Introduction
The balanced scorecard is a performance gauging tool that is meant to match business activities with the company’s vision statement. It is a strategic planning system that can be used to monitor business activities and the results that arise from these activities. A survey undertaken by Bains and Company on the fortune 1000 companies revealed that about 50% of these companies use the balanced scorecard to monitor their performance (Cobbold & Lawrie, 2002). The benefits provided by this planning system are diverse thus accounting for its popularity. While many critics argue that the balanced scorecard is a fad (Maisel, 1992), the following two cases will argue differently.
Balanced Scorecard at Phillips Electronics
Royal Phillips Electronics is a multinational electronics company whose headquarters are based in the Netherlands. The company is one of the largest in the world and has over 100,000 employees in over 60 countries. The company is divided into three sectors: Philips Lighting, Phillips Consumer Lifestyle, and Phillips Healthcare. In order to fully monitor the company’s operations and to ensure that the company’s vision is being met, a strategic performance measurement system was needed (Gumbus & Lyon, 2002).
The Phillips balanced scorecard was specifically planned to ensure that the company’s vision and corporate strategy received a mutual understanding within the organization. The tool was designed to incorporate four critical success factors: competence, financial, customers, and processes (Cobbold & Lawrie, 2002). In the Phillips BSC, higher-level measurement criteria act as the framework for lower-level criteria. Through this, the company aimed at transforming relationships such as those with customers and sales into critical success factors. This was carried out through the identification of customer and financial success factors that gave the company an edge over their competitors, and then they identified the process success factors that had the biggest impact on the customer and financial success factors resulting in the competitive edge (Gumbus & Lyon, 2002). To have a measurable strategy, the company instituted a performance monitoring system that measures how the company’s vision was being met. Under this system, the short-term activities are linked to the long-term strategy of the company hence allowing employees to understand how their daily work contributed to the achievement of the company’s goals (Gumbus & Lyon, 2002).
The Phillips BSC is divided into three stages: First, the strategy review card that highlights the corporate vision and goals that the company aims to achieve; second, the operations review card that highlights processes and steps to be taken by each department to achieve the company’s desired goals; and lastly, the business unit card that is prepared by each department and highlights actions to be taken by each employee within the department to enable the company meets its targets. (Gumbus & Lyon, 2002). At all levels, the four critical success factors (CSFs) act as indicators of how the company’s strategy is being met. Each business unit is responsible for choosing the critical success factors that the unit has main control responsibility for (Gumbus & Lyon, 2002). These key balance scorecard indicators will then act as a monitoring tool for the implementation of the corporate strategy. Process success factors were determined by identifying how improvements in the company’s processes might improve customer satisfaction. The customer critical success factors were determined from survey data that revealed performance proportionate to the price for competing goods. Competence critical success factors were chosen by establishing what competencies were important to deliver the other three critical success factors. Finally, the financial critical success factors were identified by using standard financial reports (Gumbus & Lyon, 2002). Indicators for measuring CSFs were determined by each business unit after which relationships between outputs and processes were quantified. The final aspect of the BSC was to set targets based on the difference between the current performance and the desired performance.
The balanced scorecard system at Phillips has granted the company many benefits. First, it guided the formation of an organizational culture that was more accountable for results. The scorecard also enables real-time tracking of results and action planning (Gumbus & Lyon, 2002). Information from departments is fed into the web-based balanced scorecard report and thus regularly updated data is immediately accessible. The final advantage of the BSC is that employees understand how their contributions allow the company to meet its target goals and overall corporate strategy. It, therefore, acts as a motivation tool enabling everyone to work towards a common goal.
The balanced scorecard at Phillips was implemented from the top down. The top management set out the balanced scorecard by identifying operational targets. These targets were assimilated through various corporate layers as objectives at departmental layers and as goals for the various divisions all over the world. This top-down approach enabled the company’s goals to be linked with the employees as well as the corporate strategy. Another important aspect of the implementation is that departments were responsible for choosing the various indicators responsible for monitoring how the CFCs were being achieved (Gumbus & Lyon, 2002). This enabled the employees to have a clear understanding of what was required from them as well as made it easier for various departments to work towards the corporate vision. Indicators were developed by those who understood them and not by someone far away in an office.
The case of Phillips electronics is a good example of how a balanced scorecard can be used to line up the organization with the strategic goals and vision. The company has been able to ensure that its wide employee base shares a common understanding of what is required from them to help the company meet its targets.
The Case of Futura Industries
Futura Industries is a multinational manufacturing company that deals with products made from aluminum. The company is based in Utah and has had over 50 years in the design, extrusion, and fabrication of aluminum products. The company targets high-end clientele in an array of markets such as transportation, floor covering, electronics and retail. According to the president of the company, Susan Johnson, the company had instituted many customer measures and all the financial metrics thus the company has various in-house processes geared towards quality. The incorporation of the balanced scorecard in this company was so as to improve its human resources and stand apart from other extrusion companies.
