What can be learnt from the Balanced Scorecard

What can be learnt from the Balanced Scorecard?

The Balanced Scorecard as an issue taught in the field of Industrial Engineering and have attempted to identify the overall satisfaction gained by the adoption of BSC in  several areas. In doing so, it has first identified BSC based on its implementation from the beginning. BSC is a tool introduced by Kaplan and Norton back in 1992. The paper has first identified the BSC on different generations based on its focus and performance. Accordingly, in the first generation BSC mainly focused on the 4 perspectives mentioned earlier in this paper, in the second generation BSC has been used as a management system focusing on strategic objectives, in the third generation it has focused on a new element called ‘Destination Statement” which is more similar to a vision statement of a company and in the fourth generation it has focused on  the business environment in making decisions in risk and uncertain environments, social  and environmental impact, etc..

 The study has revealed that it has been used increasingly in several fields such as supply chain management, research and development, e-business, e-commerce, project management, Enterprise Resource Planning Systems(ERPS), etc… Not only the usage it has also revealed satisfying results in terms of revenue growth, increased profitability, cost cutting, productivity improvement, increased market share and the like.One of the most important findings from the paper are more organizations than ever before are successfully using their BSC as a strategic management tool and there is a steady shift towards the use of modern'3rd Generation' designs.

Based on the findings of the paper it has been revealed that BSC model is considered as a more appropriate research model for the evaluation of performance and translating an organization’s strategic objectives into a set of performance indicators. Further it is revealed that the BSC is intended not only as a strategic measurement system but also as a strategic control system which can align departmental and personal goals to overall strategy. Therefore by these findings we can learn that BSC is a tool which can be used increasingly as a model for evaluating performance, e.g by the use of financial perspective financial performance can be measured in terms of criteria such as the quarterly revenue, growth, operating income by division, increase in market share, increase in Return on Equity (ROI) and the like. These measures will ensure the success of the organization and survival of the business while enabling to attain the personal goals as well. In the same way measures that can be considered under the customer perspective are percentage sales from new products, on time delivery, ranking by key accounts, etc.. These can be used to attain the customer oriented goals. Measures to be considered under the internal business perspective are cycle time, unit cost, yield, engineering efficiency, etc.. They will ensure attaining the goals of technological capability, manufacturing excellence and design productivity. Under the learning and growth perspective time to develop next generation, process time to maturity and percentage of products equaling 80% of sales can be considered as measures and they can be used in achieving goals such as technology leadership, manufacturing learning and product focus. Likewise, BSC can be used as a strategic measurement system but also as a strategic control system which can align departmental and personal goals to overall strategy.

Balanced Scorecard in Sri Lankan Government Organizations and Associated Limitations

Balanced Scorecard in Sri Lankan Government Organizations and Associated Limitations

In the recent past Sri Lankan companies have opted towards adopting Balanced Scorecard as a method evaluating the performance of the employees. Some Sri Lankan blue chip companies have already adopted the balanced scorecard method in order to evaluate the performance of the employees as well as the company as a whole. For example, Dialog Axiata PLC has adopted a customized version of Balanced Scorecard framework since the year 2012 and has seen many improvements in terms performance. This proves that implementation balanced scorecard framework to Sri Lankan companies is possible.

However many Sri Lankan Government organizations seem to be facing many limitations when it comes to implementing the Balanced Scorecard concept. Some of the limitations are discussed below.

One of the main limitations that Sri Lankan companies face when it comes to implementing the above method is the incompatibility of the culture prevailing in many companies with the concept of Balanced Scorecard. Many companies do not have the performance driven cultures. For an example, Sri Lankan Airlines which is a government owned airline is currently facing the risk of bankruptcy due to the ever growing losses made year after year. It is evident that Sri Lankan Airlines does not have a performance driven culture which would have been ideal in terms of reviving the business.

In most cases performance evaluation is considered to be a Human Resource function that is required to be carried out once a year in order to pay bonuses and other benefits to the employees. Hence performance evaluation might not play an important role in day-to-day business.

More often than not, people tend to be negative towards change. When it comes to implementing a new concept such as balanced scorecard, people tend to be resistance towards change. Lack of change management has led to failure of many initiatives. Hence it can be said that resistance of employees to change is one of the limitations when it comes to implementation of balanced scorecard concept.

