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Int. Jour. of Business & Inf. Tech. Vol-1 No. 1 June 2011

Linking Balanced Card to Performance Management System a Process Model

#1 #1

Dr. Bharati Deshpande, *2 Dr. Kirti Arekar

ITM Business School, ITM Campus, 25 & 26 Institutional areas, Kharghar; Navi Mumbai,
*2

K.J. Somaiya Institute of Management Studies & Research Vidyanagar, Vidyavhar, Mumbai - 400 077.

Email:

deshmukh_k123@yahoo.com/ bharatid@itm.edu

Abstract As said by William Thompson(Lord Kelvin),1824-1907 , 'When you can measure what you are speaking about, and express it is number, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is a meagre and unsatisfactory kind'. This research attempts to bring about a linkage between Balance score card and Performance Management through a process model. This can help to enhance your expert credibility within the organization by learning as much as possible about this subject. Balance score card help the organization to address two issues one is implementing organization strategy and secondly is performance management. Many a times even after very good systems we are not able to achieve the stated objectives the reason is the organization objective, and individual objectives are not linked properly. Thus after linking Balance score card with a performance objective the organization can translate company's vision and strategies and link it to individual objective.

management only focuses on the financial health of the organization, several unfortunate consequences arise. One of these is that financial measures are lagging indicators of success. This means how high or low these numbers go depends on a wide variety of events which may have occurred months or years before and you have no immediately control. There is a need for a system that balances the historical accuracy of financial numbers with the drivers of future performance. The Balance Score Card is the tool that answers both challenges. The Balance Score Card was developed by two men Robert Koplan, a professor at Harvard and David Norton led a research study for dozens of company exploring new methods of performance management. The score card describes the organizations vision of the future to the entire organization Creates a holistic model of the strategy that allows all employees to see how they contribute to organizational success. It focuses change efforts on the right objectives. Balance score card thus is a strategic approach and Performance management system that enables an organization to translate company's vision and strategy into implementation. When Balance score card is effectively used, it serves as a component of a measurement based strategic management and learning system that further the organization's ability to achieve its strategic objective. A key to successfully designing and implementing a balance scorecard system is alignment with the strategic plan. In fact, the development of a scorecard itself should be seen as a part of the strategic planning process. Issues facing the organization when linked to a performance management system, the scorecard enables the organization to align business activities with strategy while impacting priorities and performance of staff development of a balance score card as an organization.

Keywords Balanced Score card, Performance Management, Organization Strategy and measurement.

1.

Introduction

The major two issues which every organization faces one is implementing an organizational strategy and secondly is performance management. Organization in todays change filled, highly competitive environment must spend significant time, energy and human and financial resources to measuring their performance in achieving the strategic goals. Profitability, gross revenues, return on capital etc. are the critical, bottom line kind of results that companies must deliver to survive. Unfortunately, if senior

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2. Objective of Research Study

[1] To provide a conceptual overview of Balance Score Card. [2] To understand Balance score card to align Organizational strategies. [3] To study the effectiveness of linking Balanced Score Card to Performance Management System.

executives with a comprehensive framework that translate a companys strategic objective into a coherent set of performance measures. He also mentions effective measurement. However must be an integral part of the management process. Ajay M. Pangarkar, CTDP, and Teresa Kirkwood, CTDP discusses about linking learning strategy to the Balance Score Card. He also emphasis upon the balanced score card is well on its way to become the strategic management tool of choice in many organizations worldwide. He further mentioned initially introduced in the early 1990's as a way to help translate their corporate mission to all levels in an organization. The balance score card is widely acknowledged to have moved beyond this- it has evolved into a strategic change-management and performancemeasurement process. He has linked learning to the balanced scorecard with a case study of Telecommunication Company. Bob Paladino, CPA, CMA Management Feb 2008, has mentioned about how a balanced scorecard Hall of Fame, Baldrige, Sterling, fortune 100, APQC, and Forbes award winners drive values. He has further talked about five key principles of corporate performance management. This article the first in a series focuses on Principle 1: Establish and Deploy a CPM office and officer. Leading CPM offices apply many of the same methods and skills described in the CMA Competency Map, including strategic management, performance measurement and performance management and risk management. The literature states more of Balanced score card as a strategic tool or a tool to measure the performance of a company but if these tools are linked to the performance management system it will be every effective. Through which the organization goal will be aligned with the individual goal. Through the performance appraisal, we can find the goal has been achieved, and incentive can be paid based on this performance. Other decisions like career planning, promotion, training, etc. can be taken. We can find this type of system in ICICI Banks, RKHS, 3M, BHEL etc.

