Causal Chains and Strategy in Management | Free Essay Example

Causal Chains and Strategy in Management

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Topic: Business & Economics
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Introduction

Using the balanced scorecard, it is possible for management executives to create a continuous process of implementing strategy in their everyday operations in such a way that there is a perfect integration between the strategies and the operations (Silverthorne, 2008). This should involve regular strategy meetings for senior management, and a proper coordination between the operational plan and the strategy management. As Kaplan and Norton (2002) suggest, the call is for a planned strategy, rather than a focus on the improvement of operations, and they consider the use of the balanced scorecard as the best.

Case A

For the four perspectives of learning and growth, internal business process, customer service and financial returns, objectives are set, measures are and targets are established, and action plans are put into effect. Under a balanced scorecard, causal chains are created that link together the set objectives in such a way that achieving one objective makes it possible to achieve the other, in a series, hence an integration of the causal chains and the strategy. Using Table 1 and Table 2 (Albright, Davis & Hibbets, 2001).

Learning/Growth Internal Business Processes Customer Service Financial
Employee training hours
Sales calls to potential customers
Thank you calls and cards to new and existing customers
New Loans created
New accounts
New products introduced
Customer satisfaction
Customer retention
Employee satisfaction
Employee turnover
Number of products per customer
Number of new customers
Referrals
Cross sales
Outstanding loan balances
Deposit balances
Non-interest income

Causal relationships are one of the primary benefits of the balanced scorecard. “The causal chains link together the objectives in such a way that achieving one objective makes it possible to achieve another in sequence” (Silverthorne, 2008, p.1).

For each of the series of objectives under each of the perspectives, the beginning point is the achievement of objectives in the learning and growth domain which ultimately culminate in the achievement of the objectives in the financial return or effectiveness domain. The achievement of one objective leads to the potential achievement of another such that ultimately one or more of the financial performance objectives are achieved in connection with the objectives and measures in the causal chains. Ideally, in this balanced scorecard, the cause and effect linkages occur in that the improvement of the learning and growth perspectives contribute to improvement of internal business processes’ which cause an increase in customer values and ultimately the result will be improved financial performance. From the table above, the identified causal chains are explained hereunder.

Employee training hours leads to Employee satisfaction/ Employee turnover which leads to new products introduced hence Customer satisfaction. This chain implies that the main objective to be achieved is the satisfaction of the customer. The measures and actions to be employed would chiefly involve training of the employees which would target the introduction of new products and improve the employee turnover.

Sales calls to potential customers leads to Number of new customers which enables New Loans created/New accounts hence Number of products per customer is improved. This chain simply directs or guides the achievement of the objective for achieving an increased number of products for all customers. The measures and actions employed in achieving this objective would involve creation of new accounts and loans, and this would target mostly the new customers.

Thank you calls and cards to new and existing customers lead to Customer retention/Referrals hence Non-interest income. When thank you calls are made, and thank you cards sent to both existing and new customers, more customers and retained, and these customers will act as referrals, thereby increasing the consumer base, which will ultimately result in increased non-interest incomes. The connection between all these causal chains is that better products will lead to better customers, and better customers will mean better income for the business.

Case B

From Table 3 (Albright, Davi & Hibbets, 2001), which lists the before and after performance of each of the branches of the bank, and the interviews with bank personnel in each of the branches where the system was implemented, a comparative analysis of the balanced scorecard performance in the branches is presented hereunder, for those branches which implemented it and those that did not use the BSC approach. The first five branches of the bank, that is, branches A-E, implemented the balanced scorecard, but branches F-J did not implement it. Nonetheless, each of the braches that implemented the balanced scorecard had their own different style of implementing the balanced scorecard. Indeed, the financial data presented in Table 3 shows that the balanced scorecard was a success.

A general look at Table 3 depicts that all the branches of the bank recorded growth in loans, deposits and incomes, after one year, except for branch G which did not have any difference in the growth of loans, branch F, which had a decreased deposit of -1, branch E, which had a decreased income of -1, and branch H which recorded a decreased income of -3. This shows that most of the companies which employed the balanced scorecard posted better financial performance than their counterparts which did not, and moreover, this was depicted by the average rank determined from averaging the growth loans, the growth deposits and the growth incomes.

The average for branches A-E was 3.80 and that for branches F-J, which did not implement the balanced scorecard. For the branches which did not implement the balanced scorecard, branch J posted the best performance, and was overall ranked at number 4, while the rest performed well below those branches that implemented the integration process.

Besides, the magnitude of improvement also serves to showcase the success of the balanced scorecard after one year of implementation in the different branches of the bank. The highest income growth recorded was 65, which was posted by branch A, while the best income posted by the branches that did not use the balanced scorecard was 18, which shows quite a considerable difference. Although branch E recorded a loss of income for the year, having implemented the balanced scorecard, the most possible explanation would be that the branch had a poor execution of the strategy (Kaplan & Norton, 2001).

The interviews bring out the perception and point out the differences in the implementation of the balanced scorecard. It is clear from the representatives in Branch A that they viewed the balanced scorecard as crucial to their meeting their branch goals, though they were not easy. Among the incentives provided for the employees in these branches included cash bonuses for targets met or exceeded. On the other hand, Branch B viewed the balanced scorecard as a measurement tool for their targets, and again, it was also used in assessing the issuance of bonuses. In branch C, the balanced scorecard was implemented as a unifying tool, enabling employees to work together in achieving their set goals. The incentives offered for this branch upon achievement of the set goals included company parties and day offs.

Branch D applied the balanced scorecard in charting the course of growth for individuals within the company. Consequently, the incentives provide when the set goals were achieved involved a monthly monetary gain as well as other means. In branch E, the balanced scorecard was not well communicated to the employees, and from the interviews presented, the employees did not give it a significant consideration in their business operations. It is reasonable to point out from the interviews presented that the problem could have emerged from the poor execution of the balanced scorecard measures by the management, and a lack of proper incentives to reward the employees in meeting the performance measures. This could be the main reason why branch B had very poor results among all the branches that had implemented the balanced scorecard.

To achieve maximum effectiveness, it is crucial that the board of the bank considers adopting the balanced scorecard for all the branches of the bank, but further ensure that the management has well understood and knows how to implement the balanced scorecard. The board should cultivate a culture that considers execution of the strategies laid out and is performance driven, and most importantly, ensure that the right management team is set to implement the strategies.

References

Albright, T., Davis, S., & Hibbets, A. (2001). Tri-Cities Community Bank: A Balanced Scorecard Case. Strategic Finance, 83(4), 54-60. Web.

Kaplan, R.S., & Norton, D.P. (2001). The strategy focused organization. Boston: Harvard Business School Press. Web.

Kaplan, R.S., & Norton, D.P. (2002). The Balanced Scorecard: Translating Strategy into Action. Boston: Harvard Business Press. Web.

Silverthorne, S. (2008). Executing Strategy with the Balanced Scorecard. Web.