Introduction
Balance score card was introduced in the early 1990's by Robert Kaplan and David Norton it was introduced in a Harvard Business Review, it is basically used in different organizations such as governments, nonprofit organization and different industries, it is a strategic performance and management system, used to keep track of the company's activities and how they are executed against strategic goals.
The balance scorecard was voted as one of the most significant business ideas for the past 75 years. The balanced scorecard can be broken down into four organized perspectives, which will be mentioned later on in the literature review.
In this essay I will attempt to compare and contrast four organizations where two of them report satisfaction while the other two failures with regards to achievement of intended objectives.
The four organizations I am choosing are HM Revenue & Customs (HMRC) which was failing at the beginning for different reasons that will be discussed in this essay, however it is now successful, as for my other failing company it is Golden precision products PVT. LTD. For my two successful companies I will be choosing Tesco and EDF energy.
Literature review
The balanced scorecard concept has been in continuous development over the years. Since its introduction it has evolved and gained a high degree of recognition as one of the most widely used recent innovations in management accounting (Lawrie and Cobbold, 2004) [1]
In this essay we will be focusing on the what does the balanced scorecard actually contains. I will also be looking at the benefits of the BSC. My final purpose is to provide insight on why should companies adopt the balanced scorecard.
In the simplest of form of balanced scorecard, we can break it up into four organized perspectives, these areas are defined below [2] :
Financial Perspective: which covers the financial objectives of the company and allows us to track shareholders value (Example: Revenue, Margins, Cash Flow, and forecasts)
Customer Perspective: it usually covers the customer's needs and goals (Example: Market Share, New Customers and customers profitability)
Internal Process Perspective: this basically covers the goals of the operations and what is need to deliver the customers goals and needs. (Example: Project Performance and success rates)
Learning & Growth Perspective. Identity and Resources of the Organizational Framework (Example: staff performance and training).
The balanced scorecard used in the performance management can be explained as a control approach, on the other hand it is also used as strategy development which is explained as a learning and planning approach. Many argue of the importance of balanced scorecard in practice, for example, some may argue that the BSC can be used for control (Zingales, 2002), but other say that the BSC is just used for planning purposes (Mooraj, 1999). This is all because of the fact that Kaplan and Norton understood the BSC as a Performance tool, but then they saw it as a managerial strategy approach after few years. [3]
Companies that succeeded in implementing the Balanced scorecard
Tesco:
Tesco is a British grocery and general merchandise retail in the United kingdom, it is considered to be on the of the largest stores around the world in terms of retail and profits, it has stores spread all over the world, but what makes it a successful store?, many reasons can be stated to answer this question, but since our main reason behind doing this essay is the effect of the balanced scorecard in companies, so our question, should be, how does Tesco use the balance scorecard for its advantage.
To begin with, after reading many articles, I found out that there is no strategic scorecard for Tesco, instead they call it, Tesco's "Steering Wheel", which is used by executives to make sure that Tesco delivers its core purpose. The steering wheel of Tesco, does not only use the four Kaplan perspectives, but it also added another one, which is the community perspective, The community perspective of the steering Wheel is one of the key ways in which Tesco communicates, manage and monitor corporate responsibility across the business. See figure below, showing the steering wheel of Tesco. [4] Steering wheel.gif
Now, what are the corporate objectives of Tesco, and how did the balanced scorecard help them achieve these objectives. Please see the below objectives [5] :
ï‚· Giving the customer the best value with a very competitive prices.
ï‚· Providing the customer with his/her needs by taking their opinions
ï‚· Develop the talents of its employees
ï‚· Providing shareholders with return on their investments
ï‚· supporting the well-being of the community and the protection of the environment.
EDF Energy
EDF energy is considered to be one the UK's largest energy companies, and the largest producer of low-carbon electricity. It is generates almost 20% of the UK electricity and gas, making it the biggest supplier of electricity by volume.
EDF energy is a vertically integrated company, where as it competes in the regular sector and a highly competitive environment. In order for EDF energy to grow and expand, they have focused on a long term goal, based on few ambitions.
