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TERM PAPER
MGT
622

TOPIC: Implementing strategy with balance scorecard.

SUBMITTED BY SUBMITTED BY

CHADNAN KUMAR SINGH NEHA TIKKO

SEC. RT1902A-27
REG NO.10903162
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Table of Content
S Topic Page
No. No.
1 Acknowledgement 03
2 Objective of the study. 03
3 The Purpose of the Study 04
4 Review of Literature 04
5 Introduction of Balance Scorecard 05
6 Strategy of Balance Scorecard 07
7 The process of building a Balance Scorecard 08
8 Advantage of Balance Scorecard 11
9 Disadvantage of Balance Scorecard 12
10 Conclusion 13
11 Reference 13

ACKNOWLEDGEMENT
I provide full justice to this term paper which is prepared by visiting various web-
sites, magazines, articles etc.
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I would like to take an opportunity to thank all the people in collecting the
necessary information and making of the report. I am grateful to all of them for
their time and wisdom.

My project becomes a reality only due to cooperation of many people who had
helped me in completing this project. I sincerely extend my gratitude to Neha
Tikko who has given me this precious opportunity to have known about the
balance score card and how organization use this for improve his potential.

Objective of the study.

 To know about the balance scorecard.

 To know how the organization use this tool for his improvement.
 Study the all perspective of Balance Scorecard.
 To understand the Implementing strategy with balance scorecard.

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The Purpose of the Study
As we know that The tool has become a weapon for organizations to identify the pressure points,
conflicting interests, objectives setting, prioritization of objectives, planning and budgeting. The
four main important steps that need to be taken care of are –
1. Translating the Vision
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It is to be remembered that the vision of any organization should be understood by each and
every employee of the organization. If it is understood by the top management only, then it is
definite that the organization will fail to realize its goals.
2. Communicating and Linking
Just communicating the vision and the strategies is not an end in itself. The strategic goals and
the measures to be set in the different areas have to be decided upon.
3. Business Planning
This step helps in the resource allocation process. One has to keep in mind that objectives form
an important criteria in deciding the quantum of resources that are required to be allocated to the
various departments, activities and the processes.
Review of Literature.
Shawna M, Houston TX, (2008). This paper discusses one of the more popular performance
management tools that has emerged, known as the balanced scorecard, and notes that, when
properly administered, the balanced scorecard approach provides a company's leadership with
the information they need to remain competitive and identify opportunities for improvement. The
paper notes also that to date, the vast majority of studies of how the balanced scorecard has been
used successfully have focused on larger companies. The paper develops the relevant
background required to make some informed decisions concerning what type of performance
metrics would be useful for smaller companies, with a tire trader in Qatar representing the
primary focus. The relevant peer-reviewed, scholarly and organizational literature and case
studies are provided by the paper for conclusions and recommendations. 

Brignall, S., & Ballantine, J. (1996). The balanced scorecard is a performance management
system that enables businesses to drive strategies based on measurement and follow-up. Since
the early 1990s the balanced scorecard has been applied in numerous large organizations
resulting in many positive results that have been chronicled in the management literature.
However, there are few studies addressing the use of a balanced scorecard within small
companies. Hence, this paper presents a discussion of the key elements of the balanced scorecard
and its applicability to small business.

Amaratunga, RDG, Baldry, D and Sarshar,(2001). One of the hallmarks of leading-edge

organisations – be they public or private – has been the successful application of performance
measurement to gain insight into, and make judgements about, the organisation, and the
effectiveness and efficiency of its programmes, processes, and people. The balanced scorecard
(BSC) is a widely used management framework for the measurement of organisational
performance. The BSC concept suggests that the state of processes of an organisation can be best
assessed by taking a “balanced” view across a range of performance measures. This article seeks
to offer an insight into the BSC, the key features of the concept and issues that must be addressed
in its implementation as a process improvement technique. Further, it identifies the BSC
methodology as a means of deploying strategic direction, communicating expectations, and
measuring progress towards agreed objectives.
Ilyoun Song,( e.al), (2008). The purpose of this paper is to show how to apply the Balanced
Score Card Model to evaluate technology for commercialization. In evaluation of technology for
commercialization, emphasis has been on the ‘value of technology’. However, this approach has
limitation in the sense that possibility of success of the technology when it is put in practice is
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not explicitly evaluated. In order to better evaluate possibility of successful implementation of

