Balanced Scorecard Essay
With an eye on achieving better customer satisfaction, increasing organization effectiveness and decentralizing decision making, USM&R was reorganized into 17 NBUs and 14 Servcos. The unit managers, who were used to work within the top-down functional organization, needed to be transitioned from order-taking resources into strategists. Also, the new organization could not rely on the historic measurement system which relied on local functional measures of low cost, availability of dealer based operations and margins and volumes.
Balanced Scorecard was hence brought in to align the functional NBUs with the organization objectives which will help imbibe strategic thinking. It helped USM&R focus not just on profits but also on the employee motivation. The parameters included were relevant both for organization as a whole and for individual NBUs and Servcos. It was a common platform for assessment across organization. It helped achieve shift from bottom line on to customer satisfaction. A paradigm shift from volumes to customer delight was also brought about with the help of scorecard which helped USM&R anticipate and meet the demands of the target customer segments.
Balanced Scorecard approach put special focus on performance based evaluation rather than just revenue based ratings. Employees were evaluated not just on the revenues
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Q2. Comment on the scorecard development progress. What elements seem critical to the success of a Balanced Scorecard project?
(1 page) (5 marks) USM&R along with Renaissance Solutions formulated the Balanced Scorecard for the organization. A senior level steering committee headed by the executive VP and vice presidents provided the oversight and guidance for the project. The team conducted two hour individual interviews with all member of the leadership team to understand each person’s thoughts on the new strategy. The team then synthesized this information and led several workshops to develop specific objectives and measures for financial, customer, internal business process and learning & growth.
After a tentative formulation of the scorecard, eight sub teams were created enhance and refine measures. To get a customer perspective on the scorecard, the sub team visited dealers and developed a dealer development strategy. Mystery shopper program helped get the actual consumer perspective on the scorecard. The sub teams then decided on the specific strategic objectives and selected the initial set of measures for them. The Balanced Scorecard was then launched for NBUs and Servcos. Read about dealer satisfaction
They were expected to create Balanced Scorecards on the measures suitable for their particular functions. The monthly newsletters of NBUs published a section reviewing a single scorecard perspective and then gradually stared reporting results. They showcased stories on how departments or individuals were taking local initiatives to help organization implement its strategy. While developing the scorecard, it was crucial to bring the managers of NBUs and Servcos to understand the organization’s strategy and focus on customer delight.
The measures of the scorecard should be flexible enough to be relevant both at the local level and at the organization level and should provide good communication basis across.
Q3. Is it a good idea to link the scorecard to compensation, as described in the case? What are the advantages and the risks of linking the scorecard to compensation? (1 ? pages) (10 marks) The balanced scorecard is an ideal tool for tying compensation or incentive programs to performance as it clearly communicates divisional or departmental expectations without losing focus on their respective roles in overall organizational strategy and success.
Through incorporation of data relative to non-financial and financial drivers, the balanced scorecard seeks to improve systems of performance measure in the company that drive economic performance (Misty Walker 2008). The broad acceptance and use of balanced scorecards owes much to their “holistic” approach to measuring business performance, which considers financial as well as a number of non-financial metrics, lead as well as lag indicators of success. (Ann Bares 2008).
Linking Balanced Scorecard to compensation was a good move that helped USM&R identify strong performers in the workforce and reward them accordingly. This also helped tie the compensation structure to the overall performance of the organization and the individual NBUs so that the employees work towards achieving the overall goals instead of focusing only on individual targets. The employees now had 90% of their salary as the fixed component. The remaining was paid as a variable pay which was linked with their performance.
Each BU worked with metric owner to define targets for scorecard measurement. Beyond setting targets for each scorecard measure, there was also associated a performance factor representing the perceived level of difficulty of target achievement. This led to decoupling of the employee performance from the market conditions. Employees would now be evaluated on not just the target achievement but also on the effort they have put in for each win or loss. This helped USM&R in retaining its best employees and in identifying ways in order to help them in achieving their targets.
This also inculcated a healthy completion among employees, teams and NBUs which will ultimately add to the bottom line of the company. Although a Balanced Scorecard is an effective means of evaluating performance, it too like every other system, is prone to misuse if internal checks are not in place. It is important that all employees understand the objectives and measures in the scorecard and use it judiciously. Proper checks and verification of data are important so that data is not manipulated and the decisions are made based on accurate data so as not to benefit the unworthy.
Also care should be taken to ensure that not too many measures are used to evaluate performance so that the employees do not lose focus.
Q4. How is the scorecard being used at USM&R? Is it a performance measurement system or a management system? Explain. (1 ? pages) (10 marks) The Balanced Scorecard (BSC) is a strategic performance management tool – a semi-standard structured report supported by proven design methods and automation tools that can be used by managers to keep track of the execution of activities by staff within their control and monitor the consequences arising from these actions.
Design of a Balanced Scorecard ultimately is about the identification of a small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance ‘meets expectations’. The idea behind this is that by alerting managers to areas where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of the organization they lead (Wikipedia 2010).
Balanced Scorecard is a performance measurement system. It takes a holistic picture of all critical elements for success of a company and evaluates the performance on these factors. The balanced scorecard is an effective toll for the management to assess their growth track and look for areas of improvement. At USM&R, the scorecard was used to align the business activities of various NBUs and Servcos with the vision and strategy of the organization. It was used to keep tabs on the performance against the targeted goals. The scorecard was used in evaluating the performance of the dealers also.
The marketing representatives would give ratings to the dealers to identify their strengths and help them capitalize on the opportunities to increase sales and revenue from dealers and from the Alternative Profit Centers as C-stores and service bays. The scorecard was used by the NBUs and Servcos also to evaluate their performance considering the local factors and the suitable measures from the scorecard. Since this was used across organization, it provided a common communication basis and made the managers responsible for the strategies of their BUs.
The top down decision making was hence truly decentralized with BU heads making strategies as per their local needs to achieve the overall organization’s goals. The Scorecard was also linked to compensation of the employees. All salaried employees were tied to the Mobile corporate award program. With a good set of metrics, the compensation plan was accepted and used to reward target achievement and the efforts put in by the employee. Performance bonuses were awarded to strong performers which inculcated healthy competition among peers.
An effective use of the scorecard at USM&R was one of the key factors that helped the company grow, from losing half a billion dollars every year to earning hundreds of millions dollars today.
List of References
Misty Walker (2008) Tying Compensation to the Balanced Scorecard [online] available from <http://www. associatedcontent. com/article/1037606/tying_compensation_to_the_balanced. html> [accessed 9 May 2010]
Ann Bares (2008) Scorecard Based Incentives: Better Balanced … or Unbalanced? [online] available from <http://compforce. typepad. com/compensation_force/2008/08/scorecard-based. html> [accessed 9 May 2010]