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Balanced Scorecard


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  • 1. Report Submission on Submitted by: Div: D Pooja Raval (11030241162) Ricky Tanna (11030241197) Rohit Krishnan (11030241183) Shobhit Singhal (11030241173)HRM Report Div – D (SCIT 2011-2013) Page 1
  • 2. INDEX1. Abstract and Definition ……………………………………..………………… Pg. 32. Perspectives and Objectives ………………………………………………… Pg. 43. Implementation in Organization ………………………….………..…….. Pg. 64. Advantages of Balanced Scorecard …………………….…..…………… Pg. 85. Successful Balanced Scorecard ingredients ………………………….. Pg. 96. Conclusion………………………………….…………………….…………………. Pg. 10HRM Report Div – D (SCIT 2011-2013) Page 2
  • 3. AbstractThe success of any organization is reflected upon by its performance which is in turn highlydependent upon its strategies. In this era of cut-throat competition, what an organizationrequires is not just framing the right strategies, but also managing the same. The impact of theright strategies will automatically be reflected in the results. Moreover, any organization has tounderstand that it needs to give impetus not only towards the financial results but also towardssatisfaction of the customers, development of state-of-the-art technologies and creation of anenvironment of learning and growth. The Balanced Scorecard is such an innovative tool whichhas considered not just the financial indices but also the non-financial indicators as equallycritical in determining organizational performance. This tool brings a link between strategy andaction. Due to these, the framework is gaining increasing importance among different businesshouses.IntroductionThe balanced scorecard is a strategic planning and management system that is used extensivelyin business and industry, government, and nonprofit organizations worldwide to align businessactivities to the vision and strategy of the organization, improve internal and externalcommunications, and monitor organization performance against strategic goals. It was originatedby Drs. Robert Kaplan (Harvard Business School) and David Norton as a performancemeasurement framework that added strategic non-financial performance measures to traditionalfinancial metrics to give managers and executives a more balanced view of organizationalperformance.The aim of the Balanced Scorecard is to direct, help manage and change in support of the longer-term strategy in order to manage performance. The scorecard reflects what the company and thestrategies are all about. It acts as a catalyst for bringing in the ‘change’ element within theorganization. This tool is a comprehensive framework which considers the followingperspectives and tries to get answers to the following questions –1. Financial Perspective - How do we look at shareholders?HRM Report Div – D (SCIT 2011-2013) Page 3
  • 4. 2. Customer Perspective - How should we appear to our customers?3. Internal Business Processes Perspective - What must we excel at?4. Learning and Growth Perspective - Can we continue to improve and create value?Hence, from the above lines we can say that this tool has considered not only the financial resultsto be important but also those factors which actually drive an organization towards futuresuccesses as mentioned earlier. The tool has given stress on the other areas which are required to‘balance’ the financial perspective in order to get a total view about the organizationalperformance and improve the same. The framework tries tobring a balance and linkage between the –(a) Financial and the Non-Financial indicators,(b) Tangible and the Intangible measures,(c) Internal and the External aspects and(d) Leading and the Lagging indicators. Perspectives and ObjectivesThe balanced scorecard suggests that we view the organization from four perspectives, and todevelop metrics, collect data and analyze it relative to each of these perspectives:The Learning & Growth PerspectiveThis perspective includes employee training and corporate cultural attitudes related to bothindividual and corporate self-improvement. In a knowledge-worker organization, people -- theonly repository of knowledge -- are the main resource. In the current climate of rapidtechnological change, it is becoming necessary for knowledge workers to be in a continuouslearning mode. Metrics can be put into place to guide managers in focusing training funds wherethey can help the most. In any case, learning and growth constitute the essential foundation forsuccess of any knowledge-worker organization.HRM Report Div – D (SCIT 2011-2013) Page 4
  • 5. Kaplan and Norton emphasize that learning is more than training; it also includes things likementors and tutors within the organization, as well as that ease of communication amongworkers that allows them to readily get help on a problem when it is needed. It also includestechnological tools; what the Baldrige criteria call "high performance work systems."The Business Process PerspectiveThis perspective refers to internal business processes. Metrics based on this perspective allow themanagers to know how well their business is running, and whether its products and servicesconform to customer requirements (the mission). These metrics have to be carefully designed bythose who know these processes most intimately; with our unique missions these are notsomething that can be developed by outside consultants.The Customer PerspectiveRecent management philosophy has shown an increasing realization of the importance ofcustomer focus andcustomer satisfaction inany business. These areleading indicators: ifcustomers are notsatisfied, they willeventually find othersuppliers that will meettheir needs. Poorperformance from thisperspective is thus aleading indicator offuture decline, eventhough the currentfinancial picture maylook good.HRM Report Div – D (SCIT 2011-2013) Page 5
