Introduction
Strategic management concepts have become crucial in helping an organization to thrive in the current business environment that tends to be highly competitive. Success is attained by such concepts in the existence of modes of measuring the performance of the organization. Through such measuring strategies, the organization can set indispensable constraints for it to achieve its goals. Financial measurement tools preceded the use of the balanced scorecard (BSC), which came into operation in the 1990s. It amalgamated other methods of performance measurement such as client and learning perspectives. Before the establishment of the BSC, the use of financial measures to appraise organizational performance had begun to receive opposition from managers. BSC narrowed down the focus of managers to only the most vital measures, which in turn made it less complicated to monitor and estimate the progress of a company’s performance. The BSC was an opportune solution to the increasing intricacies that came with managing organizations, especially due to its international applicability. There is no question as to how important the BSC is, but it is important to scrutinize its applicability to both the companies that deal with service delivery and production of goods. This paper analyses the development and use of the BSC in both types of organizations.
The Application of the BSC in Production and Service Organisations
To determine the advancement and function of the BSC in production and service organizations, it is vital to evaluate the intention behind its development. The evaluation must consider the essence of such roles to the critical measurement areas of both types of organizations. This section analyses two elemental ends that are achieved through BSC when it comes to performance measurement and strategic management.
Estimating a Company’s Performance
Conventionally, production and service businesses used financial measures to assess performance. However, a question has arisen as to whether BSC can oust the use of the financial measures. This dilemma has led to numerous scholarly discussions concerning its practical applicability. According to Broccardo (2010), in high-performing companies, financial elements are only useful in identifying just a few of the many performance variables. They mainly indicate shallow financial measurement results. However, for the BSC to be effective, it is necessary for the measures selected to be responsive to the needs of the organization. Besides, the measures should be at par with the respective company’s image to the shareholders. Therefore, the BSC focuses on not only the organization’s performance levels in the preceding financial period but also on the company’s performance levels in the upcoming fiscal years. It is this ability to focus on the future years of an organization that makes BSC the most effective in coming up with the most efficacious methodology of attaining the target performance levels based on the prepared financial statements. Therefore, the BSC can show both the past and the likely performance level of a production or service organization.
One of the principles that BSC is founded on includes its lack of focus on objectives and long-standing goals of the organization’s performance. Instead, it emphasizes observing and evaluating the performance of the organization’s employees. The BSC is a semi-standardized synchronized instrument for measuring the strategy performance of an organization. Automation tools and design processes offer effective support to the BSC. According to Broccardo (2010), the pioneer model of the BSC had four main angles that included the client, monetary, knowledge, and expansion, as well as in-house processes. The customer angle refers to the wants and requirements that the clients have together with what they expect the organization to accomplish for them. Kellermans et al. (2013) aver that a business stands a greater chance of attaining competitive advantage when it deals with the wishes of its stakeholders, the most important of them being the clientele. Thus, the BSC helps an organization to change its manner of handling service and production operations to suit the expectations of the clientele by providing instruments of evaluating the anticipations of the consumers. As a result, the present and potential performance of an organization are boosted through encouraging and retaining customer allegiance.
BSC’s internal organizational element relates to strategic measures that are important in improving business performance. BSC centers on the excellence of the performance of all the internal processes of an organization. It also improves the propensity and expertise of the employees of an organization. The angle of organizational learning and growth provides knowledge that can be of help to the organization in terms of value addition and/or enhancing competitiveness. Therefore, it improves the overall performance of an organization by creating opportunities and dynamic strategies that are progressive to both production and service organizations.
Hence, to come up with a BSC, it is important to observe some particular stages. The first step involves the financial and limited non-monetary measures. It is vital to assign feasible and specific targets to them to make it easy to monitor and regulate the expectations of a company. In some cases, there may be notable deviations from the set targets. In such circumstances, managers are expected to apply performance improvement mechanisms. The process requires service and production organizations to be flexible in their working goals. The pioneer BSC model provided five to six measures for every one of the four elements. This situation brought about a challenge in selecting the most effective measure per element. For this reason, Broccardo (2010) modified the model to pave way for flexibility in its application.
Performance measurement differs based on the diversity of situations that affect different organizations. This situation makes it necessary to apply different approaches and strategies to aid in the measurement of organizational performance. Considering that production and service organizations operate under different environments, which expose them to diverse conditions, the modification of the BSC becomes more relevant. The flexibility of the modified model makes it more applicable to a wider range of organizations. The flexibility allows the BSC tool to adjust to different conditions while giving a new outlook that can operate for the betterment of the organization and its stakeholders. Kellermans et al. (2013) assert that the original model of the BSC is unable to apply to organizations that experience exceptional needs. On the other hand, the modified version achieves flexibility by including a balancing tool that enables it to undertake both the role of strategic management and measuring performance. These tools include change and business continuity, enterprise and customer factors, and proactive and reactive organizational driving forces (Kaplan & Norton 1993).