The balanced scorecard was adopted in 2003, it provided the company with flexibility that was adaptable to the environment. It has advantages over other 'continuous improvement'-based systems in being strategically focused. This has enabled both an articulation of our overall company ambitions whilst simultaneously affording autonomy to individual business plans and working practices [6] .
Integral to our utilization of the balanced scorecard is inclusion of other mechanisms; we have also embraced value mapping, risk management and control, the business excellence model and project management methodologies.
Corporate managers in EDF energy use BSC approach to link the companies objectives to its improvements to instill a strategy linked culture throughout all of its divisions (Bromley et al., 2006). EDF scorecard is shown below, it basically shows the objectives of EDF energy and how they can measure their objectives. please see table 2. At the end you can see the symbols that shows the status of the company and what is the forecasted status.
Ambition
Measures
Status
Forecast
Meet shareholder expectation
Net Income
Capital Expenditure
Working capital
Care for our customers
Mass market customer
Major business customer
Be a positive point of reference
Corporate responsibility index
Be safe and responsible
Health, safety and environment management index
Maximize employee satisfaction
Employee opinion survey
Key:
: Performance is at or near expectations
: Performance is well above expectations
: Performance is running below expectations
: Performance is well below expectations.
Companies that failed in their attempt to implement the Balanced scorecard
HM revenue and customs (HMRC):
HMRC, formed in 2005, by the merger of inland revenue and HM customs, its primary focus is to ensure the correct tax is paid when its due. They collect both direct and indirect taxes and make sure that the UK minimum wage rule is being implemented.
The Chief Information Group consists of Information Technology and Information Management Services (IMS), as many companies that start to implement the balance scorecard, IMS failed in its first attempt.
IMS had a vision, this vision was "to provide the most highly valued IT service in the UK" unfortunately the balanced scorecard didn't help them achieve their objectives, but what were the reasons behind its failure?
Machinery and spare part center (MSc)
Machinery and spare part center, established in the year 1973 in west Bengal, India, are one of the most well-known manufacturers of electrical products and spare parts.
It operates in a one plant environment, where as it benefits from 40% market share in the domestic market [7] .
Now, what are the corporate objectives of machinery and spare part center? and why did the balanced scorecard fail to achieve these objectives? The strategic performance objectives in MSc were sub-optimal and rather modest, or else peripheral to improvements in the system performance [8] . Its main aim is "To be a leading world class & a global manufacturer of clutches, brakes, discs and specialty components and provide superior products at competitive prices."
As we can see, we have observed the implementation of balanced four different companies, where two companies reported success in implementing the Balanced scorecard (Tesco and EDF energy), and did some modifications on it for their benefit, and two other organizations that are successful but had some bad attempts in the beginning in implementing the balanced scorecard (HMRC and Machinery and spare part center). For my research, I will be examining the question "what determines a successful implementation of a BSC from an Unsuccessful implementation of an unsuccessful BSC"
Research methodology:
As you can tell research is used within most professions. It's more than just a set of skills, it's a way of thinking and critically examining the various aspects of an undertaken research.
There are two approaches used to answer a research questions, structured and unstructured also known as quantitative and qualitative. The Structured approach is everything that forms the research process- objectives, design and samples. It determines the extent of a problem, issue or phenomenon by quantifying the variation. The unstructured approach allows flexibility in all aspects of the research process, as it's also useful to explore the nature of a problem, issue or phenomenon without quantifying them. The main objective here is to describe the variation in a phenomenon, situation or attitude.
For this research, I used different types of references in order to enhance the structure and combine ideas and facts from more than one aspect. The data for this essay was obtained from a sample of articles, books and journals. For me to answer my research question I used qualitative data to assess performance and then presents results in a quantitative manner.
Analysis
As we mentioned earlier, my research question will be "what determines a successful implementation of a BSC from an Unsuccessful implementation of an unsuccessful BSC" , we had an overview of the companies considered for my study. But now why did some companies fail in implementing the BSC while other companies had a success in using the balanced scorecard.
