Implementation procedure of balance score-card for a public limited company
Introduction
This report aims to understand the implementation procedure of balance score-card for a public limited company. It familiarises with the balance scorecard definition and use. It also provides the justifications for the selections and decisions made.
The strategic objectives of the entire organization are identified and secondary objective for the marketing unit are identified. Three specific objectives within each of four perspectives are developed and one quantified metric is associated with each objective. For each metric, the appropriate target value and actions that are needed to achieve the target are discussed.
Balance scorecard
This is a top-down management system where the system converts the mission and active business strategy into specific strategic objectives that are measured (“The Balance Scorecard,” n.d.). The balance scorecard considers the organizational performance drivers such as capabilities, resources as well as business processes and results of these drivers such as outcomes for customers and profitability and growth for the organization.
The organization has issues of poor service to customers and poor returns, particularly from the marketing department. The marketing department employees suffer from poor performance due to lack of training initiatives. They are unable to accommodate the changing customers’ needs. The service defect rate is high and deliveries of products are poor.
The approach of balance scorecard
The scorecard was used to clarify the visions and strategy and to translate them. It was used to communicate and bond strategic purposes and measures. It was used to plan, to set targets and to align the strategic proposals.
The root of the balance score-card is the framework that consists of four major categories such as financial, internal business, customers and innovation and learning.
Financial perspective
The financial perspective demands organization how she should appear before shareholders, therefore, to succeed financially. This perspective presents the bottom-line improvement of business and measures items such as shareholders values and profitability. The economic consequences of actions are reflected in the financial objectives.
Customer perspective
The customers’ perspective demands to consider the organization vision. The customer’s objectives focus towards market segments and customers where the business competes and determines the performance levels in targeted segments (Agarwal, n.d.). The scorecard considers the four categories in this and they are time, service, performance, quality, and cost.
Internal business perspective
The internal business perspective considers the business processes of an organization to satisfy the needs of shareholders and customers. This perspective considers the internal business processes, fundamental competencies, and technologies to satisfy the needs of consumers.
Innovation and learning perspective
The innovation and learning perspective considers the sustainability factor of the organization against the change and improves to accomplish the organization vision. The growth and learning perspective considers the infrastructure needed by the organization to support the objectives of other perspectives. This perspective considers the ability of an organization to innovate, improve and learn the products.
Organization vision, mission, and strategic objectives
The organization mission is to serve the customers optimally and provide better values and return to employees and other stakeholders. It’s vision is to achieve excellence in servicing the customers and providing an excellent return to the stakeholders.
Strategies
The strategies of the organization are illustrated. It believes to surpass the level of expectation of customers in service (Kaplan , Norton , 1993) provided to them and desires to achieve the highest possible level of customer satisfaction. It has a strategy of continuous sustainable development and improvement in reliability and responsiveness of equipment as well as cost mitigation. Another strategy is to offer quality to employees. Shareholders expectation fullfilment is also a strategy that company intends to achieve.
Objectives, measures, and targets for financial perspective for marketing department
The objectives for the financial perspective are the cost leadership, the reliability of performance, profitability and financial goals. The measures for the objectives are as mentioned. To know the cost leadership, reduction of administrative expenses is determined. To know the reliability of performance the sales growth measure is considered. To understand the profitability the return on assets measure is considered. For achieving excellent financial goals, operating income measure is suggested.
The target for the reduction of administrative expenses is 6 percent from the previous expenditure. The sales growth target is set 7 percent from the previous year sale. The return of asset target is set 9 percent. The operating income target is 8 percent more from the previous year.
Objectives, measures, and targets for the customer’s perspective for marketing department
For the customer’s perspective for objectives are customer’s satisfaction, value for money, hassle free relationship and innovation. The customer’s satisfaction can be measured by the retention rate of customers. It is 10 percent more from the previous year. For value of money, the new customer’s acquisition measure is set. The target for this is 10 percent.
Hassle free relationship considers the measures of on-time delivery. The on-time delivery is set to increase by 8 percent. For innovation, market share measure is considered where the market share is set to increase by 7 percent.
Objectives, measures, and targets for the internal perspective for marketing department
For internal perspective quality service, manufacturing excellence, increased safety and increased design productivity are the objectives chosen. For quality service, the defect rate measure is set. It is set to be reduced by 6 percent. For manufacturing excellence, the cycle time measure is considered. It is set to be reduced by 8 percent.
For increased design productivity, engineering efficiency is considered where it is set to be enhanced by 8 percent. For increased safety, accident ratio is considered as a measure and it is set to be reduced by 7 percent.
