It is a common practice to evaluate a company's performance by the money it makes. It is true that, to survive, a company needs to generate profits on a continuous basis. In fact, the relative measures of profitability like profit margin, return on investment, return on equity, earnings per share, etc., are the ‘bottomline' results that are used to rate the performance of companies. However, the survival of a company does not depend on profitability alone; managers in practice have learnt the hard way that an unequalled focus on the financial health of the organization results in several irreparable adverse consequences. Managers of successful companies do recognize that the financial measures are ‘after-the-events' or ‘lagging' indicators of performance which depend on numerous events that would have occurred months or years before and over which they do not have any control at present. The problem with financial measures is that they do not directly focus on the customers' needs and satisfaction. Some decisions may result in higher profits in the short run but they might impair the long-term relationships with the customers which might cause a permanent damage to a company's reputation, competency, and ultimately the market share. Cost cutting on R&D, employees' training, brand building or after-sales services are examples which might conflict with the short-term profit objective and the long-term customer satisfaction. A company must know how it did in the past; how it is performing currently; and how it will do in the future. Further, performance measurement and evaluation is multi-dimensional and continuous. A comprehensive performance measurement system requires the measurement of lagging, current, and leading indicators. Recently, the balanced scorecard has emerged as a system which is claimed to track a company's financial and non-financial performance.
This paper covers topics about using the Balanced Scorecard (BSC) to determine corporate information needs. Organizations have long been able to determine the financial and accounting measures but these methods do not give the full picture. The BSC was developed to help organizations measure performance and strategies that are not measured in the traditional way financial assets are measured. First, there will be a discussion about the general background or history of how BSC was created and first used. Then major issues surrounding BSC will be identified and analyzed. Using the BSC to complete the picture of an organization gives a better over all picture of the state of the organization. According to the National Human Services IT Resource Center on the U.S. Department of Health & Human Services website, the following are seven characteristics for a BSC method .
Finally, there will be personal conclusions and recommendations for anyone who may be considering using BSC to determine various corporate information needs.
In order to understand why an organization would want to use a Balanced Scorecard (BSC) solution, the following general background information is given to help clarify what the BSC is and the purpose for its development.
There are a number of “balances” in the BSC, among which are the balance or equilibrium between four historical domains or perspectives considered to be mutually linked in terms of strategy and performance:
Paul Niven's analogy of the Balanced Scorecard is that of a tree (see Figure 1). The Learning and Growth perspective are the roots, the trunk is the Internal Process perspective, Customers are the branches, and the leaves are the Financial perspective. Each perspective is interdependent on those below as well as those above. It is a continuous cycle of renewal and growth. Leaves (finances) fall to fertilize the ground and root system, which stimulates growth throughout the organization. In this analogy, learning and growth is the foundation on which all other perspectives are built. For example, if a hospital assesses patient satisfaction and discovers patients aren't satisfied (Customer Perspective), one of the strategies might be the implementation of employee training in the area of customer service (Learning & Growth Perspective). Improved customer service through a reduction of wait time in the emergency room (Internal Process Perspective) can ultimately improve utilization (Financial Perspective). Refer to Figure 2. There are definite cause and effects between and among each of the four perspectives. The key is to identify the right strategies.
One of the reasons the Balanced Scorecard has been so successful is that it is a balanced approach. This balance includes:
BSC was developed by two men, Robert Kaplan, a professor at Harvard University, and David Norton in 1990. Kaplan and Norton's ideas were taken from a research study of a dozen organizations where they explored new methods to measure performance. BSC enables organizations to measure performance and operational measures not just the financial measures.
In the past organizations were only measured by the financial measurements and this did not give the full picture of the organization. Kaplan and Norton define BSC as “a set of measures that gives top managers a fast but comprehensive view of the organization” (Harvard Business Review, 1992). Organizations use the BSC to include information about the financial measures while adding the information about the operational measures to give a more balanced look at the state of the organization. The BSC measurements give management a clearer picture that is then easily shared throughout the entire organization. This makes it easier for organizations to plan for short and long term goals. Kaplan and Norton say that the BSC looks at four essential areas and provides answers to the following questions (Harvard Business Review, 1992):
In the past, only the financial measures were used to determine the performance of an organization. With the BSC, organizations are able to determine not only the financial but the non-financial measures. The BMA Group Pty Ltd. states that in addition a strategic management system helps to accomplish critical management processes like
To study the importance of balanced scorecard to determine information needs of the corporations.
To study the balanced scorecard for information needs in the companies.
