BALANCED SCORECARD (A

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1 BALANCED SCORECARD (A new performance measurement system to innovate the future) Neslihan YESILYURT EMAR INC. General Manager SUMMARY In recent years organizations take notice of the intangible assets besides physical entities In order to measure values which their core foundation based on information. They apply various measurement techniques or they develop new measurement systems. Organizations needs to consider strategically in order provide permanent competition advantage, Balance Scorecard (BSC) is one of the techniques that are being used. Information is the one of the most important resource of the new economy with the help of technology period putting on live. BSC s meaning and strategic view point is going to be explained. INTRODUCTION As today s individuals us who knows what they are doing, before we start to any journey choice of our way to, the car that we are going to be driving and from weather condition to, traffic rules we take consideration of external environment conditions. The main purpose is to have a secure and comfortable journey, to arrive to our destination point without having and accident and in the targeted space of time. Otherwise there will be constant deviations in period to the target we want to reach at. The strategies that are been applied successfully which glorifies individuals and corporations also it will cause them to be eliminated, the one s that are not successful ruthlessly. Companies who doesn t take their geographic space that they are in and who doesn t look around macro balance, disregard any economic dynamic rules, unaware of the strategic production or become a leader of the industry, it is not going to be possible for them to continue life of the company even healthy. In today s world geographical borders which doesn t mean much, which global trade is very common, companies fell under liquid to continue their way, in order steps to be safer; briefly in order to continue their life besides the data s global business life and related to activity areas that can be measurable also immeasurable all (internal and external) environmental variables to analyze the condition and they need to analyze the condition. In recent years in our country if we glance at economic issues, we can see the reality is showing up. Purpose of this informative is for to answer below questions Balance Scorecard is going to be used when trying to reach from information to strategy. Whether or not data analyzes that is made internally to acquire cost information, is it adequate for managers to make healthy decision. The elements that distinctive businesses development, not inquired habits, if you approach ideas narrowly and existing management frame assumptions does dimension of known? Environmental variables not counted and being evaluated? 1

2 Foundation of electronic trading inside the New Economy business do they put evaluation into consideration. Balance Scorecard (BSC) as a Performance Management technique which foundation does it relies on? And which management style does it serve? What is the Balanced Scorecard (BSC)? Balanced Scorecard it translated into Turkish as denge kontrol paneli. An Article by Robert S. Kaplan and David P. Norton entitled The Balanced Scorecard-measures that Drive Performance in the Harvard Business Review in The authors who wrote this article Robert S. Kaplan and David P. Norton, they wrote in the same magazine article The Application of Balanced Scorecard in They improved even more the Balanced Scorecard with the studies they had made and with the article Balance Scorecard Translating Strategy into action published in 1996 they presented this methodology. Later on the first computer software application of Balance Scorecard developed by company called Gentia. In 1999 Kaplan and Norton s book Balanced Scorecard which they published in 1997 translated into Turkish. In this book authors presenting Balance Score card as translating company strategy into action method. Balanced Scorecard is For a company mission and strategy translated into physical statement. Kaplan and Norton they compare today s businesses complex business structure to jet plane and plane can not look only couple indicators and give direction to the plane, because of that specific indicators developed. The research they made on 12 companies which they structured on top and in below performance indicators with finding answers for four critique questions. How our customers do see us? (The Perspective), Why should we need to be above average? (The internal perspective), Can we continuously create values and improve them? (The Learning and Innovation Perspective), How we appear to our customers? (The Financial Perspective), 2

3 Figure 1: Transformation of Four Different actions into Vision and Strategy. Financial "To succeed financially, how should we appear to our shareholders?" Objectives Measures Targets Initatives "To achieve our vision, how should we appear to our customers." Objectives Measures Targets Initiatives Vision and Strategy Internal Business Processes "To Satisfy our shareholders and customers what business process must we excel at?" Objectives Measures Targets Initatives Learning and Growth "To achieve our vision, how will we sustain our ability to change and improve?" Objectives Measures Targets Initiatives As seen in Figure 1; based on the above questions answers enterprises strategy and visions can turned into physical measures. BSC defends the dimensions to be in the equilibrium. In this information century, new job environment mandatory to have it. Global dimensions, from supplier to customers can create value chain rapid change, and innovation holds these features, information s workers increase is seen, they hold knowledge of the past but their face is turned into future and who achieved to be integrated who reached functional levels can have right to leave. For that matter companies can not go reach anywhere just by evaluating tangible assets. Who believed it is necessary to be different and they are open for new innovations, with the help of the financial measurement the determination they made besides they need to include their calculation tangible resources values. Balanced Scorecard: It is based on companies past date besides physical (financial) data. The objective is for future with in the framework of customer satisfaction customer focus, customer and stock holders expectation, frame, companies internal activities, and perfected, for them to catch the change people, system, internal company way frame based on the frame of learning and improvement as nonphysical dimensions (values ) based on the measurements this dimensions and in order for the integration to supply strategic feedback to the supplier, the goal of this is strategic to be applied. It is dynamic performance management technique. What are the Foundations of Balance Scorecard and the final point where it wants to come to? Balance Scorecard came on with a need of information generation and at end they want no longer strategies no longer on the same shelf dusted. Shared by companies all levels and vision that leaved us. 3

