Improvement of Organizational Performance by the use of a Balanced Scorecard
Introduction
Organizational performance is a measure that is used to determine whether an organization has reached its intended objectives and goals. It determines how close or far an organization has gone in its bid to attain the set organizational targets. The measure weighs the output of an organization at a particular time against its targeted output levels. Greater disparities in the indicator depict an underperformance. On the other hand, if the targeted output is closer to the actual and realized out put then a company can be said to be performing optimally. Professionals in most profit and non-profit organizations are always keen with the evaluation of performance of their organizations. Professionals concerned with organizational performance may include finance experts, legal experts, operations experts and strategic planners. The chief goal for improving organizational performance is to optimally increase output and raise levels of efficiency in the operations of an organization.
The balanced score card tool for measuring organizational performance.
Performance is multivariate because of the fact that its rate is determined by many varying factors. Therefore, most organizations have been applying a tool that can track organizational performance in its multiple dimensions. The most applied methodology in recent times is the balanced score card tool. This tool evaluates performance based on four highlight areas known as the four perspectives. These include employee stewardship, consumer service, financial performance (Returns to investing shareholders) as well as corporate social responsibility which is alternatively referred to as community outreach or corporate citizenship.
A balanced score card is a management and planning tool that is strategic in application to company performance enhancement. The tool is applied different organizations including the government, businesses, industries and non-profit bodies. The tool seeks to align undertakings of the organization to its strategy and vision. The tool is also meant to assess the organization’s performance against the goals set in its strategy. Additionally, the balanced score card can be used in internal and external communications.
In the past organizations’ management measured performance traditionally by the use of only financial based metrics. This did not offer the management a balanced look of the organization’s performance. Harvard business school’s Kaplan Robert and Norton David were the developers of this more comprehensive framework of performance evaluation. The two pioneers added new measurements to the traditional framework by introducing non-financial measures that would also be used in evaluating performance. This led to the balanced score card that is used nowadays. The term for the tool was coined in early 90’s, however; its origin can be traced further back to pioneer works by general electric in 1950 about performance evaluation. The tools development also owes appreciation to the process engineers in France who developed ‘Tableau de bord’ (literarily meaning dash board which was used to assess performance) in the early 20th century. There are various variants of the balanced score card since its proposition in the early 90’s by Kaplan and Norton. However, all of these variations base their structure on the skeletal framework proposed by Kaplan and Norton.
The structure of the balanced score card
The proposition by Norton and Kaplan suggests that an organization’s success should be viewed from four perspectives in order to assess and strategize its performance enhancement. Therefore, data collected and metrics developed and analysis of the information should all be done relative to the four perspectives.
The growth and learning perspective of the balanced score card.
The growth and learning perspective focuses on employees’ expertise and training as well as individual employee improvement and improvement of the corporate self. In any organizations employees are recognized as sole source of knowledge for the organization, and thus; they are a major resource for the organization. Organizations are cognizant of the fact that the current status of dynamism in the field of technology requires that knowledge employees should be under going continuous training in order to conform to the current state of technology. Any knowledge-worker organization knows that growth and learning of its employees is an essential ingredient for its success. Therefore, the organization should put in place metrics that will be used to guide the management in allocating funds that are to be used for training in areas that they can be of strategic importance to success. Norton and Kaplan state that “learning” has a lot of significance than “training”. This is because it includes the need for technological tools that will foster skills on what is learned. It also involves the provision of tutors and mentors in the organizations framework as well as easy communication between workers and easily available help when needed by workers (Douglas, 2007).
Therefore, for an organization to improve its performance in the view of this perspective of the balanced score card; it has to constantly train its staff to ensure they are up to date with the current technological trends as well as new information in the market. This perspective requires that an organization asks the question whether it can create more value and improve itself further (Kaplan & Norton, 1996.
The internal business process perspective of the balanced score card.
The internal business process perspective uses metrics that help the managers evaluate how successfully the business is running. This involves ascertaining whether the organizations’ delivered services or goods fit the desires of the consumers as the ultimate mission of the organization. This strategy looks at what the organization should excel in. The metrics used here have to be designed by experts that understand the processes intimately and as such they can not be developed by consultants. The major highlights of this perspective include looking at the number of activities per function and duplicate activities across functions. These highlights are used to ascertain whether the right function is in the correct department. It also looks at process automation and bottlenecks (Kaplan & Norton, 2004).
The consumer perspective of the balanced score card.