Objectives, measures, and targets for the growth perspective for marketing department
For the growth perspective, sustainable improvement, continuous improvement, product and service innovation and empowered work-force are the four objectives chosen. For the sustainable improvement, carbon footprint measures are considered where it is planned to be reduced by 8 percent. For continuous improvement, the skill set of employees is considered as a measure where the skill set is linked to the productivity and productivity is set to be achieved by 10 percent. For the innovation number of new products is considered. It is set to be increased by 7 percent.
Actions proposed to achieve the desired strategies
The actions that are proposed to be taken for the achievements of desired strategies are as illustrated here
Process of balance-score card implementation
Organizational assessment
The process of implementing the balance scorecard begins with the building the final balance scorecard plan that has detailing about the teams and training requirements to them. It considers the strategic elements of the organization such as the organizational values, swot analysis and mission and vision. Step one also considers preparing the change management plan for the company to determine the organization readiness to implement the balance score card system.
The step two of the balance card score implementation considers determining the strategic theorems that include the perspective, strategic themes as well as the strategic themes (Makakane, 2007). The in terms of relationship, functions and Image Company should ascertain that it provides values to her customer.
Step three considers the formulation of objectives for the organization that is linked with the continuous improvement activities. Step four produces a strategic map for the strategic theme and the theme strategy map is merged into overall corporate strategy. Step five develops the performance measures for strategic objectives. The performance measures are defined clearly and it sets the performance targets.
Step six consists off to develop strategic objectives. Step seven considers the automation of balanced score card system (Makakane, 2007). Step eight considers development of team and individual score cards to link with the departmental goals and vision of the company.
Step nine evaluates the success of selected business strategies. It is ascertained that knowledge building and organizational learning are included in the planning. It considers to make an adjustment to the existing program and adds new program when these new programs are more cost-effective.
Certain factors considered for implementation of balance score-card
- The balance score-card is a change initiative and a transformational journey and it is not a project therefore the continuous focus towards performance improvement in the marketing department is ensured. It is ensured that change management must run parallel to the balanced scorecard ((Makakane, 2007). The change management initiatives also consider the resistance factors of employees towards change, and their critical questions about the change management.
- It is ensured that top management should support the plan and a committed and engaged leadership from top officials is secured.
- Strategy management office is established to develop the organization culture that is supportive to practice the balance score-card model.
- The review meeting is conducted periodically on the strategy to create better focus.
- The organization, system and performance of employees are aligned by offering a reward and recognition program.
- Creation of performance oriented-culture is induced by the merit pay compensation strategy.
- The budget formation, cost factors and performance results are linked judging the outcome of balanced score-card.
- The continual improvement is emphasized to enhance the employees learning as well as the skill development, to ensure the better understanding of customers needs and to ensure the employee satisfaction.
- Key organizational initiatives are linked with the development process of balanced score card.
These initiatives have been taken to implement the actions related with balance score-card.
Initiatives for the financial perspective
The actions that are taken to achieve the objectives are mentioned here. For the objective of cost leadership, reduction in the administrative expenses is determined. For this purpose, the historical data of past administrative expenses are taken into consideration to determine whether the proposed reduction in administrative expenses is achieved or not. The actions such as spending the marketing fund judiciously, improving the customers service, reducing the numbers of communication, automating the functions of marketing department, investing in latest technology, outsourcing some of work to other companies at cheaper rate, increasing the risk sharing abilities of other departments, and establishing the real-time systems (Sederstorm, 2013) to avoid delays and increase in costs are practiced.
For measuring the sales growth, the sales growth is measured. The current sales revenue is compared with the previous year sales revenue to understand the growth in sales. To understand the profitability the return on asset is measured. For this purpose, the return on investment technique is employed. For the formula, ROI= (gain from investment-cost of investment)/ cost of investment is used (“return on investment,” n.d.). To calculate the operating income, the cost of goods sold and depreciation should be deducted from the amount of money received. The operating income measurement is done by considering the past year operating income (“operating income,” n.d.).
Initiatives for customer perspectives
The retention rate is measured by comparing the retention rate of the previous year with the current year. The formula for customer retention rate is mentioned here that is ((ce-cn)/cs))*100 where the ce stands for numbers of customers acquired at the end of the period, cn refers to number of new customers acquired during the period and cs refers to numbers of customers at the start of the period (Beard, 2013). The measurement of timely delivery is considered for the hassle-free relationship with the customers.
For this purpose initiative to establish the just in time delivery to customers is proposed as well as lean manufacturing suggestion is offered. The average delivery time has been compared with the previous year average delivery time to customers. The new computerization system has been introduced to improve the delivery of products. The tracking system of products is improved.
