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Foundation of Balanced Score Card
Incidentally, the four prospective
frameworks on Balance Score Card reflects the evolution of
Management thinking in modern times.
If we look at the period from 1850 to
1975, it is the traditional phase in which Management
thought focused on financial parameters. In next phase from
1975 to 1985 management thought focused on customer
awareness and though making money continued to be the aim,
emphasis was given to achieving these thru selling products,
serving customers. The next phase from 1985 to 1995 can be
called internal business processes phase. During this period
Management’s primary aim continued to be making money, but
was focused on internal process like quality assurance,
business process re-engineering, Total Quality Management,
core competencies. The period from 1995 till date can be
called the People’s Phase. In this period Management
thinking has focused on people as “the only competitive
advantage.”
The above four phases in evolution of
management thinking are encompassed in the four perspectives
of Balance Score Card.
Balance Score
Card as a Performance Management System
We are all familiar with use of
scorecards for individual performance. For instances in
schools we had individual mark sheets and in organizations
we have our individual bonuses and rewards.
BSC is a scorecard for an organization
as a whole (occasionally for function in the organization
like HR score card).
BSC can be compared to the dashboard of
a car. While driving the car we need to look at few things
(not all the things that are going inside the mechanical
body of the car). The dashboard of the car provides
measurements which are essential to driving the car.
However, non-essential measurements like car tire pressure
are not displayed on the dashboard.
Similarly in an organization, Balance
Score Card identifies selected measurements, which are
required to navigate the organization forward through the
uncertain future. In other words, the important parameters
which CEO needs to monitor are captured in the BSC. BSC
serves as performance management system for the
organization. The specific dials / measurements needed in
BSC flow from the mission / vision / strategy and as & when
the strategy undergoes a change, the dials which need
monitoring also change.
BSC as a
Management System:
Corporate objectives flow from SWOT
analysis of the company and vision and mission statements.
Based on corporate objectives, corporate Balanced Score Card
is drawn up. In the BSC strategic measures, targets and
action plans are defined. Based on this, these objectives /
measure are cascaded to individuals through Individual
Performance Measures (IPMs).
Advantages of
BSC to Organization:
The BSC provides a strategy map for the
whole organization. Some of the advantages are:
ü It helps to
navigate the organization like a dashboard in a car
ü It aligns entire
organization
ü It brings clarity /
transparency in understanding. Accountability also improves.
The combination of transparency and
accountability is a killer combination and it brings a
highly performance oriented culture in the organization.
Month on month when we watch the dashboard of organizational
performance, departments and people who are not able to make
it, become obvious. It brings in a “Shape up or ship out,”
culture.
Implementation
of BSC in an organization
Implementation of BSC in an
organization can take 4 to 6 months. In first 1 to 2 months,
the consultants identify the measurements which need to be
included in the Balanced Score Card. Experience indicates
that 80 to 85% of the measures which an organization is
already using find a place in the Balance Score Card.
However 15 to 20% of new measures are also added which is
really an indication that objectives / measures of strategy
are being dovetailed in the BSC.
In the 4 to 5 months, the consultants
help in cascading down the Balanced Score Card. Measures /
Targets are set for all levels from the CEO to down. It is
felt that strategic objectives have a place up to L4 in the
organization (L1 being the CEO, L2 being direct reports CEO
and so on).
Difference
between MIS and BSC:
Most companies have MIS (Management
Information System), which involves reporting of many
measurements. The difference between MIS and BSC are as
follows:
(i) In MIS there are
literally hundreds or even thousands of thing that we want
to measure. However in BSC only a few of them are
selected those which have strategic significance.
(ii) MIS tends to measure
what is easily available. However BSC adds 15 to 20% new
measure to an organization. These are the missed-out
strategy measures which need to be on the radar.
Pitfalls in
implementation of BSC
Experience shared by people who have
been part of BSC implementation shows that some of the
pitfalls / precautions as under:
(i) Sometimes too many
strategic objectives are put in a single BSC. If the
objectives become unachievable, people tune-off from BSC.
(ii) People may resist or
dislike the measurement. So we have to do our best to carry
them and create an environment in which people are not
afraid about being measured.
(iii) For implementation of
Balance Score Card upto and including the lowest levels in
the organization, it must be a top driven initiative & top
management support is essential.
(iv) Simplicity is
important. If people feel that BSC has made their life
difficult then they would resist.
Contributed
by Rajeev B Bhatnagar
DGM- Personnel, Larsen & Toubro
Limited, Chennai. Email:
Rajeev@HREra.com
or
Rajeev@Lntecc.com |