The Advantage of Viewing Organisational Performance Through BSC - Research Paper Example

?The Balanced Scorecard Approach Can Be Used With an Appropriate Planning and Control System to Implement A Process Based Approach to Organisational Management Abstract: The paper describes the ‘Balanced Scorecard (BSC)’ method used in organisations in order to measure the performance. BSC is an effective approach which helps to evaluate organisational performance from different perspectives, thereby assisting in proper planning and control system. Besides, BSC also helps in implementing process based approach to organisational management. Focusing on this aspect, the paper defines the relationship of BSC with process based approach of organisational management. Furthermore, the paper also provides recommendations regarding the use of BSC for the enhancement of process performance. Keywords: BSC, Process Based Approach, Planning and Control, Performance 1. INTRODUCTION Process based approach is a managerial method that administers the viewpoints and the activities of an organisation. Process based approach is a perspective used for managing different operations and is related with organisational vision, mission and values. Process based approach is concerned with the accomplishment of vision rather than the fulfilment of specific activities and individual functions. It is also useful for evaluating organisational performance. In the context of process based approach, Balanced Scorecard (BSC) can add value by proper planning and control system (Karel, 2012). 1.1 Basic Tenets of Balanced Scorecard Approach MacLellan (2007) states that foundational tenets of BSC include proper alignment of organisational strategies, interpretation of strategies in functional terms, making accomplishment of strategies as a regular part of job, making strategic tasks a constant procedure, and mobilising changes through appropriate leadership. Appendix A shows the basic tenets of BSC approach. The study of National Rural Health Resource Center (2010) defies five key tenets of BSC approach namely: Readiness Evaluation: Before implementing BSC, it is vital that organisational leaders such as Chief Executive Officer (CEO), directors and managers are completely committed to the operational process with respect to participation, abstract understanding and communication. Without commitment, the outcome of BSC can be jeopardised. Leadership Engagement: For successful BSC implementation, organisations must ensure proper leadership engagement. It is essential that organisational leaders are completely involved in the development of BSC in order to maintain proper performance standards (Isoraite, 2008). Better Understanding of BSC: It is imperious for organisational leaders to have good understanding about BSC concept and also to educate others regarding its features. The key constituent of successful BSC approach is clear communication about BSC within the organisation. Identification of Key Indicators: One of the key tenets of BSC is the identification of indicators that can accurately evaluate the accomplishment of organisational objectives. There must also be proper relationship between chosen strategies and overall organisational mission. Establishment of Long-term Sustainability: Implementation of BSC cannot be accomplished instantaneously. Proper application of BSC necessitates time along with changes in the organisation at every level (National Rural Health Resource Center, 2010). 1.2 Essentials of a Successful Process Based Approach to Organisational Management The roadmap for successful process based approach is proper communication of organisational vision, development of classified model of business process, determination of performance methods for every process, establishment of measurement approaches, removal of process distinction where appropriate and constant improvement of performance of targeted processes (Leonardo Consulting, 2010). 1.3 Study Objectives Based on process based approach to organisational management, the study intends to discuss how BSC can be used in process based approach. Besides, the study also evaluates the relationship between BSC and process based approach. The key objectives of the study are: To evaluate common links between BSC and process based approach To understand how BSC is useful for proper planning and control system To understand the impact of BSC on requirements of process based approach 2. DISCUSSION 2.1 Common Links Between Balanced Scorecard Approach And Process Based Approach To Organisational Management BSC is a procedural tool which is used extensively in commercial as well as managerial purposes. The objective of BSC is to offer a medium for evaluating the performance of organisations as well as to align the business activities with the organisational vision and strategy. BSC also assists in enhancing inner and external communication and observing organisational performance against organisational objectives (Caudle, 2008). BSC allows organisations to create a relationship between mission statement and organisational aims. BSC does not focus on the organisational performance on one particular aspect; rather it addresses how every aspect of an organisation influences the performance (Balanced Scorecard Institute, 2012). On the other hand, as stated above, process based approach is a management method which administers the outlook along with activities of organisations. Process based approach clearly manages and activates every operational procedure in order to balance and enhance the organisational value. As strategy is updated and develops in response to the changes in business environment, the process focus stays embedded in the mind-sets and the values of the organisations (Dowdle & et. al., 2007). Process based approach can be explained by changes in the focus of an organisation from functions to process. Process based approach deals with planning and developing a consistent flow of processes. It forms a foundation for business improvement and strategic management decision. Since processes can generate results with respect to performance, it can be measured through BSC method. By concentrating on core processes, BSC can be applied on every embracing level of process (Lindfors, 2000). There is a strong link between BSC approach and process based approach to organisational management. BSC approach is used for developing process and thereby it results in better management of an organisation. Process improvement in this context not only signifies making things better, but also reflects the management of crisis situation (Balanced Scorecard