  • 6. In developing metrics for satisfaction, customers should be analyzed in terms of kinds ofcustomers and the kinds of processes for which we are providing a product or service to thosecustomer groups.The Financial PerspectiveKaplan and Norton do not disregard the traditional need for financial data. Timely and accuratefunding data will always be a priority, and managers will do whatever necessary to provide it. Infact, often there is more than enough handling and processing of financial data. With theimplementation of a corporate database, it is hoped that more of the processing can becentralized and automated. But the point is that the current emphasis on financials leads to the"unbalanced" situation with regard to other perspectives. There is perhaps a need to includeadditional financial-related data, such as risk assessment and cost-benefit data, in this category.Implementation in OrganizationsThe tool has become a weapon for organizations to identify the pressure points, conflictinginterests, objectives setting, prioritization of objectives, planning and budgeting. The four mainimportant steps that need to be taken care of are –1. Translating the VisionIt is to be remembered that the vision of any organization should be understood by each andevery employee of the organization. If it is understood by the top management only, then it isdefinite that the organization will fail to realize its goals. Hence, before starting with the strategicimplementation process, the organizations needs to be clear about the reason for its existence,where it wants to see itself after a certain number of years and properly decide its businessdefinition. The managers should build a consensus around the organization’s vision and strategy.The strategies, in fact, emanate from the vision and mission of the company which means that alinkage is formed between the strategies of the different business units and the vision of theorganization. The lofty statements must be translated into an integrated set of objectives andmeasures. Thus, by using this tool, the overall strategic objectives for the company gets clarifiedwhich helps to achieve consensus across different business units on the overall strategicobjectives for the company.HRM Report Div – D (SCIT 2011-2013) Page 6
  • 7. 2. Communicating and LinkingJust communicating the vision and the strategies is not an end in itself. The strategic goals andthe measures to be set in the different areas have to be decided upon. The long-term strategicgoals have to be translated into both departmental and individual goals which should be alignedto each other in order to realize the long-term goals. In fact, each and everyone at different levelsin the organizational hierarchy needs to be educated about the action plans and reasons foraccepting the same. The tool contains three levels of information:(i) It describes the corporate objectives, measures and the targets(ii) It helps in deciding the business unit targets and(iii) It helps in framing the departmental and the individual objectives which will help inattaining the objectives of the business unit directly which would lead to the attainment of thecorporate goals. The employees are given the freedom to decide their measures, objectives andthe targets attainment of which would move the organization in the right strategic direction. Thenthe compensation level is linked to the performance level which in reality involves a lot ofsubjectivity.3. Business PlanningThis step helps in the resource allocation process. One has to keep in mind that objectives forman important criteria in deciding the quantum of resources that are required to be allocated to thevarious departments, activities and the processes. No strategy can bring successful results to anorganization if the allocation is not in line with what is required to meet the results. Thisallocation is dependent on the budgeted estimates which are decided on the basis of the saidobjectives. Hence, through this step the Balanced Scorecard tries to bring about integrationbetween strategic planning and the budgeting exercise. The short-term milestones are alsoneeded to be figured out which in totality brings about a linkage between strategic goals and thebudgets. This procedure helps in actualizing what has been set by the organization. Thus, thisstep brings about a shift from the ‘thinking’ exercise to the ‘doing’ stage and the organizationtries to achieve the long-term goals through the short-term actions.4. Feedback and LearningHRM Report Div – D (SCIT 2011-2013) Page 7
  • 8. The first three steps as mentioned above help in the strategic implementation process. But, forknowing whether the organization is in a position to achieve the strategic goals and whether it isin the right track, the process of feedback and learning is essential. The strategic learningconsists of acquiring knowledge about which way the organization is moving to, testing whetherthe premises considered before hold true even now and finally making adjustments whereverrequired. The corrective measures are required so that the necessary rectifications are madewhich will help an organization pursue the correct path.Another point is that an organization gets to know whether the cause-and-effect relationshipsamong the different perspectives really hold true, to what extent they are strongly linked and alsowhether positive results are being obtained. In case, an organization realizes the existence of agap in the cause effect relationships, an immediate correction would be required so that apositive relationship can be build among the various factors. Thus, the tool with its specificationof the causal relationships between performance drivers and objectives allows corporate and thebusiness unit objectives executives to use their periodic review sessions in order to evaluate thevalidity of the unit’s strategy and the quality of its execution. Also, this feedback and learningexercise may force an organization to change the measures set in each of the perspectives andadopt those, which if attained would ensure the success of the corporate and the businessstrategies. Advantages of Using the Balanced ScorecardThis tool is being used by several organizations throughout the world because of certainadvantages this scorecard has been able to deliver which are cited below:• It translates vision and strategy into action.• It defines the strategic linkages to integrate performance across organizations.• It communicates the objectives and measures to a business unit.• It aligns the strategic initiatives in order to attain the long-term goals.HRM Report Div – D (SCIT 2011-2013) Page 8
  • 9. Successful Balanced Scorecard Ingredients1. A Process to Mobilize the Organization and Lead Ongoing Change2. Scorecards That Describe the Strategy3. Linking Scorecard to Create an Organization Alignment4. Continuous Communication to Empower the Workforce5. Aligning Personal Goals, Incentives, and Competencies with the Strategy6. Aligning Resources, Budgets and Initiatives with the Strategy7. A Feedback Process That Encourages Learning and Experience SharingHRM Report Div – D (SCIT 2011-2013) Page 9
  • 10. ConclusionThe Balanced Scorecard is therefore a very important strategic management tool which helps anorganization to not only measure the performance but also decide/manage the strategies whichare needed to be adopted / modified so that the long-term goals are achieved. Thus, in otherwords, the application of this tool ensures the consistency of vision and action which is the firststep towards the development of a successful organization. Also, its proper implementation canensure the development of competencies within an organization which will help it to develop acompetitive advantage without which it cannot expect to outperform its rivals.HRM Report Div – D (SCIT 2011-2013) Page 10