The Balanced Scorecard as Performance Managment Tool - Essay Example

No. 12345 A Research Proposal THE BALANCED SCORECARD AS PERFORMANCE MANAGEMENT TOOL ABC of XYZ Department of LMN 06 April, 2010 Table of Contents Contents Page No Introduction 03 Research Purpose 04 Research Questions 05 Concepts and Theory 06 Research Design 09 Research Strategy 09 Scope 11 Data Sources and Data Analysis 11 Validity and Coherence 12 References 13 Proposed Researched Topic Performance Managemnet Outsource Using of Balanced Scorecard to Improve Performance Managemnet Introduction Balance Scorecard is a strategic planning and management system that is used in businesses and organizations to align business activities to the vision and strategy of the organization, improve internal and external communication and watch over company’s strategic plan to achieve its goals. In 1992 Robert Kaplan and David Norton illustrated that the Balanced Scorecard helps organizations to be able to monitor their present performances and also captures information about how well an organization is positioned to perform in the future (Kaplan & Norton, 1996). They proved that the balance scorecard is a strategic approach and a performance management system that enables the organizations to transform a company’s vision and strategy into practical implementations, functioning around four perspectives i.e. financial, customer, business process, and learning and growth perspective. The main focus of this management tool is on the evaluation of essential performance metrics to execute and distribute the production and services among the corporate organizations (Kaplan & Norton, 2001). Horizon of Balanced Scorecard is as vast as it involves numerous activities like purchase management, performance and evaluation, control of infrastructure etc (Brown, 2000). This paper discusses the role of Balanced Scorecard in terms of performance measurement and reviews its effects on organizations with respect to critical situations. The key features of Balanced Scorecard are discussed and from the analysis its approaches and trends are ascertained especially in critical situations. The effectiveness and performance of this performance measure technique is brief evaluated and a comparison is made with other measuring tools. In order to provide transparency and rationality, the research paper will be divided into five chapters. First of all the research will highlight the main issue around which the whole story will travel. This chapter will include the introduction of the whole paper as well as the brief background of the problem. Moreover, chapter will also have a brief discussion about the need and significance of the study and its scope and effects on individuals. The second chapter will discuss the basic concepts and theory of the topic. A detailed literature review will be provided to support the research. In the next chapter, the research strategy and general methodology will be discussed. It will also elaborate the reason of adopting a specific design for the strategy. The 4th chapter will be the most important part of the research, which will show the comparison and analysis of the data collected through various means. It will also provide the recommendations with respect to its findings. Research Purpose Balanced Scorecard is the most popular and widely used performance measuring tool. A research is planned to investigate why and how much the Balanced Scorecard is most popular and how does it tackle the performance barriers like vision barriers, people barriers, resource barriers, and management barriers. Despite of this modern era, still number of organizations and their employees are unable to understand the basic concepts, strategy and its implementation and improvement processes. According to Bryon Mignanelli of Balanced Scorecard Collaborative: (a) 95% of employees of an organization have no idea of its organizations strategy (b) 90% of organizations fall short to implement 100% of their strategies (c) 86% of executives arrange less than one hour per month to discuss the strategy (d) 70% of organizations do not include middle management in strategy process (e) 60% of organizations do not link their strategies to its financial plan (Source: http://www.valuecreationgroup.com) In order to determine the organizational and employee’s performance through Balance Scorecard, it is necessary for the managers to acquire information about it. Generally the main purpose of the measure is to check and enhance the individuals and collective performance of the organization. Therefore, organizations and especially huge organizations take it seriously to evaluate these aspects because the combined effect of these elements exert a significant impact on the organizational standing in the competitive world. The estimated results of this study will be an attempt to provide emperical evidences about the basic concepts of Balanced Scorecard through existing literature and will enable the staff to understand it deeply. The study of Balanced Scorecard will further enable the