technology to be transferred, we need to evaluate not only economic value of the technology
itself or the necessary conditions but also capacity of the firm to succeed in commercialization of
the technology or sufficient conditions for success. This article is going to show how to examine
the sufficient conditions for success of technology transfer by using the balanced score card for
valuation of technology for commercialization.
Abhijit Sinha (March 2006). The success of any organization is reflected upon by its
performance which is in turn highly dependent upon its strategies. In this era of cut-throat
competition, what an organisation requires is not just framing the right strategies, but also
managing the same. The impact of the right strategies will automatically be reflected in the
results. Moreover, any organisation has to understand that it needs to give impetus not only
towards the financial results but also towards satisfaction of the customers, development of state-
of-the-art technologies and creation of an environment of learning and growth. The Balanced
Scorecard is such an innovative tool which has considered not just the financial indices but also
the non-financial indicators as equally critical in determining organizational performance. This
tool brings a link between strategy and action. Due to these, the framework is gaining increasing
importance among different business houses.

The Balanced Scorecard

Traditional financial performance metrics provide information about a firm's past results, but are
not well-suited for predicting future performance or for implementing and controlling the firm's
strategic plan. By analyzing perspectives other than the financial one, managers can better
translate the organization's strategy into actionable objectives and better measure how well the
strategic plan is executing.

The Balanced Scorecard is a management system that maps an organization's strategic

objectives into performance metrics in four perspectives: financial, internal processes, customers,
and learning and growth. These perspectives provide relevant feedback as to how well the
strategic plan is executing so that adjustments can be made as necessary. The Balance Scorecard
framework can be depicted as follows:

The Balanced Scorecard Framework

   

Financial
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Performance

 Objectives
 Measures
 Targets
 Initiatives

Internal
Customers
Processes
Strategy  
 Objectives
 Objectives
 Measures
 Measures
 Targets
 Targets
 Initiatives
   Initiatives

     

Learning
& Growth

 Objectives
 Measures
 Targets
 Initiatives

The Balanced Scorecard (BSC) was published in 1992 by Robert Kaplan and David Norton. In
addition to measuring current performance in financial terms, the Balanced Scorecard evaluates
the firm's efforts for future improvement using process, customer, and learning and growth
metrics. The term "scorecard" signifies quantified performance measures and "balanced"
signifies that the system is balanced between:

 short-term objectives and long-term objectives

 financial measures and non-financial measures
 lagging indicators and leading indicators
 internal performance and external performance perspectives
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Financial Measures Are Insufficient

While financial accounting is suited to the tracking of physical assets such as manufacturing
equipment and inventory, it is less capable of providing useful reports in environments with a
large intangible asset base. As intangible assets constitute an ever-increasing proportion of a
company's market value, there is an increase in the need for measures that better report such
assets as loyal customers, proprietary processes, and highly-skilled staff.

Consider the case of a company that is not profitable but that has a very large customer base.
Such a firm could be an attractive takeover target simply because the acquiring firm wants access
to those customers. It is not uncommon for a company to take over a competitor with the plan to
discontinue the competing product line and convert the customer base to its own products and
services. The balance sheets of such takeover targets do not reflect the value of the customers
who nonetheless are worth something to the acquiring firm. Clearly, additional measures are
needed for such intangibles.

Scorecard Measures are Limited in Number

The Balanced Scorecard is more than a collection of measures used to identify problems. It is a
system that integrates a firm's strategy with a purposely limited number of key metrics. Simply
adding new metrics to the financial ones could result in hundreds of measures and would create
information overload.