According to Hickman (2004), most American businesses, for the greater part of the 20th century, were answered on a single measure of performance - their finances. Over the lastcouple of decades, investors, board members, analysts, and stakeholders have focused almost exclusively on a company's financial figures as the key to its overall health. In 1990, David Norton, then CEO of Nolan Norton, and Robert Kaplan, a Harvard Business School professor, led a multi-company study to identify new ways to measure company performance. The result of their study has evolved into what has been called the single most influential business concept it the latter half of the 20th century - The Balanced Scorecard (BSC) (Hickman, 2004). The BSC was first introduced as an improved measurement framework by Robert Kaplan and David Norton in 1992 (Kaplan & Norton, 1992). The BSC provides executives with a comprehensive framework that translates a company's vision and strategy into a coherent set of performance measures. BSC translates mission and strategy into objectives and measures, organized into four different perspectives; financial, customer, internal business process, and learning and growth. The scorecard provides a framework, a language, to communicate mission and strategy; it uses measurement to inform employees about the drivers of current and future success. A lot of people think of measurement as a tool to control behavior and to evaluate past performance. However the BSC should be used in a different way - to articulate the strategy of the business, to communicate the strategy of the business, and to help align individual, organizational, and cross-departmental initiatives to achieve a common goal. The BSC should be used as a communication, informing, and learning system, not a controlling system (Kaplan & Norton,1996).
Marr and Neely (2003), Marr and Neely have developed a decision framework that they propose as an instrument to evaluate and choose a BSC application. The framework consists of 10 evaluation criteria, which can be applied to the applications under evaluation. However, the first criteria concerning the “company/product” handle how organizations select the IT application, which is outside the scope of this thesis, it will be described in the theoretical frame and after that it is excluded henceforth. Below follows a definition and explanation of each of the ten selection criteria companies should discuss when choosing BSC software will be made.
Broady-Preston,udith(2005),The Balanced Scorecard, strategy, information and intellectual capital: Information Research, a journal listed in the Directory of Open Access Journals, began publishing in 1995. Based on an analysis of hits on the journal Website, the Information Research Reader assembled 15 of the most popular papers published in Information Research from 1995 to 2005, out of more than 100 papers. For this volume, editors Maceviute and Wilson requested that authors revise their pieces to reflect more current research. Articles were grouped into 5 categories: general papers, information behavior, environmental scanning and decision making, knowledge management, and information strategy. Because “information management” is a diffuse notion, this reviewer looked for a definition to illuminate the concept. Although some papers are outstanding, the work is disappointing on the whole. After reading the entire book, readers do not have a satisfactory definition of this field. The formulation offered by the editors is too vague: “Information management (IM) is a field of wide scope which is also related to other fields, such as information systems, computer science, artificial intelligence research, information science, documentation and more. The best papers are the most general; even if IM remains hard to grasp, these pieces help ease the task. “Environmental Scanning as Information Seeking and Organizational Learning” provides a thorough overview of the concept of environmental scanning, taking account of the effect of external factors on the operations of an organization. The author details different techniques of environmental scanning and delineates the conditions that encourage aggressive or too passive scanning. Because the information seeking universe is rapidly evolving, all librarians could benefit from a good understanding of environmental scanning. The most amusing chapters concern knowledge management. The author of ‘“The Nonsense of Knowledge Management' Revisited” reconsiders his view that knowledge management is a meaningless buzzword but concludes that he was right to begin with. The counterpoint, “Knowledge Management and Information Management: Review of Empirical Evidence,” argues that knowledge management is a valid subset of information management. This reviewer sides with the nonsense camp, because no meaning of information management emerged.
Paul R Niven (1997), In Balanced Scorecard Step-by-Step, Paul Niven shares his extensive experience in developing Balanced Scorecards for Fortune 1000, public sector, and not-for-profit organizations. The author quickly learns that a Balanced Scorecard implementation is more than a "metrics" project, that it touches many critical organizational processes. Through detailed step-by-step discussions, Niven provides insight on and practical solutions for: developing performance objectives and measures that faithfully translate strategy, generating executive support, and assembling the right team. Author also tell how to ensure the Balanced Scorecard becomes an integral component of their management systems by cascading it to all levels of the organization, aligning budgets and compensation with strategy, reporting results with software, and putting in place systems to ensure lasting success.
In analytical research we have to use the fact & information already available & analysis of these to make an evaluation of project. So for this term paper project I choose analytical type research.