organizations to determine their strengths and weaknesses and then implement it as an instrument of policy to improve the strategies and progress. "The correlation between performance measures and stock returns is a useful input into the choice of internal objectives” (Garvey & Milbourn, 2000). Research Questions Performance measurement is a continous process by using which companies create a set of parameters to take the investments, plans, operating procedures, acquisitions, and employee working standards at the desired levels within working framework (Treasury IT Performance Measures Guide, 2007). Performance management boost up the quality and operations of Humana Rsource Mnagemnent which is the strategic and coherent approach to the management of most valued assets i.e. hiring of employees, recruiting, training and motivation of employees, manpower planning etc (Wikipedia.org). Any business needs a good and strong strategy in order to make decisions and achieve its goals and These value can lead to things like reduced turn over, greater profit and organizations good performance in general. The performance measure normally considers the evaluation, controlling, budgeting, motivation, promotion, learning and improving aspects of the organization with respect to personnel, strategies, process and systems (Behn, 2003). Keeping these points at front, the research revolves around these objectives. (a) What is a Balanced Scorecard and how does it work? (b) Investigate how human resource can lead to the increased performance of an organization and greater profits of the organization, by acquiring and adapting the Balanced Scorecard method. (c) Determine how company’s management can deliver competitive advantage to an organization with the help of Balanced Scorecard. (d) Investigate and understand how the BSC can increase the performances, competence and expertise of employees in an organization. (e) How Balanced Scorecard can be used in Human Resource helping an organization to determine its areas of strengths and weakness and improve its performance. By setting its realistic goals, how the strategic plan can be performed to understand the use of Balanced Scorecard to maximize the company’s excellence by working together with the employees. Concepts and Theory The Balanced Scorecard can be used as a strategic management tool to facilatate many organizations to set their specific goals and execute the process through clear strategy for the implementation of set objectives (Jalbert & Landry, 2003). “The goal is not to have a new measurement system; the goal is, in the end, to have a management system” (Kaplan & Norton, 1996). If the managers implement the Balanced Scorecard successfully, it will enables the organization to bring its strategic planning into the barain of oragnization. With this approach, the Balanced Scorecard also entertains the organizations to deal with the internal and external factors to which effect the growth, production and quality of the oragnization in terms of performance, value and culture (Kaplan, 1984). As far as production measures are concerned, they remain corresponded to cost hierarchy but processes to execute cost hierarchies are not independent (Ittner & Larcker, 1997). Balanced Scorecard is a strategic performance management tool that deals with four strategic perspectives. These four strategic perspectives along with their important generic measurements are listed below. Perspective Generic Measurements Financial (a) Goals: Survival, prosperity, success and growth (b) Measures: Revenue growth, cash flow, return on capital, economic value added, cost reduction, performance reliability Customer (a) Goals: Customer’s satisfaction, profitability, retention, acquisition (b) Measures: Transaction cost ratios, key accounts, market share Internal Business Process (a) Goals: Core Competence, business procedures, critical technologies, key skills (b) Measures: How well the company recognizes the future trends, quality, cost, and time, warranty, repair and deficiencies Learning and Growth (a) Goals: Continuous improvement and development (b)Training, motivation and retention of human resource, critical information for front line employees, productivity of entrepreneurship (Kaplan & Norton, 1992) A good Balanced Scorecard can be the single and the best management tool in an organization which provides all the above facets of strategic management of an organization. The Balanced Scorecard is a rating system which deals with all levels of management as well as provides a vivid image of organizational goals, objectives, process, and its outcomes. In Balanced Scorecards, generally corporate management elaborates 03 categories i.e. the Mission, Vision and Strategy of an organization. Further 03 viewpoints are used to discuss and evaluate these 03 categories through Ownership, Stakeholders, and Employees (Davis & Albright, 2004). But despite of all its benefits, the Balanced Scorecard is still just a recommendation. In fact, it encourages the executives to change the categories and viewpoints to