provides a more comprehensive view of a business and he helps an organization to act at its best to achieve its long-term interests. The management should encourage those factors that influence financial outputs. These factors include the process performance, market share or penetration, longer learning and skills development. The managers are required to take into consideration the selection of performance measures from different categories of internal business processes, customer, and learning and growth perspectives. From the balanced scorecard managers can understand there are documents that are necessary to steer to future competitive success.
Importance of finance
Reflections on any other aspects of the Finance course that you wish to comment on.
The financial aspect of balanced scorecard enables the management of a business to predict areas of weakness for the business. It enables an organization to monitor its strategic control and measure areas that need immediate intervention. The organization is also in a position to achieve a degree of balance by selecting performance measures.
Other aspects of finance
In my own view budgets of the organization must be as strong as possible. A budget should be a vibrant document, one that is well considered and that is used on an ongoing basis. It should be used as a historical reporting system for the business. The business should not look at how it has been measuring up to its goals months or even weeks after a period has closed. It should check the important elements such as direct costs far more frequently.
For the business to manage change, it should introduce an organizational change management program. This program can be used to implement a performance measurement system that will encounter resistance in the business. Communication and coordination should be kept in control to ensure that performance management of the business is achieved.
The business should always carry out a cost-benefit analysis on the actions that are to take place. This will help them to quantify the benefits from such actions as well as the costs associated with them before applying them to the business.
The implementation of a balanced scorecard in a business is essential because of its benefits. A balanced scorecard as a management system increases the focus on strategy and results. It improves organizational performance by measuring what is necessary. It aligns the organization’s strategy with the employees’ performance on daily basis. With the use of balanced scorecard there is a focus on the drivers of future performance. It improves communication of the organizations’ vision and strategy as well as prioritizing the project initiatives.
Arveson, P 2004, “10 Good reasons for balanced scorecard,” p.2541.
Kaplan, RS 2006, “Abalanced scorecard Approach To Measure Customer Profitability, p.873.
Missroon, AL 2005, “Demystifying the Balanced Scorecard,” p.782.
Schneiderman, AM 2004, History of the First Balanced Scorecard, p.737.
Kaplan and Norton’s Balanced Scorecard “What it is, why it is a hot topic, and how to make it work for you.”
An example of the balanced scorecard: our focus is on people.