The project include secondary source of data. The data will be collected through websites, journals, magazines and news papers and then organized, analyzed & interpret so as to draw conclusion & to arrive at appropriate recommendations.
Secondary data will be collected from the websites, journals, magazines and news papers.
Data once collected the further processing is done, the data collected by me are carefully done through in a useful & relevant manner &properly organized.
The data collection is of no use unless & until it is given in the presentable form. Thus after proper organization the data is given in presentable form with the complete details.
The data is carefully analyzed keeping in the consideration both the pros & cons for the purpose of arriving at concrete conclusion.
After carefully analyzed the data, it has been aptly interpreted in order to give concrete conclusion & proper recommendation.
Organizations create strategy maps to develop the areas they want to measure. The BSC
helps them determine the overall architecture or framework that describes the strategy the
organization will use. Kaplan and Norton state that a strategy map specifies the critical elements and their linkages for an organization's strategy, which help with the following
When organizations use a strategy map and BSC, they can create a universal message throughout the organization at all levels. This whole strategy revolves around the top executives determining the destination, then mapping out the direction to take, and then communicating that to the whole organization.
Of course, there are advantages and disadvantages in using a BSC system. The whole reason to obtain a BSC system is so an organization can measure more than just the financial performance.
Many organizations have bought or created software to help create their BSC and to keep it up to date after it is implemented. For the BSC implementation to be successful, it should be implemented down to each individual in the organization. There are over 30 different software vendors that sell software that help organizations implement a BSC solution. Choosing the wrong software solution can undermine your whole BSC project, so it is important to research the different vendors to make sure you pick the correct solution. Bernard Marr and Andy Neely, the authors of the Gartner report 'Weighing the Options'
Implementing the Balanced Scorecard system company-wide should be the key to the successful realisation of the strategic plan/vision.
A Balanced Scorecard should result in:
There are many software packages on the market that claim to support the usage of Balanced Scorecard system. For any software to work effectively it should be:
A Strategy Map highlights that delivering the right performance in the one perspective (e.g. financial success) can only be achieved by delivering the objectives in the other perspectives (e.g. delivering what customers want). You basically create a map of interlinked objectives. For example:
The objectives in the Learning and Growth Perspective (e.g. developing the right competencies) underpin the objectives in the Internal Process Perspective (e.g. delivering high quality business processes).
The objectives in the Internal Process Perspective (e.g. delivering high quality business processes) underpin the objectives in the Customer Perspectives (e.g. gaining market share and repeat business).
Delivering the customer objectives should then lead to the achievement of the financial objectives in the Financial Perspective.
About half of major companies in the US, Europe and Asia are using Balanced Scorecard approaches. The official figures vary slightly but the Gartner Group suggests that over 50% of large US firms have adopted the BSC. A study by Bain & Co finds that about 44% of organisations in North America use the BSC and a study in Germany, Switzerland, and Austria finds that 26% of firms use BSCs. The widest use of the BSC approach can be found in the US, the UK, Northern Europe and Japan.
Research has shown that organizations that use a Balanced Scorecard approach tend to outperform organizations without a formal approach to strategic performance management. The key benefits of using a BSC include:
Better Strategic Planning - The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualised in a Strategy Map which forces managers to think about cause-and-effect relationships. The process of creating a Strategy Map ensures that consensus is reached over a set of interrelated strategic objectives. It means that performance outcomes as well as key enablers or drivers of future performance (such as the intangibles) are identified to create a complete picture of the strategy.
Improved Strategy Communication & Execution - The fact that the strategy with all its interrelated objectives is mapped on one piece of paper allows companies to easily communicate strategy internally and externally.
Better Management Information - The Balanced Scorecard approach forces organisations to design key performance indicators for their various strategic objectives. This ensures that companies are measuring what actually matters. Research shows that companies with a BSC approach tend to report higher quality management information and gain increasing benefits from the way this information is used to guide management and decision making.
Improved Performance Reporting -Companies using a Balanced Scorecard approach tend to produce better performance reports than organisations without such a structured approach to performance management. Increasing needs and requirements for transparency can be met if companies create meaningful management reports and dashboards to communicate performance both internally and externally.
Better Strategic Alignment - Organisations with a Balanced Scorecard are able to better align their organisation with the strategic objectives. In order to execute a plan well, organisations need to ensure that all business and support units are working towards the same goals. Cascading the Balanced Scorecard into those units will help to achieve that and link strategy to operations.
Better Organisational Alignment - Well implemented Balanced Scorecards also help to align organisational processes such as budgeting, risk management and analytics with the strategic priorities. This will help to create a truly strategy focused organisation.