Management philosophy is cognizant of the importance of focusing on customer satisfaction. Customers have to acquire value from the goods and services offered by an organization in order to make a repeat purchase. In cases where customers are not satisfied they will most probably seek other organizations where they can attain more value for their money. As a result, metrics that indicate a decline in sales or customer numbers are thus a significant indicator of decline in the future even if the present financial outlook may appear bright for the moment. Metrics under this perspective should analyze the type of customers that the organization has and the type of processes for which the organization is offering a service or good to the customer groups on focus (Niven, 2006).
Under this perspective indicators such as customer retention levels, customer percentage or market share, customer satisfaction rate, delivery and quality performance for consumers are assessed to determine performance (Kaplan & Norton, 2001). High rates of customer retention and a large market share of customers are some of the indicators that may portray that an organization is performing well.
The financial perspective of the balanced score card.
This perspective originates from the earlier traditional methodology of gauging organizational performance. Under the perspective financial data is gathered and analyzed for indicators of performance such as cash flow and return on investment and capital employed in the undertakings of the organization. Financial results are also analyzed-both annually and on quarterly basis-to determine financial performance of the organization. The perspective emphasizes the provision of accurate and timely data by the managers. The category may also include additional data that is associated with finances such as cost benefit data and risk evaluation. However, it has to be observed that laying emphasis on financial aspects may indeed lead to an imbalance because the other three aspects may be neglected (Voelper et al, 2006).
Strategy mapping for the four aspects in a bid to improve organizational performance
According to the Balanced Score Card Institute, (1998) strategy mapping is a sequential, interconnection of the four aspects and how they relate to organizational performance. A strategy map shows how value can be created in an organization if the four perspectives are interconnected in a positive and balanced manner that will enhance better performance. For example a strategy map would begin with improving learning and growth which would further enhance the internal business process that would create better value. As a result, the better value would satisfy the needs of customers which would increase customers and their retention. Finally, this would translate to a better financial status for the company (McCarthy & Chapman, 2008). This would mean all goals have some how been achieved. Therefore, managers should balance their score card to ensure performance is improved in an all round manner. This could be made easier by the use of latest software developed for the purpose of management by use of a score card (Cobbold & Lawrie, 2002).
Conclusion
The management should realize that the four aspects are inter-dependant and the improvement of one aspect leads to an improvement for all the other aspects. Therefore, the management should ensure that there is mutual balance established all round in order to have a balanced score card that will ensure the organization is well assessed and managed. This is important because most managerial decisions are drawn from and based on the results portrayed by the balanced score card. Therefore, the balanced score card is not only an evaluation tool but also a management tool upon which decisions are based.
This is important because managers should understand that good performance in only one section or perspective does not necessarily indicate success for all other perspectives. In fact an improvement in one area may only mean that some other aspect has been neglected at the expense of bettering another aspect of the organization. Therefore, the neglected aspect may in actual sense be under performing.
References
‘Balanced Score Card Institute’, (1998). Balanced Score Card Basics. Retrieved from, http://www.balancedscorecard.org/bscresources/aboutthebalancedscorecard/tabid/55/default.aspx, on 17th June, 2010.
Cobbold, I. and Lawrie, G. (2002). The Development of the Balanced Scorecard as a Strategic Management Tool. Performance measurement association 2002 Management Journal, volume 23, issue number 2, pp 214-227.
Douglas W. Hubbard. (2007). How to Measure Anything: Finding the value of Intangibles in Business. New York, NY: John Wiley & Sons.
Norton, D, P. & Kaplan, R, S. (1996). Translating strategy into Action: Balanced Score Card. Watertown, MA: HarvardBusinessSchool Press.
Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Boston, MA: HarvardBusinessSchool Press.
Kaplan, S. R. and Norton, P. D. (2001). The Strategy-focused Organization: How balanced scorecard companies thrive in the new business environment. Watertown, MA: Harvard Business Press.
McCarthy, S. and Chapman, L. (2008). Balanced Score Card: Kaplan and Norton’s Organizational performance management tool. Retrieved from, http://www.businessballs.com/acronyms.htm, on 17th June, 2010.
Niven, R. P. (2006). Balanced Scorecard Step-by-step: Maximizing performance and maintaining results. New York, NY: John Wiley and Sons.
Voelper, S, Leibold, M, Eckhoff, R. and Davenport T. (2006), The tyranny of the Balanced Scorecard in the innovation economy, Journal of Intellectual Capital, Volume 7, issue number 1, pp. 43
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