RESEARCH ON BALANCED SCORECARD
Research paper
On Balanced scorecard as tool for aligning business activities with its vision and strategies
By Student name
Foundation Course – xxxxxxxxxxx
Tutor: xxxxxxxxxxxxxxxx
University Name
Department of Business
28th February, 2016
Executive Summary
Primary purpose of this study is to understand the application of balanced scorecard tool to align business activities with its vision and strategies. This paper tries to evaluate the way balanced scorecard strategy is being implemented within organization, the way it is being perceived and implemented. The way different elements of this tool are being used for decision making purpose, analysis and future decision making. Particular attention was given on analyzing balanced scorecard as strategic tool. This paper presents in-depth literature on the topic, especially researches and findings given by Norton and Kaplan are widely used in this paper.
This study is based on descriptive approach; data has been collected from various secondary sources as well as primary sources (employees of different organization). Major findings of the paper states that balanced scorecard is based on four core perspectives, which help in understanding all major business activities of the company, its alignment with strategy, objectives and future. However, these perspectives can be modifies according to organizational and industrial requirement. It is a flexible and evolving tool that accepts changes. It success greatly depends on the way it is being implemented; it can be used merely as performance management tool or as a performance enhancement, analysis tool. It also states that implementation success as strategic tool also depends on type of industry in which it is being implemented.
This paper includes recommendations for successful implementation of balanced scorecard within organization, it include clear and strong communication with employees, training to help employees in understanding goals and objectives, participation from top management.
Table of Contents
Executive Summary
1.Chapter 1: Introduction
1.1.Background of the Study
1.2.Problem statement
1.3.Research justification
1.4.Research questions
1.5.Objectives of the Study
1.5.1.Primary objective
1.5.2.Secondary objectives
1.6.Hypotheses of the Study
1.7.Significance of the Study
1.8.Scope and Limitations of the Study
1.9.Definition of Terms
1.9.1.Balanced scorecard
1.9.2.Vision
1.9.3.Strategy
1.10.Structure
Chapter 2: Review of related literature
2.1. Balanced scorecard
2.2. Components of balanced scorecard
2.2.1. Financial perspective
2.2.2. Customer perspective
2.2.3. Internal business operations
2.2.4. Learning and growth
2.2.5. Vision and mission statement
2.3. Defining and implementing strategy
2.3.1. Strategic management systems
2.4. Balanced scorecard as strategic management system
2.5. Balanced scorecard aligning strategy
2.5. Benefits of balanced scorecard
2.6. Difficulty in implementation of balanced scorecard
2.7. Case studies
2.7.1. Balance scorecard in Private sector organization
2.7.2. Balance scorecard in Public sector organization
2.7.3. Other cases
Chapter 3: Theoretical framework
3.1. Theories
3.2. Balanced scorecard as management system
3.3. Historical aspect
3.3.1. Japanese management movement
3.3.2. Shareholder value and principle agent model
3.4. Strategic Map
3.5. Relationship between different construct and variables
3.6. Theoretical diagram
4. Chapter 4: Methodology
4.1. Research design
4.2. Research philosophy
4.2.1. Inductive or deductive approach
4.3. Data Collection
4.3.1. Quantitative approach
4.3.2. Qualitative approach
4.3.3. Data collection tools
4.4. Population and Sampling procedure
4.5. Reliability and Validity of research instruments
4.6. Data analysis procedure
4.6.1. Pilot study
4.6.2. Analytical Procedures
4.7. Ethicality of data collection
Chapter 5: Data analysis and interpretations
5.1. Qualitative data analysis
5.1.1. Opinion regarding balanced scorecard strategy
5.1.2. Balanced scorecard as strategic tool instead of mere performance evaluation strategy
5.1.3. Balanced scorecard as strategic alignment tools
5.1.4. Role of balanced scorecard in planning business activities according to company vision
5.1.5. Balanced scorecard implementation recommendations
5.2. Quantitative analysis
5.2.1. Respondent’s participation analysis
5.2.2. Total work experience of participants
5.2.3. Experience in present organization of participants
5.2.4. Department of work
5.2.5. Structure within companies from which participants belongs
5.2.6. Use of balanced scorecard in organization
5.2.7. Improve market position of the company
5.2.8. Balanced scorecard help in clarifying business strategy
5.2.9. Improve communication within organization
5.2.10. Improved achievement of strategic goals
5.2.11. Balanced scorecard help in aligning business goals with individual goals
5.2.12. Improve overall efficiency in internal process management
