The Balanced Scorecard
Introduction
My manager within Eddison Electronics Company (EEC) has recently attended a meeting in which the balanced scorecard was discussed. He liked the discussion so well that he has asked me to put together a presentation discussing the balanced scorecard for the next meeting with the managers of the company. He would like me to put it together in such a way that EEC might consider adopting the technique for usage within the organization. In this presentation to the managers of EEC the definition, the benefits, and the usage of the balanced scorecard will be talked about. Also to be discussed will be how EEC would go about adopting the balanced scorecard and, if adopted by the business, how it would improve the overall functioning of the organization. Once all of this is identified a recommendation will be given by me as to whether it would be in the best interest of the company to adopt the balanced scorecard technique.
Balanced Scorecard Definition
The balanced scorecard was originally developed by two doctors, Robert Kaplan of Harvard Business School and David Norton, as a method of managing a business in appropriately measuring their strategic planning objectives. It is employed mostly by businesses, governmental agencies, and not-for-profit businesses. These entities use this system to develop internal and external communications within the business. This system can also be used to compare a business’s performance against their strategic objectives. The balanced scorecard went from its original use of simply being an outline for measuring a company’s performance to a complete strategic planning and management system that can be used to plan and measure the strategies of an organization on a daily basis to ensure that their activities are aligned with their objectives (Balanced Scorecard Institute, 2010). The balanced scorecard typically includes four different performance groups which are the financial perspective, the customer perspective, the internal business processes, and the innovative and learning perspective. Each perspective will concentrate on different matters regarding a company. The financial perspective will concentrate on the matter of how a company is perceived by its investors, and from the investors viewpoint which goals are desired financially by the company. The customer perspective will concentrate on the matter of how customers perceive a company, and how effectively is the company meeting their financial objectives in serving their targeted customers. The internal business process objectives will concentrate on the matter of which processes related to customers and investors are most significant in satisfying them. And last, the innovative and learning perspective will concentrate on the matter of how the company will be taught, develop, and bring in new ideas to meet objectives (Balanced Scorecard 2010).
Using the Balanced Scorecard
A company’s approach to their value proposition will provide the measurement of standard in which the balanced scorecard will compare different elements related to it. The point of reference in which decision-making will be made related to these elements will be closely aligned and measured with the company’s strategy which is created by management. This information will be communicated to employees to ensure that they understand what is expected of them when the measurements are completed (Garrison, Noreen, & Brewer, 2010). In an attempt to determine the usefulness of the implementation of the strategy and to offer a comparison between actual and planned organizational performance employing a good set of performance measurements that will focus on facilitating organizational wide enhancements will be very valuable in ensuring success of appropriate activity measurements (Balanced Scorecard Institute, 2010).
EEC Adoption of the Balanced Scorecard
The first step in adopting the balanced scorecard is for EEC to clearly define the goals of the company. Next, the company will have to decide upon which strategies will help reach the defined goals in step one, which could be anything from increasing production to reducing costs associated with production (Word IQ, 2010). As previously stated, the performance measures of the company will fall into four groups. The first group is the financial group which would be used to provide a historic view of the company’s performance and success for parties that are concerned with the financial aspects of the business, such as measurement of financial ratios. The second group is the customer group which would be used to determine if our customers were satisfied with the services and/or products we are giving them; some areas related to the operations of the company that would be measured with the customer group would be time delivery of our products and customer service. The third group is the internal business process which will help the of the mangers of the company determine if the internal operations of the organization are effectively running in satisfying both the shareholders and customers, some of the areas that could be measured with the internal business process would be the processes internally of the company, such as how much rework is required for our products or how successful we are in obtaining new business. And the last group is the innovative and learning group which will help the company determine if there are any areas in which employees work that need improvement and, if so, what areas need improved, some areas that could be measured with the innovative and learning group would be the way in which employees are trained and how much revenue comes from fresh ideas of the employees (Balanced Scorecard, 2010). However, on a cause and effect basis the balanced scorecard four measurement groups are dependent on one another, and each major division within the company will establish its own scorecard to be integrated with the scorecards of other division to get a quick view of how the overall company is doing on performance (Word IQ, 2010).
Benefits of the Balanced Scorecard
The benefits EEC will see in using a balanced scorecard is that it will transform the strategies of the company into definite factors that can be evaluated on a quantifiable parameter. By using the balanced scorecard it will be easier to communicate the strategy of the company to all employees. If chosen to, the owner may put their own individual goals with the strategies of the company to see if accomplishments can be made from them. The balanced scorecard will also measure the influence a company’s goals have on their employee’s behavior. The balanced scorecard will also offer views on the results of performance to the strategic development practice within the company. In addition, since the idea behind the balanced scorecard is to alert managers of areas within the company that are deficient on performance, managers can focus their attention to these areas and improve these areas, and as a result optimal performance can be enabled throughout the company (Success Factors, 2011).
EEC Improvements
The balanced scorecard will improve EEC by aiding management in clarifying the vision of the company and translating that revelation into assessable actions that employees can recognize so that they know where the company stands in reaching their goals. By using the balanced scorecard management will be given sufficient information regarding performance improvements within the company and the improvements can be made with confidence. By analyzing the balanced scorecard in some main areas of the company first this will enable management to formulate basic changes and enhance support for the proposal before involving the whole company. Also, in regards to the new computer memory chip being launched, management might want to make certain the employees have up-to-date training to make sure that mistakes are not made in manufacturing the new product. These are just some of the improvements EEC could see by implementing the balanced scorecard, however, the end result is that management will be ensured that production levels stay high and costs are reduced related to our products, and in addition the employees will have knowledge of the strategies of the company and once these strategies are achieved they will understand what is expected of them in maintaining the goals of the company (Organized Change, 2010).
Conclusion
In order for the company to be successful in the business environment measurements need to be done to ensure that our goals are being met and exceeded. One way to do this is to use a balanced scorecard to measure the performance and success of the company as it relates to the goals anticipated by the business. The recommendation for the company in adopting the balanced scorecard is to go forward, since upon researching the balanced scorecard I found that it is a good measuring tool that EEC could implement and utilize to determine the overall performance of the company. The balanced scorecard will help management to make sure that the plans and objectives of EEC are made clear to employees so that they will better understand them. The balanced scorecard will efficiently communicate the objectives related to the performance of all divisions within the company, and the employees can then present feedback to aid in expanding and realizing thoughts of changes ideas relevant to the company. Furthermore, the goal of measuring in a balanced scorecard system is to allow management to observe the company more visibly, and from there they can make wiser decisions regarding the operations of the company, and more confident decisions can be made over the long-term regarding the functions of the company.
References
Balanced Scorecard. (2010). Retrieved from http://www.netmba.com/accounting/mgmt/balanced-scorecard/
Balanced Scorecard Institute. (2010). What is the balanced scorecard? Retrieved from http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx
Garrison, R., Noreen, E., & Brewer, P. (2010). Managerial accounting, (13th ed.). New York, NY: McGraw-Hill Irwin.
Organized Change. (2010). Balanced scorecard, BSC, and performance improvement. Retrieved from http://www.organizedchange.com/balancedscorecard.htm
Success Factors. (2011). Balanced scorecard. Retrieved from http://www.successfactors.com/topics/balanced-scorecard/#
Word IQ. (2010). Balanced scorecard: Definition. Retrieved from http://www.wordiq.com/definition/Balanced_scorecard