To avoid this problem, the Balanced Scorecard focuses on four major areas of performance and a
limited number of metrics within those areas. The objectives within the four perspectives are
carefully selected and are firm specific. To avoid information overload, the total number of
measures should be limited to somewhere between 15 and 20, or three to four measures for each
of the four perspectives. These measures are selected as the ones deemed to be critical in
achieving breakthrough competitive performance; they essentially define what is meant by
"performance".

A Chain of Cause-and-Effect Relationships

Before the Balanced Scorecard, some companies already used a collection of both financial and
non-financial measures of critical performance indicators. However, a well-designed Balanced
Scorecard is different from such a system in that the four BSC perspectives form a chain of
cause-and-effect relationships. For example, learning and growth lead to better business
processes that result in higher customer loyalty and thus a higher return on capital employed
(ROCE).

Effectively, the cause-and-effect relationships illustrate the hypothesis behind the organization's
strategy. The measures reflect a chain of performance drivers that determine the effectiveness of
the strategy implementation.
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Objectives, Measures, Targets, and Initiatives

Within each of the Balanced Scorecard financial, customer, internal process, and learning
perspectives, the firm must define the following:

 Strategic objectives - what the strategy is to achieve in that perspective.

 Measures - how progress for that particular objective will be measured.
 Targets - the target value sought for each measure.
 Initiatives - what will be done to facilitate the reaching of the target.

The following sections provide examples of some objectives and measures for the four
perspectives.

Financial Perspective

The financial perspective addresses the question of how shareholders view the firm and which
financial goals are desired from the shareholder's perspective. The specific goals depend on the
company's stage in the business life cycle.

For example:

 Growth stage - goal is growth, such as revenue growth rate

 Sustain stage - goal is profitability, such ROE, ROCE, and EVA

 Harvest stage - goal is cash flow and reduction in capital requirements

The following table outlines some examples of financial metrics:

Objective Specific Measure

Growth Revenue growth

Profitability Return on equity
Cost leadership Unit cost

Customer Perspective

The customer perspective addresses the question of how the firm is viewed by its customers and
how well the firm is serving its targeted customers in order to meet the financial objectives.
Generally, customers view the firm in terms of time, quality, performance, and cost. Most
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customer objectives fall into one of those four categories. The following table outlines some
examples of specific customer objectives and measures:

Objective Specific Measure

New products % of sales from new products

Responsive supply Ontime delivery
To be preferred supplier Share of key accounts
Customer partnerships Number of cooperative efforts

Internal Process Perspective

Internal business process objectives address the question of which processes are most critical for
satisfying customers and shareholders. These are the processes in which the firm must
concentrate its efforts to excel. The following table outlines some examples of process objectives
and measures:

Objective Specific Measure

Manufacturing excellence Cycle time, yield

Increase design productivity Engineering efficiency
Reduce product launch delays Actual launch date vs. plan

Learning and Growth Perspective

Learning and growth metrics address the question of how the firm must learn, improve, and
innovate in order to meet its objectives. Much of this perspective is employee-centered. The
following table outlines some examples of learning and growth measures:

Objective Specific Measure

Manufacturing learning Time to new process maturity

Product focus % of products representing 80% of sales
Time to market Time compared to that of competitors
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Achieving Strategic Alignment throughout the Organization

Whereas strategy is articulated in terms meaningful to top management, to be implemented it

must be translated into objectives and measures that are actionable at lower levels in the
organization. The Balanced Scorecard can be cascaded to make the translation of strategy
possible.

While top level objectives may be expressed in terms of growth and profitability, these goals get
translated into more concrete terms as they progress down the organization and each manager at
the next lower level develops objectives and measures that support the next higher level. For
example, increased profitability might get translated into lower unit cost, which then gets
translated into better calibration of the equipment by the workers on the shop floor. Ultimately,
achievement of scorecard objectives would be rewarded by the employee compensation system.
The Balanced Scorecard can be cascaded in this manner to align the strategy thoughout the
organization.