5.2.13. Balanced scorecard elements are associated with business strategy
5.2.14. Balanced scorecard help in increasing strategic competitiveness of the company
5.2.15. Balanced scorecard help in improving product or service delivery
5.2.16. Balanced scorecard facilitated in improving incentive system
5.2.17. Balanced scorecard help in motivating employees
5.2.18. Improve financial performance of the company
5.2.19. Balance scorecard is merely a performance management tool
5.2.20. Implementing balanced scorecard is practically easy
6. Chapter 6: Conclusion and recommendations
6.1. Reevaluating the research questions
6.2. Findings
6.3. Recommendations
6.4. Future research
6.5. Conclusions
Appendix
Bibliography
1.Chapter 1: Introduction
Despite of being from any scale, an organization needs to conduct comprehensive strategic plan in order to succeed in this competitive market. Strategic plan helps in formulating objective, goals and actions required to do so, it help in differentiating company offering vis-à-vis competitors. Balance scorecard technique is one such tool that can help organization in supporting its strategic business process and align it with its vision. It can be explained as a framework that can be used for managing business strategy as well as measuring its impact in the market. It facilitates organizational management in transforming their mission, vision and strategy as per their goal through four major perspectives that include customer, business process, learning and growth and finance. In early stage of its inception, this concept was used primarily by large scale organizations but later on with its applicability, it has been accepted and implemented by several small and medium scale organizations as well.
This dissertation paper aims to evaluate the way balanced scorecard to align business activities to the vision and strategy. It will include analysis from both general literature and primary research on balance scorecard, strategic action and its implementation. Research has been conducted on wide range of employees varying from different sectors, industries and scales to collect comprehensive information on the topic. This paper includes detail analysis on the topic. It will help managers and employees in understanding concept, its application in real world. With final findings of this paper, these tools can be implemented by other organizations also for better strategic planning.
1.1.Background of the Study
The concept of balance scorecard was invented in the year 1990 by Kaplan and Norton, after doing a comprehensive study on twelve organizations. According to the inventors of this tool, financial parameters are not enough to define successful performance of any organization, there is need for evaluating non-financial parameters also to understand success or failure of a company; therefore they included customer focus, operational effectiveness and innovation in the reporting system(Kaplan & Norton, 1996). The results of the research were also published in Harvard business review and also book written by two inventors.
Different researchers have claimed that mere accounting figures does not help managers in any way until they know how it can be used for improving future of the company. Therefore, this tool has challenged traditional approaches of accounting and presented modern technique that focuses on both financial and non-financial measures for evaluating organizational performance(Sharma, 2009). According to Kaplan and Norton balance scorecard can be defined as a multi-dimensional performance measurement tool that include both financial and non-financial parameters and framed in cause-end relationship that help in gaining financial and non-financial growth of the company (Kaplan & Norton, 1996).
With constant changes in external environment, economic conditions are changing pretty fast, companies need to include new changes quickly to ensure market sustainability. Now a company tries to focus on developing their knowledge, learning resources rather than their financial resources merely as knowledge increases with time(Nair, 2004).
According to Ansu Sharma Balance scorecard is a strategic tools which is being extensively used in the industry now a days. This tool was developed by Robert Kaplan and David Norton who said Balance scorecard is a more realistic performance management framework that helped in presenting the non-financial elements into financial metrics to present a more realistic view to the managers for better decision making (Sharma, 2009). Concept of balance scorecard tries to implement strategic planning and management system in the organization, it is performance management framework that also facilitates in continuous improvements, and it also helped planners in identifying the loopholes in the implementation process and strategies to overcome that deviation(Kaplan & Norton, 2013).
