A strategy management tool
Companies today are in the midst of a revolutionary transformation as Industrial age competition is shifting to Information age competition. The cut-throat competition that businesses faced in the last two decades has made them to look for improvement initiatives like Total Quality Management, Just-in-Time (JIT) systems, Employee empowerment and Re-engineering. Though these initiatives resulted in enhanced shareholder value, they were achieved merely by monitoring and controlling financial measures of past performance and focused on short-term goals. This collision between the irresistible force to build long-range competitive capabilities and the immovable object of the historical-cost financial accounting model has led to a new blend- the Balanced Scorecard.
The idea of BSC was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that included both financial and strategic non-financial performance measures to give managers and executives a more 'balanced' view of organizational performance. 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.
• What is a Balanced Scorecard?
The balanced scorecard (BSC) is a management system that transforms an organization’s strategic plan from an attractive but passive document into executable tasks for the organization on a daily basis. Kaplan and Norton (1992) described that the BSC includes the financial measures that tell the results of actions already taken. And it complements the financial measures with operational measures on customer satisfaction, internal processes and the organization’s innovation and improvement activities. The balanced scorecard is a way of: • measuring organizational, business unit or department success, • balancing long-term and short-term actions,
• balancing different measures of success,
• balancing internal and external measures,
• balancing objective and subjective measures,
• balancing performance results and drivers of future results, • measuring and balancing financial, customer and internal operations
• The Need for a Scorecard:
The objective of any measurement system should be to motivate all managers and employees to implement successfully the business units of strategy. Those companies that can translate their strategy into measurement system will be able to execute their strategy because they communicate their objectives and their targets. The communication makes managers and employees focus on the critical drivers enabling them to align investments, initiatives and actions accomplishing strategic goals.
• Linking Strategy with Performance Measures:
An appropriate measurement system is one that energizes employees in the context of what the organization is trying to do. Thus, the logical starting point for the development of any performance measurement system for an organization is a clear statement of mission, objectives and resultant strategy with a precise 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 focuses on customers and competitors as well as internal capabilities and resources. It includes 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. [pic]
Figure 1: Linking Strategy with Performance Measures
There are at least three reasons why organizations...