Institute, 1996). Kaplan & Norton (1993) state that measurement is an essential element of process based approach, because it can help to determine the effectiveness of an organisation. Organisational leaders can introduce new operational processes in order to advance the performance, where BSC can provide leaders relevant indicators for measuring the performance as well as to introduce new processes in case of the identification of any deficiencies. BSC not only can help to introduce new processes, but also can assist in understanding if the old ways of measurements are relevant to the new initiatives. According to Amaratunga & et. al., (2001), BSC approach can be used in public or private organisations in order to gain an insight regarding process performance measurement. The notion of BSC recommends that the condition of different processes can be best evaluated by taking a balanced view across a variety of processes. BSC can also be stated as an effective way to organise strategic ways and evaluate the progress of different operational processes towards predetermined objectives (Lawrie & et. al., 2005). 2.2 Balanced Scorecard Approach as an Appropriate Planning and Control System BSC supports strategic planning and control by combining different activities around a common understanding of organisational objectives and by facilitating the evaluation and development of strategy. BSC provides a planning and measurement outline which is organised around organisations’ strategic objectives (Euseden, 2008). In an organisation, control processes are extensively regarded as one of the fundamental managerial objectives. Management control essentially involves four components namely internal procedures, organisational structure, organisational culture and self-control. Internal procedure denotes a set of procedures which contributes to the accomplishment of organisational objectives. BSC can influence the internal process by adding more relevant elements. Organisational structure involves hierarchical system of an organisation. It signifies the method through which an organisation is designed into different divisions. In this context, it can be stated that BSC can enhance the direction of integral processes. As a result, it can have facilitative effect on organisational structure. Organisational culture comprises norms and values of the workplace. BSC can have an impact on organisational culture by enabling people to get adjusted by new and improved operational process. Finally, self-control is observed as a control notion employed by individual employees. BSC demands and encourages increased self-control of employees as it infers high level of responsibility (Melo & Ribeiro, 2008). 2.2.1 Benefits or Competencies of BSC Among different benefits and competencies of BSC, the most significant are better strategic initiatives, increased creativity, alignment of key performance measures with organisational strategies, development of comprehensive picture about business operations, transformation of strategy into action and desired behaviour, better understanding of business objectives and strategies along with reduction of irrelevant vast amount of information (Balanced Scorecard, 2010). BSC also helps to initiate business management process. For instance, it aids to translate the organisational vision into operational process. Furthermore, BSC also assists managers to select the most effective alternative procedures towards accomplishing organisational objectives. As a consequence, it facilitates in the long-run survival of organisations (Nzuve & Nyaega, 2008). 2.2.2 Challenges or Drawbacks of BSC Although BSC is an effective method of organisational management, it brings about certain challenges or drawbacks for organisations. The first drawback is expense and time. BSC is a strategic planning and management tool, but it is considered to be a costly and time consuming method. Proper utilisation of this tool necessitates comprehensive understanding of diverse processes, and there is a high probability to get lost in the procedure performance tracking (Molleman, 2006). Hence, it can become quite challenging for an organisation. One of the key challenges of BSC is information. The usefulness of BSC depends on the information derived through different operational processes. BSC can only be effective for proper planning and control if the proper components or metrics for performance measurements are selected. The other drawback of BSC is employee resistance. While several employees can support BSC for strategic planning and control, some employees can resist the use of this approach. In this context, it can be stated that BSC can be successful if it is supported by every employee in an organisation (Kaplan, 2010). 2.3 Effects of Balance Scorecard Approach on the Needs of a Process Based Approach to Organisational Management BSC can have both positive as well as negative effects on the requirements of process based approach. 2.3.1 Positive Effects The BSC approach when used appropriately can become a key indicator of evaluating organisational performance. It is well recognised that only standard financial measurement is not sufficient to encapsulate organisational objectives and a comprehensive measurement system is necessary for better performance. Different strategic priorities compel management to use on-financial measurement systems such as BSC (Hernaus, 2008). In order to accomplish true growth of business, organisations must consider other aspects of business management apart from financial aspects such as employee performance, customer support activities, quality and performance with respect to the delivery of services/products among others. In this context, it can be stated that BSC can have a positive impact on business process as it reflects four types of measurements in an organisation namely financial, customer, internal business process and learning. These four measurements have strong relationships with process based approach of management as it can facilitate to determine the right processes, which an organisation must excel in so as to accomplish organisational goals and objectives (Perlman, 2013). 2.3.2 Negative Effects BSC can also have certain negative impacts on the requirements of process based approach. BSC provides diverse measurement parameters for evaluating the performance of an organisation. However, it can make the operational process much complex and difficult to understand. BSC can also lead to information overload by spreading numerous objectives which are inconsistent with short-term organisational objectives. Furthermore, BSC also encourages data mining which can also create a negative impact on the requirements of process based approach. The effectiveness of BSC depends on constant information flow regarding performances from managers which at times makes the management inattentive about other vital aspects of operational process. As a result, it can harm the smooth organisational procedure (Ittner & et. al., 2003). 