3. Methodology
Our study is conducted in three phases; the three phases are described below: I. What is a BSC and performance management? II. Why is it Used to an align organizational Strategy? III. Why should it be linked to Performance Management System? With the help of a model, we would try to link Balance score card to a performance management system.

4. Literature Review
Peg Bloonquir and Julia Yeager( FACHE2007) describes effectively use of Balance Score card as a component of measurement based strategic management and learning system that furthers the organizations ability to achieve an organizational objective. When this process is linked to the performance system the scorecard enables the organization to align business activity with strategy, while impacting priorities and performance of staff. The author has explained this concept with a case study. Yee Ching Lilian Chan, CMA, FCMA the author has discussed the major changes in Ontaria Health System over the last three years. The Ministry of Health and Long-Term Care (the Ministrj', MOHLTC) has been working on establishing "a padent-focused, result driven, integrated and sustainable health system." To achieve this broad vision, the Ministry has pinpointed three strategic directions, one of which is the focus of this article providing result information to demonstrate accountability. Since it's impossible to manage what can't be measured, a critical factor to integrating the financial, clinical, and statistical informant systems of Ontario's health system effectively is to strengthen Ontario's health informant capacity. Robert S. Koplan and David Norton in Putting the Balance Score Card to work talks about companies like Rockwater, Apple Computer, etc. are using BSC to measure performance and set strategy. The BSC first proposed in FEB-1992 issue of Harvard Business Review. It provides

5. Findings
BSC process has helped the client align the roles and responsibilities of individuals in the organization with the overall strategic plan. According to surveys by the Institute of Management Accountants (IMA), more than 50 percent of large U.S. Companies are using some form of the balanced score card. This reflects its power and simplicity to provide direction for all

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levels and areas of the organization. The balanced score card is similar to a dashboard in a car as you drive, you can glance at the dashboard to obtain real-time information such as how much fuel remains, the speed you are traveling and the distance youve traveled. The balanced score card provides similar information to all levels of the organization through performance measures connected to specific business areas in the same manner. It communicates to managers in clearly defined terms how well the business is meeting its strategies and goals. The balanced score cards appeal is its ability to include both traditional financial metrics and non financial performance measures in its reporting capacity, thus the term balanced. The balanced score card is divided into four primary business and strategic areas on which an organization must focus to get a complete picture of how the enterprise is performing. They are as follows: i. ii. iii. iv. Financial Perspective: How do we look at our customer? Customer Perspective: How do we look at our customer? Internal Business Processes: At what do must we excel? Learning and Growth Perspective: How can we continue to improve and create value? To understand use of Balanced Score Card to align Organizational strategies an exploratory research was conducted. This was stated through a case study.

Your organization should ask some important questions before you begin balancing your organization's vision, such as: Where is the organization today, and where do we want it to be in the future? As we work toward our goal, how do we want to get there? In answering those questions, a balanced scorecard can be the compass along the journey to achieving your strategic plan. When EHC began its journey, our president and CEO, John T. Fox, was new to the organization. It faced with the complexity of creating a unified system; he recognized the importance of a balanced scorecard approach and brought a lot of energy to the project. Our senior management was involved every step of the way and our board of trustees were very supportive and involved in the design and later the monitoring of our balanced scorecard. Our balanced scorecard journey began with the clarification of our core purpose: "To serve humanity by improving health." Our internal tagline is "Making People Healthy," and everyonefrom the people who clean our uniforms through cafeteria workers to the doctors and nurses and professorshelps us strive to do just that. Increasing understanding of role clarity at all the levels of staff is one of the benefits of balance score card process. By establishing a consistent way to look at our progress and identify what we are trying to achieve, we can understand that we are on the path toward success. To help focus our efforts, overall organizational goals are established by following categories:

Quality People and the Workplace

Financial Strength Discovery and Innovation Knowledge and Innovation The early involvement of human resources was particularly important in setting our objective, as our balanced score card needed to reflect objectives related to forging a new organizational culture as a unified health care system. Our next step was to develop key measures for each goal to let us know how we are progressing and when we have achieved a goal.

Case study1 (Emory Health Care) It underwent a major structural change from independent operating units to integrated health care system. Bringing together three hospitals and two faculties was no small task, but the emergence of Bsc played a significant role in achieving success. Emory Health care (EHC) underwent a major structural change from independent operating units to an integrated health care system, that mean a new structure and the need for a unified organizational culture, but it also meant a need for new strategic imperatives. Bringing together three hospitals and two faculty practices was no small task, but the emergence of a balanced scorecard approach played a significant role in achieving success.