The Process of Building a Balanced Scorecard

While there are many ways to develop a Balanced Scorecard, Kaplan and Norton defined a four-
step process that has been used across a wide range of organizations.

1. Define the measurement architecture - When a company initially introduces the

Balanced Scorecard, it is more manageable to apply it on the strategic business unit level
rather than the corporate level. However, interactions must be considered in order to
avoid optimizing the results of one business unit at the expense of others.

2. Specify strategic objectives - The top three or four objectives for each perspective are
agreed upon. Potential measures are identified for each objective.

3. Choose strategic measures - Measures that are closely related to the actual performance
drivers are selected for evaluating the progress made toward achieving the objectives.

4. Develop the implementation plan - Target values are assigned to the measures. An
information system is developed to link the top level metrics to lower-level operational
measures. The scorecard is integrated into the management system.

Balanced Scorecard Benefits

Some of the benefits of the Balanced Scorecard system include:

 Translation of strategy into measurable parameters.

 Communication of the strategy to everybody in the firm.

 Alignment of individual goals with the firm's strategic objectives - the BSC recognizes
that the selected measures influence the behavior of employees.
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 Feedback of implementation results to the strategic planning process.

Since its beginnings as a peformance measurement system, the Balanced Scorecard has evolved
into a strategy implementation system that not only measures performance but also describes,
communicates, and aligns the strategy throughout the organization.

Potential Pitfalls

The following are potential pitfalls that should be avoided when implementing the Balanced
Scorecard:

 Lack of a well-defined strategy: The Balanced Scorecard relies on a well-defined strategy

and an understanding of the linkages between strategic objectives and the metrics.
Without this foundation, the implementation of the Balanced Scorecard is unlikely to be
successful.

 Using only lagging measures: Many managers believe that they will reap the benefits of
the Balanced Scorecard by using a wide range of non-financial measures. However, care
should be taken to identify not only lagging measures that describe past performance, but
also leading measures that can be used to plan for future performance.

 Use of generic metrics: It usually is not sufficient simply to adopt the metrics used by
other successful firms. Each firm should put forth the effort to identify the measures that
are appropriate for its own strategy and competitive position.

Advantages of a Balanced Scorecard

Balance
 The primary benefit of a balanced scorecard is the balance itself. Rather than focusing on a specific
area of performance---usually financial---business leaders learn to consider the full spectrum of business
performance. In addition to financial measures, they look at measures of customer experience, employee
development and retention and process efficiency. This prevents the problems that can arise when performance
in one area is improved simply by sacrificing another area, which does not represent a sustainable solution.

Scalability
 Generally balanced scorecards reflect overall company performance at the highest level. But an
advantage of the scorecards is that they are scalable: the same or related metrics can be used at different levels
of operations to assess performance. In fact, some businesses actually use the term "balanced scorecard" to
refer to the performance management system used to track individual employee performance. Metrics for
evaluating individual performance should tie directly to the metrics used at the department and company level.
They should follow the same principle of balancing the needs of different stakeholders, and should focus not
only on what is accomplished but on how it is accomplished.
Customer Focus
 The balanced scorecard inherently highlights the customer perspective, rather than focusing solely on
internal business goals and financial outcomes. Understanding and responding to customer requirements is a
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critical component of quality methodologies, and is a prerequisite for implementing sustainable improvements
to processes and products.

Employee Focus
 Business leaders who incorporate a balanced scorecard also gain insights into the employee
experience. Metrics in the growth and development area provide information about employee satisfaction,
which ultimately affects employee retention and thus business productivity and profitability. They may also
include assessments of the success of employee development and succession planning efforts, which are
necessary for business growth. In addition, many employees appreciate that their performance metrics are tied
in a direct way to overall business performance, making the measurement system seem more fair and
appropriate.