Tesco Plc:
What made Tesco successful in implementing the BSC?. Tesco's objectives on the steering wheel are reported and reviewed quarterly at board level afterwards a summary report is sent to the top 2000 managers. Now each manager asks the employee to fill out a "plan and review" document, explaining how the employee is actually following the 5 perspectives of the steering wheel, and how can he improve himself in the future, what does he/she needs to achieve their objectives, what are the main steps to finish the task on hand, and when do they expect it to finish. The steering wheel is considered as an important part of Tesco's strategic management in that it links activity in daily management to Tesco's long-term core purpose [9]
Nowadays, the steering wheel of Tesco provides a strategic focus, by communicating what matters the most in a way that is easy to understand, this is done by including twenty objectives in all the perspectives, which are arranged in a wheel diagram, in which the main focus is the "Every little helps" and the two values of "No one tries harder for customers" and "Treat people how I like to be treated" [10]
EDF Energy
The EDF balanced scorecard is used by senior managers in The EDF balanced scorecard is used by the executive level and other senior managers to review the Group's ambitions. During the year 2000, EDF energy had to face many challenges, such as a reduction in its income, Re-adjustment of regulatory law, they faced a sturdy pressure to increase its customers supplies, plus the fact that acquired two more companies which had to be integrated to EDF energy [11]
The company decided that in order to face these challenges, they would have to implement a performance management on the BSC, which would enable them to address their main objectives, so that they would be able to improve the productivity of the company, improve customer service and focus on its major resources and customers. The BSC of EDF energy is built on the strategy map on the company which is later translated through strategic objectives that are mapped according to the traditional BSC perspectives
In my point of view the BSC approaches are relevant as to different parts of the overall strategic management process. EDF involves balancing the overall objectives of the organization in a way that will help track the progress of the long term objectives. On the other hand, Tesco's steering wheel, is more concerned with the organizations fitness. It takes in consideration the management of the skills and learning capabilities to its employees, which in the end will give an advantage to Tesco with comparison to other organizations .
HM Revenue and customs (HMRC)
IMS current success was first met with a failed attempt to implement the BSC, according to IMS senior managers, this was due to the services that are implemented by the external consultant, who created a balanced scorecard that is a basically a random group of metrics that the organization had to put together within the perspectives of the balanced scorecard. There was no structure and no strategy map, so at the end it didn't help IMS improve.
Even though IMS failed in its first attempt, they had a second try, this time instead of hiring an external consultant, they department manager took a training course, that enabled him to do a BSC, that is not so different than the one created by the external consultant, But according to the Head of Performance and Planning, he says "I cannot emphasize enough how the process of reviewing it, discussing it with colleagues, changing it, putting in more links and changing back again was extremely useful for the management team to collectively agree on and understanding our objectives and KPIs" [12]
Machinery and spare part center (MSc)
MSc had all the four perspectives in its scorecard, which are suggested by Kaplan and Norton, but they showed an interest in adding employee perspective in the future. When the company started implementing the BSC, it had to adopt new measures that were not used before in the company.
The strategic performance objectives in the organizations MSC were sub-optimal and rather modest [13] . While looking at the company's profile, I noticed that there were some common errors that must be avoided, which made it difficult for the company to succeed in implementing the BSC, these errors included the fact that the company didn't have long term objectives, they failed to relate key measure to performance drivers and finally they couldn't converse the rationale for the balanced scorecard.
Conclusion
In my opinion, I think that the balanced scorecard is considered as the only tool that Is fail safe. Few years ago, the CIMA management accounting tool survey found the balanced scorecard has been used by more than one third of the applicants. This tool has been used for more than twenty two years now, it still didn't reach its full potential, as many non users said that they are going to adopt this tool in the next 2 years.
Some may point that balanced scorecard success is due to the fact that its strong enough for its users to share a common understanding of the business strategy and objectives and the fact that the BSC is flexible to changes in scenarios.
All in all, the balanced scorecard demonstrates management accountancy at its most effective and most flexible in catering for the needs of a range of businesses [14] .
I would definitely recommend the implementation of the BSC, as if the company understands its needs and long term objectives, they can implement their ideas into a graphical, intuited sheet on a single page, which will help the company achieve its goals and objectives. Furthermore if the company is goning to implement the use of BSC, they have to understand the four perspectives that are mentioned by Kaplan and Norton, and they shouldn't be afraid of adding to these perspectives, the same way Tesco did, when they added the people perspective