Lack of knowledge pertaining to formulation, implementation and evaluation of scorecard framework, may prove to be a limitation when it comes to implementing the balanced scorecard framework to Sri Lankan companies. The power with regard to making decisions about government owned organizations lies upon the politicians of the country rather than upon the educated government officials. Poor educational background of politician and their lack of interest towards implementing a performance driven culture coupled with corruption have forced companies like Sri Lankan Airlines to the brink of collapse. Hence it can be said that lack of knowledge and support from the top management is a main limitation when it comes to implementing balanced scorecard method in Sri Lanka.

Formulation of scorecards is often time consuming. Since the aim of Balanced Scorecard Framework is to link the company vision and strategy with the performance measurements, the scorecards cannot be drawn overnight. The process requires careful planning which often tend to take months at a time. Hence the top management may perceive the process of implementing the balanced scorecard too time consuming and non-value adding. Lack of management support is another reason why the implementation of balanced scorecard framework tends to fail in Sri Lanka.

  Implementation of BSC in Sri Lankan government organizations

Most of the Sri Lankan government and government related organizations are in underperformed level and financially not profitable. When looking at their management practices, it is clear that most of them still use conventional management practices which cascading down generations of managers as well as almost unchanged and unchallenged, despite the market dynamics. These traditional practices have hampered the accomplishment of strategic goals significantly influencing for organizational failures. Therefore, strategic planning is an essential thing to improve the performance of the government organizations in Sri Lanka. Through this, business activities can bealigned to the vision and strategy of the organization, internal and external communications can be improved, and alsocan monitor organization performance against strategic goals. Most of the government organizations in Sri Lanka misinterpret annual budgeting process as the actual strategic planning. This makes the whole organizational performance to measure based only on financial targets, hence the real performance never been measured in terms of the in line with the company vision and mission,  actual market potential or the competitive advantage the organization. Therefore, implementation of Balanced Score Card is crucial in Sri Lankan government and semi-government organizations to align strategies into operations throughout the organizations as well as to measure performance of areas in the organization and directing everyone to in to one direction. Implementation of BSC can provide several advantages to improve the performance of government and government related organizations. The most significant benefit is theability to decide a suitable strategy which aligningthat to the daily operations in all areas of the organization. In addition, BSC also act as a communication tool. This is being done through assessing performance, informing the future targets while giving room for re-forecasting and analyzing any faults by helping managers to communicate from top-down or bottom-up. Moreover, the scorecard can manage all aspects of organization to achieve its overall goals within a specified time with limited resources. In fact, it can identifythe requirement of resources and situationswhere resources are not optimized. Finally, BSCcan also be used as a performance management systemby linking the performance to the overall strategic objectives and aligning the rewarding mechanisms appropriately to encourage the right behaviors.

However, when BSC is implementing in Sri Lankan government and government related organizations, there are few things that need to be highly concerned for making it success. Use of unique score card to each organization, without adopting or coping from another industry is highly important as every organization has unique strategic objectives.

Involvement of top management and change of organizational culture to facilitate the successful implementation are one the key factors that have been identified in Malaysian GLC case study. This could be a challenge with respect of Sri Lankan government organizations as they have very traditional organizational culture which is very reluctant to changes. Therefore, the top management has an important responsibility to change this conventional nature and this can be achieved through their actively participation for the process. The need of centralized common IT system is essential for the proper implementation of BSC. But unfortunately most of our government and government related organizations are poorly IT facilitated, therefore, establishment of proper IT system and link all the work in to that system is highly significant for the proper implementation of BSC.

At present, KPIs used in may government and government related organizations are only financially oriented and they need to be revised based on BSC as allowing to measure both financial and non-financial measures. Even though, the BSC is originally for measure individual performance when it is applied to local context in needs to be divert from individual perspective to team perspective. Since Sri Lankan culture is more team oriented, for the proper implementation of BSC, team performance should be measured and not be flowed down to individual levels. This is important especially when it comes to operational and middle management levels. This team performance through the scorecard would help synergize the performance of all employees and induce them to pull in one direction.