Applying the Balanced Scorecard as a Strategic Management Instrument
Strategic management entails a methodical and comprehensive process that is applied by organizations concerning the use of their resources. The process converts stagnant plans into dynamic approaches that ensure the stable orientation of the activities of an organization with its mission, vision, goals, and objectives (Northcott & Taulapapa 2012). Strategic management aims to guarantee learning and growth, as well as adaptability of an organization to the varying internal and external operational environment. Service and production organizations need to have a mode of evaluating their strategies for the success of the strategies to be considered in the process of decision-making. Thus, BSC is effective in fulfilling this requirement.
The original BSC model offers a means for expediting its application in the process of strategic management. Kaplan and Norton (1996) regard organizational vision translation, business planning, communication, and feedback and learning important in allowing the use of BSC in the process of strategic management. Vision translation involves formulating clarifications concerning the success strategies of an organization, as well as establishing a consensus of the set goals by ensuring that they are in line with the organizational agenda. Its chief aim is to translate approaches used in strategic management into operational terms that are crucial in offering a means of directing strategy implementers towards the primary goal of an organization.
Effective strategic management involves ardent communication of strategies across and along with the hierarchical structure of the organization. The architecture of the BSC paves room for communication and relation of strategic perspectives in the organization. For this reason, managers can develop the capacity to enhance operational communication within the organization. Through BSC business planning methodologies, service and production organizations can merge their financial policies with their business plans. The merger makes the BSC narrow its focus on the elemental initiatives, thus facilitating the achievement of the long-term goals and objectives of the organization. However, the combination of the organization’s business plans and financial policies does not deal with the challenge of evaluating the efficiency of the plans. BSC resolves the challenge using feedback and learning angles. It uses feedback reviews to examine the capability of organizational departments and individual employees to work in line with the budgeted financial goals.
According to Kaplan and Norton (1993), Rockwater and Apple are illustrations of organizations that have effectively used the BSC to act as both a tool of performance management, as well as a strategic management guide. Apple has deployed the BSC to plan for its long-term performance. It has centered on boosting its market share globally, raising the value of its shares, encouraging the commitment of its workers, and satisfying the consumers. Since its inception by Steve Jobs, the Apple Computer Company has grown to become a respected player in the telecommunication industry. Much of this success can be accredited to the senior administrators’ effective use of the BSC to launch an approach that would increase its gross margin and market share. The company assigned a team that was conversant with Apple Company’s top management strategic approaches to focus on the BSC measurement perspectives. The team regrouped each category to address various aspects of the firm.
The customer satisfaction scorecard evaluated the effort of staff members in ensuring that their services were customer-driven. The move was a shift from Apple’s traditional approach of being product-oriented since it strives to supply products that out-win those of its competitors. Although it had hired J.D Power & Associates to assist in surveying its customer preferences, it opted to conduct an independent analysis to understand the various parts of the world that was not ignored by its hired surveyor. The team also assessed the performance in line with the firm’s core competencies, despite the apparent challenges. Moreover, the team performed methodical employment to determine whether the employees comprehended its strategies. The goal was to devise mechanisms for accomplishing the goals. The market share and shareholder value were also keenly monitored to ascertain the success of the company towards attaining a specific verge in the market and the growth of its shareholders (Kaplan & Norton 1993). The performance pointers have been instrumental in assisting the top executives to use BSC as a planning tool, rather than a control instrument. Notably, except shareholder value, all the other indicators can be viewed horizontally and vertically. Consequently, the plan has ensured the use of the BSC when deciding the business plans that need to be launched and/or how to reward its employees.
The impact of BSC on Rockwater is also impressive. The company is a key player in the underwater engineering and construction industry. It is also a legitimate branch of Brown & Root/Haliburton. When the company underwent leadership reform in 1989, the new administration acknowledged the tough competition and forced smaller companies to vacate the industry. It also noted the adjusting nature of competition since most oil firms opted to establish prolonged partnerships with providers instead of using low-price competition as a criterion for selecting suppliers. Consequently, the leaders recognized that it would benefit the company if they focused on improving the safety and quality principles. To achieve the vision, the company constructed key strategies, which were then converted into practical goals. The vision or approach to overcome the fierce competition was also modified to the BSC set of performance valuations.