4 In the traditional business performance management measurements, they developed based on cost and accounting systems. Because of the continues development they focus on cost minimization. Classic Business Performance measurement, based criteria is efficiency, profitability indicates used. But these measurements are not enough to analyze and use in the long term developments. With intermediary BSC business can measure asset values and analyze cannot hold by hands can not be seen with eyes, That is why we can say for BSC brought a radical view point. As the days goes by non tangible assets are matter in question, perceived issue it is new century need or information century. If the companies consider only financial dimensions, in their management report they will face with the borders mentioned below statement. The measurements will be explained by Financial Terminology; The departments, collected in large numbers of information and other functional information sources which shows integration percentages included accounting charts. Companies who are aware of these borders above from now will make their investments by moving intangible assets such as quality and human resources. What vision should we have in future? FORMING VISION 1. Defination of Strategic Business Unit (SBU) 2. Decleration of Mission 3. Configuration of Vision To achieve vision, how can we create difference? Finacial Perspective for Shareholders Perspective for our s Busines Process Perspective for our processes Learning and Growth Perspective our skills for improvement and innovation What is the most important achievement factors? What is the most important indicators? BALANCED SCORECARD Fig 2: Creating links between indicators for strategy Businesses expect to gain below given benefits from intangible investments ; 4

5 Beyond the watch over existing customer loyalty, improving customer relations to able to ensure new customers and markets by providing efficient and effective service. Improving new service and products which have requested by target customer segment. Providing high quality product and services with low cost and short delivery time Distribution of IT, Data bases and high tech systems In the new economic method, businesses make investments for future and in the scope of this perspective to able to cover future performance expectations businesses develop measurement systems named as future growth value. Last point for BSC is managing strategy. As a first step, creating links between indicators.( See above given chart. Fig 2 ) First 2 steps for managing strategy with BSC are; Vision transaction and intercourse last 2 process; Business planning, feedback and learning. This dynamic process formed from 4 steps, see fig 3. Determing and defining the vision Defining the vision Obtaining community of ideas Communication and Connection Training and getting across Determining Targets/Aims Harmonizing performance measures with suitable awards BALANCED SCORECARD Learning and Strategical Feedback Expressing the common vision Obtaining strategical feedback Reviewing strategy activities and learning Planning the Activities Determing the targets Harmony between strategical applications Allocation of resources Determing the most important milestones Figure 3: Managing Strategy Between Four Processes 5

6 Many companies starts using Scorecard application for effecting and managing a special operation in the management process. Obtaning Clearness and Unanimity for Strategy Obtaining a Focus Point Improving Leadership Strategical Interference Forming Balanced Scorecard Training the Organization Forming New Managament System Determining Strategical Aims Harmonizing Programme and Applications Forming Feedback System Figure 4 : BSC application aims Implementation Rules Of BSC : To be successful on BSC implementations below given rules have to be considered ; BSC is not a standard solution; every single business does different things, BSC sets general frame. Top management support is a must. Strategy is starting point Limits of targets and measures have to be defined and balanced. Is it possible to have more or less perspective that suggested by BSC Avoiding complicated analyses,making simple and continuous learning advised. BSC is not a system problem. BSC s it s self is a system Effects of Performance indicators on Business s management style. From performance measuring systems to first execution step, all system has to be considered All measures have to be numerical, some of them may depend to prediction. Both quantitative and qualititative measures have to be considered Possible Barrier and Critiques for BSC Implementation: 6