Proactive Approach
 The balanced scorecard methodology helps leaders move from reactive mode to proactive mode. A
good scorecard contains not only output or result metrics, but also metrics that provide insight about ongoing
performance and drivers that influence results. Thus managers maintain awareness of performance levels and
any problems that arise, so that action can be taken to mitigate the effects. For instance, process errors or
customer complaints can be addressed before they lead to reduced customer retention, increased defects and a
reduced profit margin.

The Disadvantages of Balanced Scorecards

 A balanced scorecard is a management tool that businesses use to track how well a staff of people
executes their required activities. The tool evaluates activities in four categories: financial, customer,
internal business processes, and learning and growth. The balanced scorecard tracks the objectives, measures,
targets and initiatives of each subset. The scorecard has improved some businesses, but it is no cure-all,
especially for companies who have shaky finances and not enough time to implement a company-wide plan.
Plan Upkeep
 There are many different elements that go into creating a balanced scorecard. Once the scorecard is
created, the nature of your business can change over time, requiring you to change the scorecard. There are
software programs that can manage the scorecard upkeep, but choosing the wrong one may set back your
company's ability to evaluate employees. If your company cannot put in the time to create and change the
scorecard, it might not be a good solution for your business.

High Initial Cost

 Implementing a balanced scorecard system (or any new system) can cost a lot of money in training
time and additional dollars for any consultants that are needed during the process. To figure out the initial cost
for a balanced scorecard plan, you must take the number of employees training in the new system and multiply
their wage by the amount of hours they will be training. Add to the cost of a facilitator of the plan, cost for the
software, and labor needed to maintain it, plus software license expenses, and testing and installation of the
software. In addition, there will be maintenance costs for both the software and the training. These can add up.

Company Development vs. Profit Development

 Because of the high initial costs of the program mixed with the time spent on developing your
employees, the balanced scorecard program may make it appear as if your company is not maximizing wealth.
Shareholders who want your company to make as much money as possible may feel that the balanced
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scorecard plan wastes money. While this can be explained by saying that developed employees will create
more results, this will not be entirely evident to shareholders in the short term.

Metrics vs. Strategy

 The balanced scorecard is essentially a large chart that gives you a top-down overview of your entire
company. The scorecard does not, however, provide ideas to improve the performance of your company. The
balanced scorecard acts as a fact sheet, but it requires that you analyze the facts and come up with an
evaluation and a strategy. The scorecard will not solve all of the company's problems and it must be combined
with a larger overall strategy to achieve its potential benefits.

Conclusion
The Balanced Scorecard is therefore a very important strategic management tool which helps an
organization to not only measure the performance but also decide/manage the strategies which
are needed to be adopted/modified so that the long-term goals are achieved. Thus, in other
words, the application of this tool ensures the consistency of vision and action which is the first
step towards the development of a successful organization. Also, its proper implementation can
ensure the development of competencies within an organization which will help it to develop a
competitive advantage without which it cannot expect to outperform its rivals.

References
Book
 Chandra, Prasanna (2001), Financial Management, Tata McGraw Hill Publishing Company
Limited, New Delhi, Fifth Edition, pp. 754-756.
 Cherunilam, Francis (2003 Reprinted), Strategic Management, Himalaya Publishing House,
Delhi, Fourth Edition, pp.1-5.
Journal
 Shawna M, Houston TX, 2008; how the balanced scorecard approach to management
can benefit companies.International journal of service industry Management,12, 8-63.
 Brignall, S., & Ballantine, J. (1996). Performance measurement in service business
revisited. International Journal of Service Industry Management, 7, 6-31.
 Amaratunga, RDG, Baldry, D and Sarshar, ( 2001), 'Process improvement through
performance measurement renamed International Journal of Productivity and
Performance Management), vol. 12, pp. 179-188
 Ilyoun Song,( e.al) (2008), An Application of the Balanced Score Card Model
forEvaluation of Technology for Commercialization.
 Abhijit Sinha (March 2006) Vidyasagar University Journal of Commerce Vol. 11,