In addition as the Malaysian case study revealed, management accountants in the local government and government related organizations have the biggest responsibility of implementing BSC by coordination with other departments. Finally, the success story of proper implementation of BSC in Malaysian GLC can be adopted as a dummy for the local government organizations to make them well performed entities. The factors identified from that study which considered as critical for appropriate implementation of BSC canalso be applied in Sri Lankan government and government related organizations with relevant adjustments with respect local context.  Conclusion

The referred article has tried to investigate the important factors contributed to successful implementation of BSC in a particular Malaysian Government-linked company. The study has identified commitment of top management, interpersonal communication channel, existence of common standardized IT system and change of company culture as the important factors for successful BSC implementation. In addition, the important role that management accountants play as change agents in BSC implementation process also has been identified. This study can be applied to the Sri Lankan government organizations, as they are heavily require to shift from traditional management practices to strategic management tool such as BSC to improve the organizational performance. When BSC is applying to Sri Lankan government organizations there need to be done some modifications to match with local context. One such prominent adjustment is shifting from individual perspective to team perspective to match with Sri Lankan culture and this is more important in operational and middle management level.

Application of BSC to Local Not for Profit Organisations

Financial Perspective

Not only profit oriented oragnisations but also non-profit organisations must have a solid understanding of their financial situation. However this perspective is kept below the other perspectives by NPO due to the priority of non-financial objectives and it will raise the question how will the organisationbe affordedfor what they came together to do.Funds for the operations will be generated both by trading income and non-trading income. For an example in a religious organisation trading income would be money collected from selling Dammabooks and non-trading income would be the donations. Distribution of gains to targeted community and promoting sustainability of the organisation are two aspects to be balanced by NPO out of surpluses. Distributions (which indicate the quality of programmes) are required to attract donors e.g.:distribution of stationery goods to school students in a rural area. Funding sources, cost of services and overheads etc. could beincorporatedinto NPO’s strategic plans and operating income, return on capital and economic value addition could be measured. Through these measures it focuses on improving value to stakeholders while controlling the cost since lack of funds. Finally financial reports could improve the confidence of donors and other fund grantors ensuring the financial sustainability.

2.2.2.      Member Perspective

There is a question of naming people who are involved with the NPO, as ‘customers’ due to the variation and nature of dealings in compared to PO. Ali B. Somers (2016) has widened the customer perspective as stakeholder perspective recognizing them as employees, volunteers, suppliers, beneficiaries, donors and consumers.This perspective focuseson improving stakeholder value and questions that how will the organisation ensure that they are delivering what they had decided to deliver from the start. The attitudes, satisfaction and retention of stakeholders could be measured by setting objectives.

 Internal Business Perspective

This perspective will question on how the organisation will ensure that they are doing it in the most efficient way. It concerns about the efficiency of programmes or services offered and the ability to fulfil needs of the community.  It measures the cost and quality of services provided.

2.2.4    Learning and Growth Perspective

This view raises the question how will the organisation move forward to ensure that they continue in the future or achieve succession. This aspect looks at the human capital of the organisation and measures the necessary skills, community connection and retention etc. In this scenario skills, knowledge and attitudes of leaders and employees are essential for the success of marketing, branding and donor development.

Mission Perspective

This perspective supersedes all the other perspectives and highlights the importance of prioritising and achieving the social objective. For an example religious organisations have focused on spreadingDamma as much possible. All the other spiritual activities have been arranged around this perspective. The effectiveness could be measured by setting objectives for milestones and feedback programmes.

 In addition an environmental perspective could be seen in Health-Care organisations in order to understand the behavior pattern of stakeholders. They would use aging indexes and dependency indexes to understand the population.

 Process of Adoption of BSC

In order to apply BSC in to the strategic planof the organisation, vision and mission of the organisationshould be clearly stated andvision should be converted in to operational goals.Next it is required to identify objectives and measures which is called a strategy map and adjust strategy based on feedback. The responsibilities of volunteers/ members can be assigned as per the map andwork can be reconciled after the completion.Outcome can be used as an external communication methodologyto promote next and on-going activitieswhich will enhance the credibility towards investors. Few examples for objectives and measures related to a religious organisationhave been presented under appendix 01.

  Issues in Implementation of BSC

Since original BSC was developed to cater PO (as per the literature reviews) amendments might be required (adding mission perspective) to reflect the achievement of mission of NPO. Occasionally implementation is difficult in NPO than PO due to unavailability of properorganisational structure,absence of indicators which has linked to goals,lack of management commitment, political issues, lack of resources and misrepresentation of information. Most of these disputes have been arisen due to barriers in implementing strategy i.e. BSC is applied to the organisational strategy and failure in strategy execution leads to the failure in BSC.  Mainly members do not understand the strategy and superiors do not consume enough time to discuss on strategy. Further budgets have not been linked to strategy and performance of superiors has not been connected to strategy.Thus well-articulated mission and strategy, staff involvement and training, identification of correct key performance indicators and measures and communication are the critical success factors in BSC implementation.