7 BSC should be planed, implemented and revised as a performance measuring system. Some barriers may appear during implementation of core BSC performance measures. Such as; Measuring resistance during design and using faze Computer system problems during implementation of measures Possible objective deviations of top management during design and using faze To line strategic priorities up and setting performance measure according to this line may face with some problem of company s dynamic structure, because inside/outside environment is not be static. Information life cycle that owned by company may not be long and can be out of date. Therefore strategies have to keep up to date. If BSC is adding this dynamic approach to company or not must be considered. Managers used to see traditional reports, this may be a barrier. BSC uses same diagrams that used in TQM such as Effect-Result and other tools. Businesses use TQM, Reengineering, and Cost management models to be successful. Traditional performance measuring gets results from financial reports which have used by accounting models. In TQM, is it possible to use BSC as a performance measuring, because they use same tools. Both TQM and model ABC may work with BSC 7

8 Leadership People Policy and Strategy Processes People Results Results Key Performance Results Partnerships and Resources Society Results Financial Result Focused Focused Balanced Scorecard Operational Management with processes and datum Innovation and Learning Scontinous learning, improvement, creativity People People Results Leadership Policy and Strategy Processes Results Key Performance Results Partnerships and Resources Society Results Figure 5: Harmony between Balanced Scorecard and Excellence Organizations have to evaluate and put forward their intellectual wealths rather than material wealths in order to compete, to show heroism. The companies can t measure their real value if they don t take into consideration their non-physical wealths like good quality product/service, customer satisfaction, organizational learning, motivation, people skills, quick replying internal processes, new product development, customer loyalty. Taking into consideration of these wealths is very important for long term. BSC evaluates companies non-physical wealths. So BSC serves for managing the strategy. Moving with the classical strategy mind, in which it is considered that the strategy can be determined by the top management only and the ideas and opinions of other people are not considered, this means that strategy isn t understood Strategy is a revolution. Actually every administrator makes use of some open (profitability, quality) or hidden (non-said, nonwritten) criterions. As differance, BSC supplies to consider great many indicators which are integrated, directed to aim and not only for short term. While applying BSC, the deciding people must understand the meaning of two terms Vision and Strategy. BSC helps synergy to reach the top level, because BSC goes from every single unit to organizational BSC. Aim unity will be developed between people, all the strategies will turn towards it and aim deviation will decrease if BSC is applied in a company. 8

9 And the company gains a dynamic structure. The top management determination will not be sufficient for success if a company decides to apply BSC. The companies must consider participation while forming strategies. With this the synergy will be extended to the base. Meaningful performance indicators will appear with BSC, as a result appropriate decisions will be taken for long term. Companies that apply BSC must update often to remain dynamic and live; if necessary vision and strategies must be shaped again With the hope of increasing of the number of companies which can change knowledge to strategy in the future. SOURCES BITITCI, Ümit S.-TURNER, Trevor-BEGEMANN, Carsten: Dynamics of Performance Measurment Systems International Journal of Operationns &Production Management Vol.20.No DRUCKER, Peter F.; Knowledge Management, The Coming of the New Organization, Harvard Business Scholl Publishing, Boston, 1998 HACKER, Marla-GARST Karen; Designing and Installing a Performance Measurement System Within a Professional Socitey- A Case Study, Managing Service Quatily. Vol.10. No HAMEL, Gary: Strateji Bir devrimdir, Capital, Yönetim Dizisi 2 Temmuz 1998 KAPLAN, Robert S.-NORTON David P. (Çev. Egeli Serra); Balanced Scorecard-Sirket Stratejisini Eyleme Dönüstürmek, Sistem yayincilik, Istanbul, 1999 KAPLAN, Robert S.-NORTON David P. Putting the Balanced Scorecard to Work (Balanced Scorecard i uygulamak) Harvard Business Review, September-October 1993 KAPLAN, Robert S.-NORTON David P. The Balanced Scorecard Mearsures That Drive Performance Harvard Business Review, January-February 1992 KAPLAN, Robert S.-NORTON David P. Using Balanced Scorecard as a Strategic Management System Harvard Business Review, January-February 1996 PARKER, Charles; Performance Measurement, Work Study, Volume 49, No YÜKCÜ, Süleyman; Yönetim Açisindan Maliyet Muhasebesi, Izmir ÖRNEK, Ali Sahin; Dokuz Eylül Üniversitesi Sosyal Bilimler Enstitüsü Dergisi