Study on Balanced Scorecard in Selected Public Sector: A Case study Approach

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1 Study on Balanced Scorecard in Selected Public Sector: A Case study Approach 261 IJCTA, 9(23), 2016, pp International Science Press Study on Balanced Scorecard in Selected Public Sector: A Case study Approach P. Lakshmi Narayanamma* K. Lalitha** Abstract : Balanced Scorecard is a recently evolved strategic management tool. When compare to other measures of organizational performance, Balanced Scorecard is considered to be an innovation as it takes into consideration non financial aspects of business. Though a two decade old idea, it gained wider acceptance and it is estimated that around 45.28% of the Indian companies have implemented BSC and other companies are moving towards that end Anand et. al (2005). In the year 1992 Kaplan and Norton introduced Balanced Scorecard. Entry of balanced scorecard started modifying the traditional way of measuring performance metrics. By that time organizations are busy to modernize themselves to win the race. Their ability to take advantage of intangible assets became bigger than their potential to control physical goods. The scorecard advised companies to track financial measures by taking into consideration non financial measures. It doesn t mean that non financial measures are substitute for financial measures but as a complement and that s how most of the groups dealt with it. Here the author would like to present a sample BSC of the selected plant, describes the purpose of initiating BSC in the organization, its importance, challenges faced during and after implementation. Keywords : Balanced Scorecard, Performance Metrics, Strategy. 1. INTRODUCTION A single parameter cannot help us in viewing the organizations performance but a different number of parameters under a composite scorecard would be better. Kaplan and Norton developed a model based on four dimensions and they are financial, customer, internal, learning and growth. The companies should identify critical parameters for each of these dimensions. Twenty years ago Balanced Scorecard has been initiated as a first set of principles for balanced strategic objectives and Measures/KPIs. The fathers of Balanced Scorecard are Dr. Robert S. Kaplan, Baker Foundation Professor at Harvard Business School and Dr. David P. Norton, the founder of the consulting team. Over the past two decades the balanced scorecard transformed the thinking process of the companies about performance measures. Dr. Kaplan and Norton wrote their first article on Balanced Scorecard and published in the year 1992 in the Harvard Business Review. With that initiation Drs. Kaplan and Norton have published five more books, which have marked the evolution of the BSC framework and its implementation methodology, starting with The Balanced Scorecard, in 1996 and ending with The Execution Premium, in Since years many consulting or educational institutions have tried to add little more concepts to the Balanced Scorecard. At some particular point of time an attempt was made by few of them to build a better mouse trap, but few were succeeded to bring momentous academic or realistic value to the BSC framework and implementation method. Drs. Kaplan and Norton along with their team worked simultaneously at Palladium and tested the tool on thousands of projects in many industries, * Research Scholar Department of Business Management Krishna University, Machilipatnam, Andhra Pradesh, India Asst. Professor, Vignan s University, Guntur lakshmipathi.mba@gmail.com ** Department of Management Studies Guntur Engineering College, Guntur, Andhra Pradesh, India lalitha.kadapa@gmail.com