While the Balanced Scorecard was initially designed for commercial companies, the framework has found wide-spread use in the public and not-for-profit sector. However, it is important to make a few changes to the strategy map template in order to make it suitable to government, public sector and not-for-profit organisations:
Move the Financial Perspective from top spot on the strategy map template. The overall objective of most public sector, government and not-for-profit organisations is not to make money, maximise profits or deliver shareholder return. While finance is important, it is usually not the overall reason why the organisation exists.
Instead, the main objective of public sector, government and not-for-profit organisations is to deliver services to their key stakeholders, which can be the public, central government bodies or certain communities. This perspective usually sits at the top of the template to highlight the key stakeholder deliverables and outcomes.
A decision that needs to be made is where to put the financial perspective? Here organisations have basically a number of options:
Put the financial perspective at the bottom of the template. Here, money and infrastructure are seen as important resources that have to be managed as effectively and efficiently as possible to enable the delivery of the strategic output and outcome objectives (see Figure 3).
Put the financial perspective in second place underneath the stakeholder perspective. Here, making money is still seen as an important accomplishment of the organisation but delivering services to the beneficiary stakeholders is still the primary reason for its existence. The problem with this option is that it breaks the cause-and-effect logic and can therefore cause unnecessary confusion about the strategy.
Put financial perspective next to the stakeholder perspective. Here, the strategy map indicates that these two perspectives are equally as important. For example, an organisation has to cover its costs to continue to operate and deliver benefits to its stakeholders.
Strategy maps have to represent the strategy of the organisation. Since the strategies of public and not-for-profit organisations differ widely, there are no right or wrong answers as to where the financial perspectives should go. For example, the American Diabetes Association has embedded the financial perspective within its stakeholder perspective while others have embedded it into their internal process perspective (e.g. delivering value for money processes).
The two remaining perspectives will stay as they are. Any public sector, government and not-for-profit organisations needs to build the necessary human, information and organisational capital to deliver its key processes to support its overall objectives of serving its stakeholders.
Rural hospitals have many initiatives running concurrently, and at any point in time, it is often difficult to know the progress (percent completion) and even if they are continuing to move in the right direction. For those hospitals seeking to use the Balanced Scorecard as an approach for performance management, some prerequisites are required:
The following are phases or steps in a typical Balanced Scorecard process. Within each phase are activities that need to occur. This section starts with an overview of each of the phases and then explores each phase in greater detail. This process is an adaptation of the process described by Kaplan and Norton.6
Readiness Assessment: Identify needs, resources, and confirm leadership commitment.
Planning: Identify leadership and participants for BSC team, complete a review of mission/vision/values/strategies, assign strategies to BSC perspectives, develop strategy map, identify and agree upon measures, and develop implementation plan.
Technical implementation: Visions, strategies, measures entered into system via software or training, building scorecards, setting target and alarm (or alert) levels, data consolidation rules, defining graphs and reports (presentation of data), importing historical measurement data/ creating reports.
Organizational integration: Integrate Balanced Scorecard with management and reporting processes and communicate to all members (staff and stakeholders), definition of persons responsible for measure data and empowerment, explanation of Balanced Scorecard objectives, re-engineering management and strategy process, re-engineering reporting process, regular reviews tied to compensation.
Operation/Modification: Data update, analysis, and reporting regularly within routine processes; refinement, update measure values/analyze results/report results/refine model or process.
The future of BSC is moving toward more organizations implementing BSC solutions. In addition, the tools that organizations need to create the BSC solutions are becoming easier to use. Organizations create and maintain BSC solutions that will carry them into the future in a more productive way. The Coote Harvard website states that the Balanced Scorecard fundamentally complements financial measurement of past performance with measures of drivers of future performance, and thus enables effective decisions by the management of the organization
I think BSC is a great way for organization to assess the total picture of how they are performing. An organization needs to be able to know if the non-financial measures are worthe a way to motivate them by giving them measurable goals to obtain. The Coote Harvard website states that measurement motivates when it is used to communicate, not to control. The Balanced Scorecard emphasizes
The idea of the Balanced Scorecard is simple but extremely powerful if implemented well. As long as you use the key ideas of the BSC to
I think what I like most about how implementing a BSC works is that the process involves everyone in the organization in order for it to be successful. It is a top down approach but the managers have to get buy in from the employees by getting the strategy and goals across to them. I think organizations can succeed in having a successful BSC if the proper planning, implementation, and follow through happen during the initial stages of setting it up.
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