 Conclusion

Successful implementation of BSCmay enhance cross-functional collaboration, co-operation, communication and the visibility across the organisations. Application of BSC to Sri Lankan organisations would bring similar benefits Amendments may be required to the original BSC especially in applying it to non-profit organisations.Implementation should be well planned avoiding main barriers.

BSC framework for an orphanage of children

BSC framework for an orphanage of children (within the age group of 0 to 18).

·       Financial Perspective – focuses on the financial data of the institute. The orphanage’s main source of income is donations and government incentives and support. Whereas, the expenses include all outflows in order to provide the needs of the children. The orphanage will budget for each kid – provisioning for the basic needs as a priority.

·        Internal processes perspective – focuses on how well the institute is doing and the facilities provided to satisfy the children. For e.g. educational opportunities (e.g. hiring tuition teachers for additional teachings), leisure opportunities (e.g. playground), support for basic religious activities (e.g. Sunday school, Sil sessions on poya days, Sunday Mass programs, etc.)

  Learning and Growth perspective –focuses on learning and implementing new and better strategies for improvement purposes. Orphanage could have an in-house schooling system for kids who is not mentally stable to mingle with society yet. Also, for kids below 5 years, a day care facility could be operated. Where, normal kids are also admitted for the daycare therefore there will be a mix of children – this might boost the orphan kids’ mentality as well.

·      Customer perspective – focuses on satisfying customers. The customers of the orphanage are orphans. The customer perspective is therefore to satisfy the orphans. The children should not be felt like orphans but normal kids. Adequate facilities should be provided while basic need satisfaction is a must. The children should be treated well – if not; the parents and the government will get intervened in the operations, thereby restricting the freedom of operations.

Balanced Scorecard Implementation: Case Study of Government Organization

Balanced Scorecard Implementation: Case Study of Government Organization

To the question to what extend are the minimum requirements of the balanced scorecard met by the non-profit organisations interviewed and how far advanced is their experience?it was revealed that the government organization has to go through a long way to successfully implement the balance scorecard for get the harvest. As per the available facts only a measurement system with an unbalanced distribution of financial and non-financial performance measures and lack cause-and-effect linkages as well as compensation links at all levels.

The question what are the main benefits of the balanced scorecard?Concerning the following can be stated: especially, benefits in the area of strategy implementations scored high which is in line with the original idea of the balanced scorecard. Also the chance to build up a performance measurement system and supporting organisational change is processes ranked high in the government organisations. Obstacles to introduce a pay-for performance systems, measuring problems and obstacles originating from challenges in the area of clear organisational success measures indicates as major implementation obstacles. A strategic planning in the heavily influence political environment, is difficult due to short-term. The dominance of financial indicators is highly unsatisfactory. With respect to long-term measures and non-financial measures the interviewed did not perform well. Most of the enabling factors for a successful implementation are so common and they are valid for performance or project management initiatives.

In conclusion government origination is far away for introducing balance scorecard. Once the findings are aligned with the education background the knowledge had been obtained but the restriction for implementation is existing. The respondents are highly depending on the imaginary thinking rather than the practical experience.

In broader contest government organisations are mostly in the early phase of balanced scorecard implementation. A follow up would therefore be interesting to see if the balanced scorecard proved to be a sustainable management instrument or whether other management tools replaced it. Since Kaplan and Norton claim that the balanced scorecard is not only a strategic management system, but also a promoter for propelling organisations forward to becoming front runners in their field, it would be interesting to find out how this works , considering the stage where government organization are stay and the efforts government putting to raise those organization.

Importance of Balanced Score Card to Sri Lanka

The Balanced Score Card approach is often used by organisations in order to support their business activities and the current standing of the organisation. This method can be highly effective in Sri Lankan companies due to the fact that this approach has the ability to transfer the organisational objectives and mission into practical situations by being able to carry on the business in a more effective manner.

The Balanced Score Card approach will ensure that the different departments in Sri Lankan companies will be more efficient in order to be able to coordinate with each other better and also be highly efficient in their daily activities. Initially these companies should be able to differentiate and identify the organisational mission statement as well as the strategic plan of the company.