2 262 P. Lakshmi Narayanamma and K. Lalitha geographies worldwide and companies of different sizes, along with public and private sectors. Kaplan and Norton made it clear that one of the key steps to successfully translate the strategy into action is aligning the organizations vision to strategy. For this reason, Balanced Scorecard represents cause and effect relationship among perspectives that s why it is popularly known as strategic mapping activity. More precisely, Balanced Scorecard represents a framework for steady management of both organizational and individual performance in the execution of the Strategic Plan. Balanced Scorecard is a best communication tool which helps employees to better understand how and where the strategy force the organization, what will be the plan for reaching the destination and what their departmental and individual measured contribution is to that convergent effort. With this clarity, whether employees are directly involved in the strategy execution or not they can change and improve their performance in their daily jobs through micro-decisions that are both closer and balancing towards the execution of organizations strategic plan. From the outlook of corporate appraisal which views financial and non-financial elements from a variety of dimensions. BSC assists management by providing information in strategic policy formulation and achievement. Below are some of the key points of BSC. Allows managers to view the business from four important dimensions Presents a balanced view of thorough performance emphasizing the areas for improvement It integrates qualitative and quantitative dimensions. Connects parameters of performance to the strategic choice Includes efficiency and effectiveness measures Helps companies in understanding their vision and strategies and enables a source to transform into implementation Balanced scorecard is a tool that presents top management with a periodic review of how well the organization is succeeding towards achievement of strategic goals.bsc has gained wider acceptance ever since. Concept is easy to understand but coming to strategy part it is difficult to understand and implement. Organizations having a tool that endow with a concise view of progress towards preferred organizational direction can obviously add value. The scorecard strikes a balance between : Capital, customer, in-house activities and innovation Organizations self perception and others perception about the organization The short term and long term plans The present and future situations A scorecard should contain just required data to give an absolute image of organizational performance towards achieving the overall strategy and not more than that. According to Kaplan and Norton each of the four perspectives should contain only 5-8 measures and result in an overall total of measures. When measures are limited under each perspective the result will be accurate. But a typical barrier to scorecard implementation in public sector organizations is that their tendency to measure everything, which will ultimately result in more than 50 measures for the scorecard. Many organizations feel that adding more and more measures will help them in clear direction, when in fact does the opposite. Having so many measures beyond the limit can reduce focus and allow the senior team uncertain about what the top priorities really are. But it is difficult to limit the measures to a more controllable sum. Purpose of Initiating Balanced Scorecard in the plant Balanced Scorecard was initiated by the organization in the year Before BSC Employee Performance Measurement System is used as performance measurement tool in the organization at all levels. Later on the Chairman of the company was impressed by the concept when he worked in the previous organization and was impressed with the concept any it s utility and confirmed to initiate the same in the plant in the year 2010 and the

3 Study on Balanced Scorecard in Selected Public Sector: A Case study Approach 263 same was shared to the management also explained about the benefits of using BSC. With the consent of management he initiated the concept. Understanding the concept, its suitability to the organization structure led the plant to implement BSC in the year Since 2012 to till date the company successfully finished three full cycles and was successful. First reason for successful implementation is management s commitment, second is having good BSC implementation facilitators, and the third is using BSC software. Though the idea of implementing BSC is appreciable it is limited to Top and Middle Level Management. As trial and error method it was suggested by the founders of BSC that it should always be a stage by stage process than one time implementation. The same was applied and followed by the plant. Though bottom level employees undergo existing Performance Measurement System but it is in tune with BSC concept. Author had a discussion with the plant managers about the application of BSC to bottom level employees. It was stated that company is working on that part but they can t authentically move forward as scorecard is designed at industry level and very little involvement of management at unit level. Now let us see how BSC was cascaded down the line, linking strategy to BSC, how can employees understand while involved in implementation and going ahead. The balanced scorecard is communicated to the business units (considered as tier 1) followed by departments (considered as tier 2) and ending with teams or individuals (considered as tier 3). The end result should be consistent across all levels of the organization. The organizational alignment should be transparent through strategies, strategic map, performance parameters and goals and initiatives. Scorecard helps to improve accountability from the employee performance and the employees are rewarded for their excellent behavior. Below figure explains the cascading process of scorecard from top to bottom. Fig. 1. The first step of translating the vision helps managers to concentrate and develop the company s strategy and communicate it for implementation at the local level. The second step communicating and linking focuses on communicating a strategy at all layers of the organization and connecting it with unit and individual goals. The third step business planning encourages companies to integrate their business plans with their financial plans. The fourth step of feedback and learning helps the company in collecting the feedback on the hypothesis used for designing a strategy. Good strategy encourages that the employees at all levels of the organization understands and interprets the objective n the desired manner. In the corporate scorecards this coherence is achieved through the cascading process. Below is the scorecard structure of the plant. Though BSC is initiated yet organization haven t removed EPMS system for Top and Middle Level Management followed by bottom level. Both are run parallel. At the time of performance appraisal BSC score alone is considered, accordingly rating is provided. As BSC implementation is novel to the plant management is not willing to take risk immediately by wiping away the existing technique.