compose the Balanced Scorecard, a suitable demonstration for their organizations. Kaplan and Norton point out that the Balanced Scorecard is not an alternate for the financial measure perspective but it is its complement that links the long-term strategy to its interim actions (Kaplan, Norton 1996). Today it has been fundamentally proved that organizations progress on the basis of measurement and production of performance. These performance measurements come as a result of corporate strategy and provide reliable and relevant data with respect to standard operating procedures and their consequences. These scorecards are also used to estimate future capital assets and align future actions with basic corporate strategy (Lyons et al, 2003). Like any other management tool, the Balanced Scorecard will be as effective as provided it is really adhered to. Since human error plays a vital role in the success or failure of any business, this can be reduced a lot by successfully implementing the appropriate Balanced Scorecard. As a whole, the progress of an organization can easily be monitored and evaluated by using Balanced Scorecard with proper leadership style and attention. A well studied Balanced Scorecard supports to: (a) Improve the alignment resulting whole staff marches to achieve a common goal through same strategy (b) Provide the information about the effects of individual job on the same strategy (c) Maintain a balance between financial and non-financial indicators as well as between long-term and short-term goals (d) Support the managers to evaluate the outcomes of their working strategy (e) Provide both the leading and lagging indicators Research Design The research will be highly based on qualitative and theoretical methods. The adoption of this approach is based on several facts. Quantitaive approach is about the verification of a hypothesis while qualitative approach does not merely involve what, when and where, rather it deals with how and why of decision making (Denzin & Lincoln, 2005). Further, the data regarding the Balanced Scorecard is not huge in amount, therefore qualitative approach is best for small samples. One more reason of opting this technique is its best role with respect to human nature. The complexities, values, beliefs, motivation, and attitude of human nature are such aspects that can only be covered through this approach. Research Strategy At the start of project, the researcher will thoroughly go through the relevant literature review. Mostly, the guiding material and research will be arranged according to Kolbs model of experiential learning based on four elements i.e. concrete experience, observation and reflection, formations of abstract concepts and testing of these concepts in new situations (Kolb, 1984). Both the primary and secondary sources will be used. In primary research, the researcher will use informal interviews with the team of 02 partners of the local ABC Company. Attending the seminars will be the other primary source. In secondary source, library and online books, internet sites, organizations statistics, and academic journals will act as part of secondary research sources. This research project will be carried out with the consultation of a local ABC Company that deals with development consultation of businesses using Balanced Scorecard. It is a private company and consists of 12 members. They travel around across the country in the form of 02 memebers to teach and conduct seminars in different companies. These members have strong educational background from reputed universities and vast experience in the business field. They assist the companies (franchise partners) in analyzing the companies performances, breaking all into 4 categories of Balanced Scorecard and help them to work on the activities strategically to set and achievee realistic goals. The reseacher will attend the seminars which lasts 5-7 hrs a day with the 02 partners for 2-4 weeks. It will depend on how many appointments they would have in a week. But generally, there will be around 05 seminars which approximates to 25-35 hrs, observing their work keenly and focusing on the interactions in meetings, how the balance score card work ,the real life examples from the different companies and how this ends up to be of great help in the organizations to enhance their performance. Since, only 01 company has been planned to consult, therefore following key steps will be taken in the methodology. (a) A comprehensive literature review on Balanced Scorecard especially the literature written by Kaplan and Norton (b) Attendance in seminars for at least 04 weeks and observe the discussions at the meetings. A specific emphasis on how Balanced Scorecard is used to maximize the company’s performance and its role to highlight the organizational goals to the whole staff (c) Make informal interviews and discussions with experts of ABC Company as well as with other professors and managers. It will enable the researcher and reader to understand how organizations can improve or rather achieve the success by applying the