Case II: A Taka 220 crore conglomerate in Bangladesh with a presence in pharmaceuticals, consumer brands, animal health and crop care products, wanted to formulate a strategic plan and make it operational.
Tata strategic management group was asked to enable this by using the Balance Score Card (BSC). TSMG developed a strategy map for all businesses and support function. The map established the link between strategic objectives

The Process followed was

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under four perspectives: Financial, Customer, Internal Processes and learning and growth. Metrics was identified for each objective, ensuring relevance, data availability, ease of implementation and comprehension. Depending on the roles and responsibilities of individuals, BSCs were developed for the top and middle management. To facilitate its smooth roll out TSMG ensured that the BSC process was understood by people in the client organization responsible for its implementation and modification. The BSC process has helped the client align the roles and responsibilities of individuals in the organization with the overall strategic direction.

Linking

Balanced

Score

Card

to

Performance Management system:

Normally, when strategies are drafted studies say only 2/3 of senior executives understand how the strategy relates to their own job. Secondly, when it is communication only 1\10 of shop floor staff understand how the strategy relates to their own job. The solution to this problem is Balance scorecard should be linked to performance management.(This is explained with help of process model) Bill Jensen in his book suggests that a leading cause of work complexity is unclear goals and objectives. The system will only be effective when the organization has alignment of goals from top to bottom. When the employees know their day to day actions are contributing to the achievement of the company's strategy. When the performance is rewarded for non-performance management is given feedback. The highest level of Balanced score card i.e. when in based on the mission, values, vision strategies are planned. This planning is on the corporate level where in the planning is done by top management people. Planning is done taking into consideration the four perspectives i.e. financial, customer, internal processes and learning and growth objective. Each of the perspectives is further planned on the basis of each objective, measures to achieve the objective, targets are set and initiative specified. Once the corporate levels are set the objectives and measures contained in that scorecard are the driven down to the next level i.e. Business Level scorecard is then planned using similar method. At the third level, departmental goals and objectives are set. Further the individual KRA are defined, and individual goals are set. Through these goals, we are trying to link the organizational goal with the individual goal.

Organizations at this level will gain the maximum value from the Balanced Scorecard by ensuring that all employees, regardless of function or level, have development objectives and measures that align with overall organization objective. These processes will be effective if Balance Scorecard will be linked to performance management system. By having an effective Performance management system i.e. right from setting the individual goals and objective until conducting the appraisal of the employee a systematic process should be followed. After appraising the employee, there should be a proper system of feedback. The performance should be linked to the incentive only then there will be a motivation amongst the employees. Furthermore, decisions like Promotions, Career Planning, job rotation, and Training needs should be taken. Thus using the balanced score card along with the objectives that result from a system goal, staff members have a clear sense of the organization direction, their role and the benefits associated with accomplishing those goals. Process model Linking Balance score Card to Performance Management System

Developing a balance scorecard as an organization driver can be an arduous task. However, havithrough the processes and seeing the power of balanced scorecard that is linked to the strategic plan and performance monitoring system, we know it is well worth doing it.

6. Conclusions
Balanced Score card as seen is a most effective strategic tool. Initially introduced in early 1990 as a way to help company translate their corporate mission to all levels in an organization, the balanced scored if linked to performance

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management system will help organization objective to individual objective and achieve the goal of the organization. This research paper is based on the secondary research. It can be further studied by conducting primary research and can check the effectiveness of this linkage using variables.

performance management system within a project based organization, International Journal of Productivity and Performance management Vol 56 No.1 pg 60-75. 10. Angarkar, Ajay M, Kirkwood, Teresa, Linking Learning strategy to Balanced Score Card, Chief Learning Officer, July 2007, Vol 6 Issue 7,p-38-52 11. Peg bloomquist and Julia Yeager(2008),, Using balanced scorecard to AlignOrganizational Strategies Journal of Management Accounting and Research, Vol 10 Issue 4 pg24-28. 12. T.K.Mukharjee and Ms Smita Pandit(Chakraborthy),(2009) Role of Business Balanced Score Card(BSC) in Performance Management ,Globsyn Management Journal , Vol 3, Jan-June 2009 pg-50-55. 13. Sanchez, Hynuk;Robert, Benoit, Measuring portfolio strategic performance using Key performance indicators. Journal of Project Management Dec 2010, Vol 41 Issue 5,p6473,10p. 14. Shaked, David, A strength based approach to metrics, scorecards and Performance reviews, AI Practitioner, 2010, Vol 12 Issue 3, p50-55 15. Yee Ching Lilian Chan,CMA(2007) Cascading a clear focus- how strategy maps are helping to create a clear coherent focus throughout Ontario's health system, Canadian Medical Association(CMA).

References
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