4 264 P. Lakshmi Narayanamma and K. Lalitha Fig. 2. Once the hierarchy is clear then the organization focus on strategic objectives of Unit Scorecard (Tier 1) under each perspective. From there key initiatives of the unit scorecard are finalized followed by support required, targets, timeline and the one who is responsible for executing the task. Below is the sample scorecard of the organization. 2. CASCADING OF UNIT LEVEL BALANCED SCORECARD TABLE Table 1. Strategic Scorecard Template. Strategic Objective Financial Perspective Customer Perspective Internal Process Perspective Organization al Capability Building Perspective Target Level-1 Level-2 Level-3 (Current (Best (Last Year Target) Achieved) Year Target) Actual Unit of Weightage Achievement Measure L1- last year target L2- Achieved & L3- Current year target which are in descending order of achievement no two levels can have same values. The scorecard is aligned with ABP (annual business plan), Enterprise Scorecard, and unit/functional/ departmental scorecard and is to be cascaded down through department action plan. Target fixation follows the principle of SMART Unit of measure is aligned to targets Measures are good mix of leading and lagging indicators

5 Study on Balanced Scorecard in Selected Public Sector: A Case study Approach From the above table it is interpreted that unit level scorecard represents executive director s scorecard. Level 1 represents current year target, Level 2 represents best achieved, Level 3 represents last year target followed by actual target to be achieved, how much is the unit of measure to achieve and the weightage given for the target achievement. Once ED s (Executive Director) scorecard is finalized then KPI s (key performance indicators) under each perspective are finalized. Table 2 is a sample which tells us what key performance indicators to be finalized. For example if financial objective is turnover, then initiative will be, unit of measure will be Rs Crores followed by support required by the concerned department, Target from ( from- last year achievement tocurrent year target) followed by deadline that is number of days to complete and who will be the initiator. Table 2. Key Initiatives Template Perspectives Initiatives Unit of Support Target Timeline Initiative Measure requirement From To owner 265 Table 3. Enterprise Scorecard Template Criteria value S.No. Objective Weightage Unit of Primary Secondary measurement Responsibility Responsibility Remarks From the above table it is interpreted that table 3 is almost the same as table 2 but additional three columns are added column 5 represents criteria value (1- Current year target, 2- Best achieved, 3- Previous year target) column 6 & 7 represents the primarily and secondary responsible persons to execute the tasks. Balanced Scorecard: Strategy Map Fig. 4. Cause Effect Relationship of perspectives of BSC in the plant The above chart describes four balanced scorecard perspectives and their Key Performance Indicators/ measures. It basically explains about the overall strategy mapping of four perspectives from bottom to top. Mapping starts with the bottom perspective i.e. organizational capability building perspective. Here, the emphasis is on

6 266 P. Lakshmi Narayanamma and K. Lalitha identifying the training needs required from various departments through which the employees enhance their knowledge and skills which directly affect the other three perspectives. The arrow marks represents the role of each measure towards achievement of other measures. Through this relationship the expected financial objective can be met. Once the overall strategy mapping of organization is clear then the same is bifurcated to the next levels. Table 4, 5,6, 7 discuss about a sample unit level scorecard which gives clarity on how strategy mapping follows from top to bottom followed by their roles and responsibilities in executing the strategy. Sample Score Card of Executive Director Executive Director is the highest position in the plant where survey went on. Author presented the Executive Director (ED) scorecard which represents whole unit scorecard for better understanding of strategy map. Table 4. Financial Perspective. Perspective Initiatives Unit of Support Target Timeline Initiative Measure Requirement owner Turnover Gross Margin Ensure net sales realization as per plan Rs/Tonnes Marketing GM(F&A) Ensure plant Sales Volume asper plan Tonnes Works GM I/c(Works) Ensure plant production volume as per plan Tonnes Marketing GM I/c(Works) Ensure contribution for plant as per plan Rs/Tonnes Works GM(F&A) Purchase Increasing procurementthrough e-tender % of total Works & DGM I/c(MM) cost reduction procurement Finance Procurement through reverse action No. of items DGM I/c(MM) Inventory Reduction Reducing plant finished stock Tonnes Marketing GM I/c(Works) From the above table it is interpreted that once financial perspectives and initiatives are finalized, then organization focus on unit of measure to be achieved, from whom the support is required followed by target to be achieved, time of achievement along with initiative owner. For example in order to reach the expected turnover marketing department will be the supporting function followed by target and timeline and finally the initiative owner is General Manager (Finance & Accounting). Other columns also follow the same procedure. Table 5. Customer Perspective. Perspective Initiatives Unit of Support Target Timeline Initiative Measure Requirement owner Sales Increasing the production thrust on export Tonnes Marketing GM I/c(Works) Sales of Tonnes Marketing GM I/c(Works) values added Increasing the special finishes production % GM I/c(Works) products asa % of total Support for increasing the sales ofconverted sales product per plan % Marketing GM I/c(Works) Delivery as Plan product based on marketing Execution Marketing GM I/c(Works) per requirements period commitment Ensure production as per the plan Execution MM &Finance GM I/c(Works) period Department Quality Monitoring the CRM production Execution GM I/c(Works) Complaints Against customer requirements period Corrective actions based on quality Execution Business feedback period Excellence GM I/c(Works) Department