Balanced Scorecard method or program (d) Analysis and comparison of research findings with the Kaplan and Norton theory Scope Timeframe of each activity will be organized as listed below. Activity Timeframe Preparation of research proposal 03 - 04 May, 2010 Literature Review 05 – 19 May Analysis of Literature Review 20 – 21 May Observations from Field (Seminars) 24 May – 18 June Analysis of Field Observations 19 – 20 June Completion of Research Project 21 – 23 June Presentation 28 June Complete Final Report 05 July Data Sources and Data Analysis The concepts, observations made through seminars, informal interviews, and collected data through organizational statistics will be analyzed and then compared with the already existing literature. A qualitative based research typically requires different sort of information gathering tools e.g. physical observation, field notes, journals, informal and structured interviews, and analysis of related literature (Marshall and Rossman, 1998). Further, the researcher will emphasize to carry out its whole proceeding by taking different qualitative approaches into consideration. It will include Grounded Theory, Ethnographic Research, Critical Social Research, and Philosophical Research. After collecting the whole material about the Balanced Scorecard as performance management tool, the data will be analyzed with respect to existing literature (especially with respect to Kaplan and Norton) as well as the computer based analysis. Computer Assisted Qualitative Data Analysis Software (CAQDAS) will be applied that assists in the analysis process and in constructing of accurate and transparent results (Gibbs, 2002). The collected data based on both observations and literature will be analyzed by putting it into interpretive, coding and recursive abstraction techniques. The observations made through primary sources will be analyzed through interpretive technique and will be documented in structured form. Literature based data will be analyzed by coding technique while the datasets consisting of organizational statistics will be evaluated with the support of recursive abstration technique. Validity and Coherence The validity of the research is the focal point of the whole effort. It actually explains whether or not you have achieved your task. In other words it deals with the suitability of the methodology to the research. According to Mason (1996), you must ask yourself “how well matched is the logic of the method to the kinds of research questions you are asking and the kind of social explanation you are intending to develop"( p.147). The validity of proposed research will be established through different ways e.g. member check, peer analysis, negative analysis, audit-ability, conformability and balance (Guba & Lincoln, 1985). The implementation of Balanced Scorecard as a performance management tool in approximately 50 companies will be analyzed and its effectiveness on the basis of productivity and existed literature will be validated on the basis of above stated techniques. References Behn, R.D. (2003). Why Measure Performance: Different Purposes Require Different Measures, Public Administration Review, Vol. 63, No.5 Brown, M. G. (2000). Winning Score: How to Design and Implement Organizational Scorecards. Productivity Press Davis, S. and Albright, T. (2004). An investigation of the effect of balanced scorecard implementation on financial performance. Management Accounting Research, p.135-153. Denzin, N. K. & Lincoln, Y. S. (2005). The Sage Handbook of Qualitative Research, 3rd Edition Garvey G. T. and Milbourn, T.T. (2000). The Optimal and Actual Use of EVA versus Earnings in Actual Compensation, Claremont Colleges in Claremont Colleges Working Papers Gibbs, G.R. (2002). Qualitative Data Analysis: Exploration with Nvivo, Open University Press, Berkshire Guba, E.G. and Lincoln, Y. (1985). Naturalist Inquiry, Sage Publications, Newbury Park, CA Ittner, C. D. and Larcker, D. F. (1997). Innovations in performance measurement: Trends and research implications. Journal of Management Accounting Research, (10), pp. 205-238 Jalbert, T. and Landry, S. P. (2003). Which performance measurement is best for your company? Management Accounting Quarterly pp. 32-41 Kaplan, R. S. (1994). Management accounting: Development of new practice and theory. Management Accounting Research, pp. 247-260 Kaplan, R.S & Norton, D.P (1996). The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, Boston Kaplan, R. S. and Norton, D. P. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Boston, MA: Harvard Business School Press Kolb, D. A. (1984) Experiential Learning, Englewood Cliffs, NJ: Prentice Hall Lyons, B., Gumbus, A. and Bellhouse, D. E. (2003). Aligning capital investment decisions with the balanced scorecard. Journal of Cost Management, pp. 34-38 Marshall, Catherine and Rossman, Gretchen B. (1998). Designing Qualitative Research, Thousand Oaks, CA: Sage Mason, J. (1996). Qualitative Researching, London, Sage Treasury IT Performance Measures Guide. U.S. Department of the Treasury. May 2007 Read More