At Futura, the four quadrants of the BSC system are applied: foundation level (employees), customer service, internal and financial operations (Johnson, 2003). Learning, growth, and innovation are three important aspects used to implement the quadrants of BSC. The company’s mission statement reads “Extraordinary Value through Extrusions” and as such, every employee in the company is expected to contribute towards the goals of the company as well as consumer success (Johnson, 2003). The BSC at Futura is meant to put employees first. The company’s main focus has been to improve the competencies of the employees, attract employees who share the company’s vision, and provide a challenging yet enjoyable workplace. In order to have a competitive edge in the saturated market with which the company belongs, Futura hires and retains the top talent and ensures constant customer satisfaction. The BSC at Futura is developed through various surveys taken within the company. The company undertakes various programs to ensure a well-balanced workplace. These foundation level programs include Birthday review, “Employee Friendly Initiatives at Futura, certification and a training matrix, personal development review, and annual performance review (Johnson, 2003).
A balanced workplace is created by direct interaction with employees at Futura. Employees get to voice their opinions on how the company can become a better employer. The “Employee Friendly Initiatives at Futura” is a survey that aims to find out what company benefits the employee’s value most (Johnson, 2003). The birthday review is a yearly survey that occurs during the season of an employee’s birthday. The interviewees are asked about their perception of the work environment, difficulties and achievements experienced, and level of communication. The company uses a rating of 1 to 4, with employee satisfaction being rated at 3.2 (Johnson, 2003). The questions asked during such surveys mainly cover difficulties in executing tasks, presence of support in the workplace, employee happiness at work, and means to improve communication. Employees are also required to give their opinion about the company’s leadership and if they see themselves working for the company in five years. A follow-up form is provided to ascertain that recommendations are taken into consideration and that appropriate changes are implemented. The annual leadership survey is meant to improve communication between the management team and the employees by taking inputs directly from the employees (Johnson, 2003). The leadership survey includes questions on whether the management team avails information that enables employees to view the big picture, displays courtesy, takes initiative, and avoids discrimination or favoritism. Most of the surveys carried out at Futura are meant to gather information about different aspects of the company from the employees. This information is then analyzed and appropriate steps are taken so as to ensure that the employees are aiming at the same goal as the company.
Another important aspect of the Futura BSC is the second quadrant, customer service. According to Johnson (2003), Futura ensures customer satisfaction by hiring individuals that match the values of the company and retaining those who offer exemplary customer service. At Futura, the customer service aspect of the BSC has several important measures: customer grievances and approvals, rate of material returns, and prompt delivery of goods (Johnson 2003). Customer satisfaction is determined by random customer surveys with questions meant to find out the relationship a particular customer has with the company. The third quadrant of the Futura BSC is the financial dimension. The company has developed a unique tool that evaluates the cost per item per consumer enabling the company to compare profitability between consumers. Using this information, the company then selects customers with the worst track record and then investigates the reason behind their drop in consumption (Johnson, 2003). The final quadrant of the Futura BSC is the internal operations dimension. Measures instituted in the internal aspect deals with mainly four goals: plan and provide perfect products, perfect delivery system (accurate and on time), identification of new opportunities, and cost reduction.
The balanced scorecard at Futura has very many advantages. First, the company is in touch with its employees thus the management team can align the company with the corporate vision. Each employee can voice his concerns and ensure that no misunderstanding occurs during the execution of tasks. Secondly, the company is also in touch with its customers. Through the various surveys taken, the company can understand what customers want and what they lack and thus take appropriate steps to ensure customer satisfaction. The various internal measures were taken also ensure that processes within the company are following the company’s mission and that these processes fit with the other dimensions (consumer service, financial and foundation dimensions).
By using surveys to implement the BSC, Futura has been able to personalize the process. The employees, as well as the customers, can feel a connection with the company. The company is also dedicated to ensuring that appropriate changes occur and that the employees are an integral part of the company. This has led the company to develop a strong workforce and a dedicated consumer base. The learning, innovation, and growth aspects of the Futura BSC are also flexibly changing with the priorities and growth in employee skills. This allows the company to be in synch with changes in the environment and adapt accordingly.
Conclusion
The two cases above highlight how the balanced scorecard is being implemented in companies. The scorecard can be used to monitor different aspects of a given company concerning the attainment of the company goals. It can be seen that one of the most important aspects of the BSC system is the identification of indicators that measure progress towards meeting the corporate vision. The four critical factors of a BSC system can be integrated into various ways to help a company meets its objectives. The critical success factors may be in the form of surveys intended to gather information and make appropriate changes or they can be in terms of setting targets and monitoring how they are being met. The balanced scorecard is definitely not a current trend but rather a strategic tool that has changed how businesses monitor their performance.
References
Cobbold, I. & Lawrie, G. (2002). The Development of the Balanced Scorecard as a Strategic Management Tool. Performance Measurement Association, 7, 6-13.
Gumbus, A., & Lyons, B. 2002. The Balanced Scorecard at Philips Electronics. Strategic Finance, July, 36-41.
Johnson, S. D. (2003). The Balanced Scorecard at Futura Industries. Strategic Finance, November, 45-49.
Maisel, L. S. (1992). Performance measurement: the balanced scorecard approach. Journal of Cost Management, 6(2), 47-52.