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Balanced Score Card
A tool for the management
AKM Anwarul Kabir
1/15/2005
STRATEGIC management concepts have been experimented for quite a long time by the management consultants throughout the globe. Each of the schools of thought revealed some special features. Though modern corporate management has been immensely benefited by these thoughts but none of them could produce full satisfaction to the management when implemented in reality.
In early 1990's, two management consultants of Harvard Business School namely Dr. Robert Kaplan and Dr. David Norton came up with a new approach of strategic management. Nowadays, it is widely known as "Balanced Score Card Approach". Recognising some of the drawbacks of previous management approaches, the balanced scorecard approach provides a clear description as to what companies should measure in order to balance the financial perspective.
The balanced scorecard is a management system (not only a measurement system) that enables organisations to clarify their vision and strategy and translate them into action. It provides a feedback around both the internal business process and the external outcomes in order to continuously improve the strategic performance and results.
It builds on some key concepts of previous management ideas such as Total Quality Management (TQM), including customer-defined quality, continuous improvement, employee empowerment, and -- primarily- measurement based management and feedback.
The popularity of this approach suggests a continuing interest in measuring and improving organisational performance. This interest is attended by the concern that financial performance does not receive undue emphasis.
The Balance Score Card suggests that we view the organisation from four perspectives and to develop metrics, collect data and analyse it relative to each of these perspective. These are :
a) Learning and growth perspective, b) Business process perspective, c) Customer perspective, d) Financial Perspective
Under the balanced score card system, an integrated relationship is achieved among the key parts of the scorecard system - namely, vision, strategy and perspectives. Balance is achieved through decomposition of an organisation's vision into strategy and then into operations and through the translation of strategy into the contribution each member of the organisation must make to successfully meet its goals.
As per Howard Rohm, a consultant and international trainer, the scorecard journey has two phases:
i) Building the ScoreCard, ii) Implementing the Score Card
Generally 6 steps framework is used for building the scorecard. These are as follows:
Phase One : Building the ScoreCard
Step one : In phase one there shall be assessment of organisation's foundations, its core belief, market opportunities, competition, financial positions, short term and long term goals, and an understanding of what satisfies customers. Usually an organisation's strength, weakness, opportunities and threats are developed, discussed and documented.
Step two : It is the development of overall business strategy. Common business strategies include: i) Build the business, ii) Improve operational efficiency, iii) Develop new products, etc.
Step three: It is called decomposition of business strategy into smaller components called objectives, which is very much important for the mid level management.
Step four: A strategic map of the organisation's overall business strategy is created. Using cause-effect linkages ('if-then' logical connections), the components (objectives) of strategy are connected and placed in appropriate scorecard perspective categories.
Step five: Performance measures are developed to track both strategic and operational progress.
Step six: New initiatives are identified that need to be funded and implemented to ensure success of strategy.
So what we see is that vision, mission and values shape the culture of the organisation and lead to a set of strategic goals that outline expected performance. Business strategies give us the approach chosen to meet customers' needs and attain the desired goals. Strategies are made up of building blocks that can be mapped and measured with performance measures. Target gives us the expected levels of performance that are desired and new initiatives provide new information to successfully meet challenges and test strategy assumptions. Resource identification and budget setting complete the process of adding the new initiatives to the current operations to get a total proposed budget for reporting period.
Time needed for implementation of BSC varies from organisation to organisation depending upon the size and nature of organisation. Two to four months are typical. Even it may take a year. However, the most important thing is to start the process.
Benefits of the balanced scorecard: Implementation of the BSC will immensely benefit an organisation in that it will give a clear picture of where that particular organisation wants to land in long term, how to reach there, what should be the target of the departments and individuals to reach there and what is the cause of failure of not reaching the target (i.e., measurement of activities). If the four perspectives can be properly analysed then it can show us how a small change in any perspective can impact our outcome.
Information system to support the balanced scorecards: Information system plays an invaluable part in assisting managers to analyse beyond the summary level Balanced Scorecard measures. It must provide the following:
i) At a glance exception alerting ii) Rapid access to summarised data
iii) Drill down to successive levels of detail, iv) Reporting of impacts of underlying objectives on scorecard measures, v) Reporting of impacts of objectives upon each other
How far the Balanced Scorecard should reach down the line in an organization: Keith Cundale, a leading management expert, told a training session in Dhaka that BSC may reach up to tier three in a typical corporate set up. These are: i) CEO and DMD level, ii) SVP & VP level, iii) Manager and Asstt Manager level
BSC should not reach below that level: Who will monitor BSC
Often a question is asked by many people as to who is going to monitor whose scorecard. Experts and management consultants say that the Board of Directors should maintain, monitor and supervise the CEO and DMD's scorecard. They may suggest the criteria and refereed range for the top level for example:
On the financial front: By achieving the overall budget he/she may score certain point
On the customers' perspective: By ensuring customers satisfaction he/she may score certain point
On the learning and growth perspective : By providing quality training and enhancing employees' productivity and ensuring necessary infrastructure (capacity) he would score some point.
On the other hand, the CEO or the DMD should maintain the scorecard down the line. They shall devise separate criteria and assign points for each criterion to measure the performance of the other high level officers.
Bangladesh perspective: Implementation of BSC is very important in Bangladesh. Many organisations do not know their mission, vision and strategy and how to communicate it down the line. Management does not know how to measure the result at various levels, which may result in the lack of accountability. Necessity of BSC is more obvious when we see resource constraint and failure to apply those resources efficiently and effectively by the management.
BSC can play a vital role in that it is a fantastic tool of corporate governance. It will set corporate vision, which will be expressed and achieved by various strategies. Then departmental targets would be set and measured against standard. Accountability and responsibility would be in place. Organisation's goal would then be achieved in a very structured way.
Other than a very few multinational companies, BSC is yet to be implemented in most of the organisations in Bangladesh. No local banks and leasing companies have implemented it so far. Recently Vanik Bangladesh has started to implement this sophisticated management tool.
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The writer is an FCA and senior vice-president of Vanik Bangladesh Limited
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