7 Study on Balanced Scorecard in Selected Public Sector: A Case study Approach From the above table it is interpreted that once customer perspectives and initiatives are finalized, then organization focus on unit of measure to be achieved, from whom the support is required followed by target to be achieved, time of achievement along with initiative owner. For example in order to increase the sales General Manager I/c (work) will be the lead and marketing department is the supporter. Table 6. Internal Process Perspective. Perspective Initiatives Unit of Support Target Timeline Initiative Measure Requirement owner Safety Safety refresher training HRDC GM I/c(Works) Management Cross functional safety audits All dept. GM I/c(Works) 267 Cost reduction Monitoring fulfillment of cost control targets to achieve cost control targets GM (F&A) GM I/c(Works) Salable Getting input material as per plan IPTallocation GM I/c(Works) Production byco Ensure production from all unitsas per plan GM (Main.) GM I/c(Works) Development Development of product for road carriers Marketing GM I/c(Works) of New Products Monitoring execution and review of implementationn status GM I/c(Works) From the above table it is interpreted that once internal process perspectives and initiatives are finalized, then organization focus on unit of measure to be achieved, from whom the support is required followed by target to be achieved, time of achievement along with initiative owner. For example in order to reduce the accidents safety management program is initiated and training is provided to the selected employees by General Manager I/c (works) with the support of Human Resource Department. Other columns also follow the same procedure. Table 7. Organizational Capability Building Perspective Perspective Initiatives Unit of Support Target Timeline Initiative Measure Requirement owner Identification Train the employees as per the training % Release of and training of needs identified employeeby GM(P&A) employees HOD s Communication Organizing presentation of plant No. GM (P&A) GM I/c(Works) of vision to performance and thrust areas employees Ensure the active participation of No. of Release of employees for communication exercise participants employeeby GM(P&A) HOD s Review of HR Identification of initiatives and Execution GM I/c G M practices/ finalization of action plan tender period (Works) (P & A) systems in tune with the Implementing and monitoring Execution GM (P&A) GM/Ic changing period (Works) business environment Enhancing Ensure QC steering committee Execution GM I/c DGM(BE) employee meetings on a regular basis period (Works) participation through Ensuring conducting of in house Execution GM I/c DGM(BE) quality circle QC competitons on a regular basis period (Works) projects implemented