The cost of delivery is compared and communication channels are established fully to communicate with customers about the delivery of products (“How to improve deliveries to customers,” 2015). New customer acquisition rate measurement is proposed and for this purpose, the previous year new customer’s acquisition rate is measured with the current year new customer acquisition rate.
The market share is measured to know the innovation objective fullfilment. For this purpose, the previous year market share of the product line is compared with current year market share. For this purpose, the firm market share is calculated by dividing its sales volume by the entire market sales volume for current year and percentage changes are noted down.
Initiative for internal perspective
The defect rate measurement is set and six sigma standards are followed for the production department as suggested by marketing department. The previous year defects rate is compared with the current year defect rate of products to improve the marketing efficiency, the training needs of employees are determined. To determine the training needs of employees, the brainstorming session with employees and focus group surveys are organized to determine the training needs.
The efficiency of the marketing department is calculated by the resource utilization ratio to achieve the desired sales goal and it is compared with the previous year resource utilization ratio for achieving the same goal. To increase safety the accident ratio and reduction in accidents are measured. The previous year numbers of accidents are compared with this year numbers of accidents to understand the improvement is the safety standards. The safety standard is improved by providing new equipment for marketing and new vehicles to marketing personnel.
Initiatives for growth perspective
For the growth perspective, sustainable improvement, continuous improvement, product and service innovation and empowered work-force are the four objectives chosen.
For the sustainable improvement, carbon footprint measures are considered where it is planned to be reduced by 8 percent. For continuous improvement, skill-set of employees is considered as a measure where the skill-set is linked with the productivity and productivity is set to be achieved by 10 percent. For the innovation number of new products is considered. It is set to be increased by 7 percent.
Sustainable improvement, the carbon footprints emitted by the company operation is determined. The marketing department ensures that recycling packages for the products should be used. For skills enhancement, the employee training is provided regularly. They are rotated in the jobs to develop multi skill talent. For the innovation, employees are asked to provide ideas for the products and new products development ideas are proposed.
Reasons for selecting the objectives, measures, and targets
The reasons to selecting the financial objectives are inherent in this fact that company is a commercial company and therefore the management of fund is necessary for the organization for its continuous growth and survival. The cost leadership by reducing the administrative cost can address performance issues of marketing department that it is currently facing. The over-staffed marketing department and lack of automation in various functions of marketing department causes more delays and cost.
Because of this reason the administrative cost reduction is proposed. For the performance improvement, sales growth is a good parameter and differences in sales of current and previous year is determined to track the actual performance level of marketing department. The metrics chosen for the customers’ perspective considers retention rate of employees because the customers’ retention rate shows the success of marketing department integrated communication initiative.
Also, the delivery is vital for customers and prompt delivery is required to be analysed. Similarly, the market share is measured to understand the customer satisfaction level. The new acquisition of customers also signifies the strengths of marketing department initiatives to convert leads into potential customers. These reasons have prompted to consider these objectives and metrics.
Internal perspective considers the safety issues of marketing personnel. Efficiency and training need determination are related identifying the potential of employees and improving their potential level. These reasons support to enhance the internal process more effective.
The growth perspective considers the sustainable development initiative, empowered employees, continuous development and product and service innovation. These factors are considered because they are vital for the growth of any organization and as government and society are more vigilant towards their rights and environmental protection, it is justified to consider the sustainable development.
References
The Balance Scorecard (n.d.). Retrieved from
http://www.netmba.com/accounting/mgmt/balanced-scorecard/
Operating Income (n.d.). Retrieved from
http://www.investopedia.com/terms/o/operatingincome.asp
How to Improve Deliveries to Customers, (2015). Retrieved from
http://www.quickbooks.in/r/customer-service/how-to-improve-deliveries-to-customers/
Caudle, Sharon, (2008). The Balanced Scorecard: A Strategic Tool in Implementing Homeland Security Strategies. Homeland Security Affairs 4, Article 2 Return on investment
http://www.investopedia.com/terms/r/returnoninvestment.asp
Beard Ross, (2013). Customer retention rate explained for dummies. Retrieved from
http://blog.clientheartbeat.com/customer-retention-rate/
Sederson Jill, (2013). 7 ways to reduce administrative costs. Retrieved from
Agarwal Rohit. Perspectives in Balanced Scorecard (4 Perspectives ). (n.d.) Retrieved from
Makakane Morongwa, (2007). Successful step by step implementation of the balanced score card.
Kaplan Robert S., Norton David P., (1993).Putting the balanced scorecard to work.
https://hbr.org/1993/09/putting-the-balanced-scorecard-to-work