Foremost, Rockwater had a set of financial measures, which comprised return-on-capital, sales backlog, as well as profitability. The performance measures helped the shareholders to regulate the uncertainties of performance. Secondly, the company developed a customer satisfaction measure to evaluate its connection with two categories of clients while promoting a value-oriented business. It contracted an independent firm to perform an annual survey on the customer perception of its services. It used the findings to improve its customer satisfaction strategies. Moreover, the management also devised internal processes measures by considering the life cycle of the processes. The scorecard recorded all the unwanted situations in the company and their potential impact. With such measures, it was well placed to keenly pinpoint and fulfill its customer needs. The level and impact of innovation were also evaluated to determine its influence on the company’s clients, revenue, and internal processes. Moreover, the executives initiated a survey to measure the level of staff attitude to ascertain whether there was a supportive environment for innovation and improvement.
The BSC has been critical in reacting to changes in situations that Rockwater’s business environment face. The company may be slow in adopting external reporting, but such reporting can be used to attain this role in strategic management. Through the BSC, the company succeeded in establishing a conducive climate to keep employees motivated in offering quality services and/or improving their performance by integrating customer feedback into their processes. Additionally, besides boosting its relationship with major clients, the BSC improved its management and safety of every stage of a multi-year assignment. The executives concur that the BSC has turned out to be an irreplaceable tool for accomplishing companies’ objective of dominating their respective industries (Kaplan & Norton 1993).
Role of a Balanced Scorecard in Service and Production Organisations
The BSC may be implemented for use in both service and production organizations. However, it is vital to add perspectives proposed by Broccardo (2010) to improve its customization to meet the actual requirements of an organization’s measurement. In the service industry such as restaurants, he classifies five perspectives that require to be measured. They include the financial, buyer, eatery custodian, domestic processes, and human resources points of view. In applying the BSC, the monetary perspective attains the function of indicating the achievement of business goals in both service and production organizations. This goal is indicated by the amplified revenue and profitability. The customer’s standpoint reflects the gratification of the consumer in service organizations. As opposed to the production company, both the customer and the human resource need to be satisfied for the organization to realize high performance.
After successful strategies have been formulated, an organization needs to apply effective mechanisms for strategy implementation. To measure the contribution of the implemented strategies to the performance of an organization, there must exist ways of evaluating the business perspectives of an organization. The lack of such means creates a challenge that necessitates the development of a tool such as the BSC to measure the performance dynamics of both the service and production organizations. Scholars such as Kaplan and Norton (1993) aver that the BSC is a successful means of guaranteeing the development of inclusive tools for adjusting strategic aims to operate in line with the BSC measures. It helps in solving an array of business challenges by identifying organizational business perspectives that are likely to fail, thus achieving the anticipated levels of performance. Therefore, the tool is useful for both the service and production industries.
A situation where high fiscal performance is reported but no tool can be used in evaluating the performance of the firm in managing customer relationships is a typical condition under which the BSC is applicable. In such a case, there is the probability that the high financial performance may only occur for a short period. The BSC acts as both a measuring tool and a management system by merging diverse perspectives and factors for the durable performance of both the production and service firms.
There has been a positive response to the BSC in the business world. This observation indicates that it is increasingly being recognized for its role in the service and production industry. Studies have been conducted on the tools that are used by organizations to appraise their performance. The results reflect that the majority of the mechanisms used are comparable to the BSC model. The tool is effective in measuring both financial and non-financial aspects of an organization (Northcott & Taulapapa 2012).
Conclusion
Executives rely on performance data to make proper discernments that can drive the company towards achieving its mission and goals. Since strategic management decisions are highly influenced by performance information, there is the need for managers to ensure that they use proper evaluation tools to assess performance. Through the discussion, it is evident that BSC is an invaluable tool for evaluating performance for production and service companies, as well as in strategic management. Companies such as Apple and Rockwater have been successful because of making proper decisions using the BSC. Kaplan and Norton’s BSC Model provides a multifaceted technique for quantifying performance, unlike the traditional methods. Hence, BSC should be considered by most enterprises. Nonetheless, for businesses that focus on service and production, there is the need to adjust the model to fit the exclusive needs of the given company.
References
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Kaplan, R & Norton, D 1996, ‘Using the Balanced Scorecard as a Strategic Management System’, Harvard Business Review, vol. 74, no. 1, pp. 75-85.
Kellermans, W, Floyd, W, Veiga, W & Matherne C 2013, ‘Strategic Alignment: A missing link in the relationship between strategic consensus and organisational performance’, Strategic Organisation, vol. 11, no. 3, pp. 304–328.
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