8 268 P. Lakshmi Narayanamma and K. Lalitha From the above table it is interpreted that once Organizational Capability Building Perspective and initiatives are finalized, then organization focus on unit of measure to be achieved, from whom the support is required followed by target to be achieved, time of achievement along with initiative owner. For example once the training needs are identified, training is provided by General Manager (Personnel & Administration) with the support of all the functional heads in the form of release of employees to attend the training program. Other columns also follow the same procedure. Author interviewed General Manager, Deputy General Manager, Assistant General Manager of the selected plant to find out the overall opinion about balanced scorecard and its implementation. From their views the researcher found that management had some challenges that are to be addressed which in turn lead to better implementation of BSC. Below are some of the benefits and challenges faced by the organization followed by suggestions. Benefits 1. Helps corporate to understand what to be done to create a breakthrough performance. 2. Performs the role of coordinating device for a different company programs 3. Ensures implementation of strategy by transforming it into measures of performance and goals. 4. Break down corporate level measures enabling employees and managers realize what they need to be to enhance organizational effectiveness. 5. Provides an extensive outlook that changes the traditional thought about an organization as an independent function and department. Challenges 1. Lack of awareness and education on the topic 2. Little acceptance from people 3. Theoretically strong but practically poor 4. Too many measures not possible to neglect 5. No unit level decision making due to industry level influence. 6. Centralized authority 7. BSC facilitator is not through with the concept 8. Reviews are not frequently done 9. As BSC is only to middle level linking BSC initiatives to employees PMS is becoming difficult. Suggestions 1. Frequent reviews are required 2. BSC software need to be implemented 3. Preference to Unit level decision is required 4. Conduct trainings and workshops in the plant at various levels so that every one in the plant will be aware of the concept and its application. 3. CONCLUSION From the opinion of the one of the higher official i.e. General Manager (Human Resource) it is stated that BSC is one of the best tool which clearly explain the vision and mission of the organization to all levels. It also clarifies every individual role in executing the task and who are liable for it. It is not a one time activity. Understanding the concept takes time at every level may take years. Let the implementation of BSC be stage by stage then only the expected return can be possible. Current status of BSC is good but still organization need to be advanced in applying BSC software which is available in the market so that we can save time in manual processing and focus on core aspects of business.

9 4. REFERENCES Study on Balanced Scorecard in Selected Public Sector: A Case study Approach 1. Aleksey Savkin (2016). Balanced Scorecard Cascading: Make Your Strategy Resonate with Company. 2. Balanced Scorecard - Introduction & Overview, 3. Creating Organizational Strategic Alignment, 4. Deryl Northcott, Tuivaiti Ma amora Taulapapa, (2012). Using the balanced scorecard to manage performance in public sector organizations: Issues and challenges, International Journal of Public Sector Management, Vol. 25 Iss: 3, pp scorecard-approach/. 6. Ian Cobbold and Gavin Lawrie (2002) The development of the Balanced Scorecard as a strategic management tool 2GC Conference Paper, PMA Conference, Boston, USA. BSC.pdf. 7. Introduction to the Balanced Scorecard for the public Sector, 8. Kaplan, R. S. and D.P. Norton (1992). The Balanced Scorecard: Measures that Drive Performance, Harvard Business Review, (January-February): Kaplan, R.S. and Norton, D.P. (1993). Putting the Balanced Scorecard to Work, Harvard Business Review, September- October: Kaplan, R.S. and Norton, D.P. (1996). Using the Balanced Scorecard as a strategic Management System, Harvard Business Review, Jan-Feb: Kaplan, R.S. and Norton, D.P. (1996). The Balanced Scorecard: Translating Strategy into Action. Boston, MA: Harvard Business School Press. 12. Kaplan, R.S. And Norton, D.P. (1992). The Balanced Scorecard: Measures that Drive Performance. Harvard Business Review, 70(1), Kaplan, Robert S., and David P. Norton (1996). The Balanced Scorecard: Translating Strategy into Action. Boston: Harward Business School Press, Manoj Anand, B S Sahay, and Subhashish Saha (2005). Balanced Scorecard in Indian Companies, VIKALPA, Volume 30, No Palo, Sasmita (2014). Balanced scorecard implementation: a case study of an indian public sector petroleum enterprise, Tata Institute of Social Sciences. 16. Ralph Smith, Building the Balanced Scorecard in Public Sector Organizations, Robert S. Kaplan & David P. Norton (2007). Using the Balanced Scorecard as a Strategic Management System. /hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic-management-system 18. Thompson, J., and Martin, F. Strategic Management: Awareness and Change, 6th Edition, thompson6/students/chapter_overviews_6e[1][1].pdf