3. RECOMMENDATIONS Organisations in present days are confronting highly competitive era with increasing expenses of business and growth of customers’ requirements, making it essential for them to develop operational processes in order to accelerate productivity and enlarge their business. Failure to do so can increase the probability of being worn-out by the rivalry. Process based approach and BSC as a strategic determinant can demonstrate the management about the procedure to ensure optimal utilisation of BSC to accomplish and to sustain strategic accomplishments even during the occurrence of frequent changes in business atmosphere (Smith, 2007). Before an organisation begins to implement BSC, it is required to possess a clear understanding of the organisational vision and approach. The basis for vision and approach is holistic view and the information management obtained through its business process (Virtanen, 2009). In order to be successful throughout the organisation, BSC must be distributed optimally in the business process. The following recommendations would be helpful for successful implementation of BSC for process improvement. Right Metrics: One significant area of BSC which continues to escape the attention of most management executives is right metrics. Although many management professionals understand the idea of BSC, they do not pay proper attention to the use of metrics. Generally, the selection of metrics is based on the information which is most easily available, rather than the information which is most useful for the improvement of operational process. Thus, BSC would be ineffective unless, organisations use the most important metrics which are vital for enhancing business process (DeGroote School of Business, 2008). Proper Alignment: The success of BSC also depends on the alignment of organisational objectives with strategy. Thus, it is beneficial for organisations to make the entire workforce such as managers, supervisors and employees aligned together towards similar quantifiable objectives (Deffenbaugh, n.d.). Review of Measurement: In certain circumstances, it can be observed that the actual outcome of performance differs from expected outcome. It can occur if the organisational processes do not relate with the measurements of BSC. Thus, if the organisational process is found to lack BSC metrics, the management must refine and consequently review some or every measurement of BSC (Rivenbark & Peterson, 2008). Benchmarking: BSC works well when different processes are being benchmarked. Benchmarking is not instructive when it is used to associate fundamentally different processes. Furthermore, benchmarking is not effective when organisations do not relate processes with similar other organisations. Thus, it is recommended that organisations must benchmark processes within similar units of other organisations for making better comparison of their performance (Cashmore, 2007). Flexibility: The other crucial aspect for successful BSC implementation is flexibility. It is imperative that BSC reporting system evolves with changing requirements of business. Thus, the feedback management system of organisations should be active and flexible with business environment. Most frequently, organisations put much efforts and resources in order to establish cutting edge process management approaches; however, if such approaches are not developed with sufficient flexibility for future business conditions, it would be of less significance (Ronchetti, 2006; Hanks, 2013). 4. CONCLUSION The advantage of viewing organisational performance through BSC is that it can make available critical information about performance which is useful for planning and controlling different processes. BSC satisfies the managerial requirements by condensing varied measurements from multiple areas of business and ensuring that the management observes every process across different operations. Developing the organisational process by BSC also facilitates to enhance the ability of the organisations to evaluate the performance without bias. The alignment of strategies with organisational objectives represents the need to perform certain concrete activities that can support the management in moving the organisation towards the accomplishment of the set vision along with delivering a concise methodology to support different processes by better alignment of tasks and resources. Although BSC has proven to be effective for proper planning and control of different processes, certain precautions must be maintained. There are certain challenges or drawbacks of BSC that can be faced by an organisation, for instance, BSC implementation necessitates considerable amount of time and cost. Besides, the usefulness of BSC depends on the selection of measurements and information derived through proper operational processes. Thus, appropriate metrics must be selected for process improvement through BSC. Besides, it would also be beneficial for organisations to properly align the organisational objectives with requisite strategies and to constantly review the performances. BSC helps to ascertain better alignment of business processes with objectives. It can provide accurate evaluation regarding where the organisation is headed towards and if it is lacking in terms of any kind of strategic implications. Thus, these measurements can in turn enable an organisation to march ahead towards business growth. REFERENCES Amaratunga, D., & et. al. (2001). Process Improvement through Performance Measurement: The Balanced Scorecard Methodology. International Journal of Productivity and Performance Management, Vol. 50, Iss. 5, pp. 179-189. Balanced Scorecard Institute. (2012). The Balanced Scorecard - Who's Doing It? Balanced Scorecard Examples & Success Stories. 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Business Process Management and the Balanced Scorecard: Using Processes as Strategic Drivers. New jersey: John Wiley & Sons. Virtanen, T. (2009). Guidelines for Implementing Balanced Scorecard. QPR Software Plc. [Online] Available at: http://www.prototechnika.lt/qpr/wp-content/uploads/2012/07/QPR-Guidelines-for-Implementing-Balanced-Scorecard.pdf [Accessed October 28, 2013]. Appendix A. BASIC TENETS OF BSC APPROACH Read More