List and describe the suggestions and features of a good Balanced Scorecard
The balanced scorecard approach is a strategic management technique developed by Robert S. Kaplan and David P. Norton to provide a manger with the linkages necessary to understand how to apply strategic management within his organization. "[I]t directs a company to link its own long-term strategy with tangible goals and actions. The scorecard allows managers to evaluate the company from four perspectives: financial performance, customer knowledge, internal business processes, and learning and growth." (Pearce and Robinso, 194). A good BSC not only looks at the financial metrics of a company, but also looks at the operations, innovations and customer service that a company offers.
From the perspective of financial metrics, the BSC looks at the objectives the company needs to have in place to survive, to grow and to prosper. A historical approach can be useful here to identify core competencies and historic patterns, but the BSC should also provide a snapshot of the business in the here and now. One of the important features of a BSC is that the metrics are measurable and timely, so for financial metrics, historic returns are useful but cash flow, growth in sales and net profit can also be important observations. A good BSC identifies the current situation and provides for SMART goals for a specific time period. Those goals should be specific and timely.
The innovative perspective is perhaps the most difficult to attain because it requires managers to forecast what new products will be in demand and to plan to get those products to market. Here, the BSC is best used in conjunction with a trend analysis to anticipate customer needs and beat the competition to market. The BCS should contain specific ideas for future innovations as well as plan for developing them.
The operational perspective of a BSC can prove to be full of pitfalls, depending on the accuracy of the flow of information within the organization.
Unfortunately, if the real information is obfuscated in any way, it can prevent the scorecard from being accurate and from being implemented. " The balanced scorecard, by providing greater openness and visibility of an agency's mission and strategy, can give rank-and-file employees a better sense of what their jobs are about, and empower them to improve how that work is done," (Averson).
The customer perspective is perhaps the hardest part of the balanced scorecard. The usual objectives are a responsive supply chain (getting goods to customers in a timely fashion) and service excellence. Common metrics include delivery time, the time it takes to respond to customer service problems and the number of complaints that the company receives. One of the most important parts of this section is that it include a realistic view of the customer's needs and desires. For example, adding more bells and whistles to the newest model of the cellphone might not be what the customer wants, so a good scorecard should include ways to identify customer needs.
Common pitfalls when implementing a BSC.
A BSC is simply a tool and as such, it can be flawed. The problem lies in the fact that many people neither understand nor even acknowledge their personal biases. These can be cultural, religious, intellectual or even educational biases. And, many people may not even realize that they are acting from a position of bias. Take, for example, the board of directors at Enron, who were by their own declaration and the word of many analysts, "the smartest guys in the room." (Tesfalsion). But because they failed to acknowledge their own biases and developed a sort of group-think bias as outlined in, they create a financial fiasco unlike any other in American history prior to Enron's fall. Effective leadership relies on an understanding of basic human nature and personal biases.
What that means is that a scorecard can be flawed because the people who make it are flawed. The team may put too much emphasis on one aspect of the plan, like finances and ignore customer service, or vice versa. Another pitfall is the process of evaluating the metrics. Who decides, for example, if the customer service is improved. While the scorecard should include a description of how it will be measured, the scorecard may not address all the factors which play a role. A huge economic event, natural disaster, or other outside threat may impact the achievement of the scorecard goals in ways that no one anticipated. Additionally, the goals may not appropriately align with the company's needs. For example, a financial goal of keeping wage costs low may directly conflict with a customer service goal. Additionally, it can be hard to get some entrenched employees and managers to accept that new nonfinancial goals are part of their job duties.
Explain why different performance measures need to be applied at various levels.
Since one of the goals of the scorecard is to connect each employee with a sense of how their work impacts the company, the performance measures must be different depending on the job classification. Every employee contributes differently and therefore each should have a different set of performance measurements. What is appropriate for the CFO would not be appropriate for the cashier in a retail store; however, both are necessary to the success of the company.
Why it is inadequate to use only historical financial measures to evaluate performance?
Using only historical financial measures to evaluate performance places an inappropriate emphasis on the financial success of a company and may leave the company unprepared for future needs. When the only focus of the company is on the historic performance, it may be unaware of changing trends and upcoming challenges to the industry. Furthermore, the focus on historic financial performance keeps employees from seeing their worth.
Custom Written. Just-In-Time Inventory Management. Executive Summary Paper. Online. https://customwritten.com/example-papers/jit-inventory-management-restaurant-paper
Hill, Charles W. L. and McShane, Steven L., Principles of Management. New York:McGraw-Hill. Print.
Pearce, J. A. II, & Robinson, R. B. Strategic management: Formulation, implementation, and control (9th ed.). New York: McGraw-Hill Print.
Tesfalsion, L. "The Enron Scandal and Moral Hazard."