Balance scorecard is a comprehensive tool that helps organizations in focusing on both financial and non-financial parameters that help organization in creating strategies for successful performance in long run(Hannabarger, Buchman, & Economy, 2011). It also facilitates in integrating various components such as customer, employees, operations to present easily understandable measures that can be implemented by managers and employees to gauge their present level of performance, in comparison to set goals and requirements (Yeniyurt, 2003). This tools help companies in their growth, it can be used by employees in the company for performance measurement, gauging the objective achievement difference and take actions to improve the same, it also help in defining clear organizational goals and focused approach(Malmi, 2001).
In these more than two decade period of inception, the concept of Balance scorecard has been implemented by various organizations that helped them in achieving their goals; positive outcome has been encountered by several organizations with implementation of this tool. Primary motivation to write dissertation on this topic was to put an effort to understand the way balance scorecard can be implemented more than a performance measurement tool, the way it can be used as a tool for align organizational vision and strategic actions. This dissertation can be used by researchers to understand the way balance scorecard help in forming, modifying and selecting organizational strategic actions.
1.2.Problem statement
No company while its formation or operation creates a poor vision for themselves, all organizations aims to achieve financial and non-financial success in their respective industry; still many of them fail, due to poor strategic implementation or failure to align their strategic actions with their visions. Therefore, problem lies in strategic execution rather than goal formation. This dissertation aims to help such organizations by providing solution to their problem. This problem can be resolved with proper implementation of balance scorecard as it can help in integrating mission and vision of the organization with its strategic plan so that clear objectives and measurement parameters can be set.
Balance scorecard is being used as performance management tool. This research will focus on understanding the way balance scorecard can be used to integrate business and operational activities, whether it is possible, if so then how it can be done. This paper address problem of aligning vision with strategic action through comprehensive approach of balance scorecard, therefore it evaluates the way a performance measurement tool can be used as a performance enhancement tool as well.
1.3.Research justification
Though balance scorecard is a well-accepted tool in industry but it is widely used as a performance measurement tool only. This tool can help in evaluating organizational performance in comparison to various elements, it can also facilitates in understanding loopholes in strategic actions and improve the same. However, this tool is being used merely as performance evaluator and measurement. This research will help in opening new avenues of its application, facilitates managers in understanding the way it can be used as a strategic tool to align business activities with its vision and goals. It will help in identifying gap in strategic actions and help in forming better actions. This research will help in increasing scope of this tool; give new opportunities and ways to use it for organizational development.
1.4.Research questions
This research paper will help in exploring answers to various questions which are as follow;
- What is the concept of balance scorecard?
- What are benefits of balance scorecard?
- Why balance scorecard should be implemented by organizations?
- How balance scorecard can facilitate in aligning business activities with its vision and strategy?
- What are the advantages of using balanced scorecard approach to align business activities to the vision and strategy of organizations?
- What are major challenges that organizations might encounter in implementing this approach in the organization?
- What strategies can be adopted by managers to overcome the challenge of implementing balance scorecard optimally within organization?
- What is the future scope of this tool and how it can be enhanced?
1.5.Objectives of the Study
This research has been conducted with the objective of developing balance scorecard as a tool for aligning organizational vision with its strategic actions. It tries to explore balance scorecard in-depth to understand its applicability in wide areas and not merely performance evaluation. This is strategic tools that provide huge information regarding organization; therefore it can be used for various purposes rather than merely post strategic evaluation to understand financial gains. Balance scorecard framework facilitates in collecting information on four key components that shape all strategic action, which include customer, internal process (operational activities), learning and growth in the company, financial scenario. It help in presenting complicated information in simplest of form, these information can be used for strategic formation as well. There are several objectives associated with this project, which has been divided into two broad categories, primary (Specific) and secondary (general).
1.5.1.Primary objective
Primary objective of this research study is to understand the way balance scorecard can be implemented in a business to align its activities with its vision and strategy.
1.5.2.Secondary objectives
Apart from this, project will also facilitate in achieving several general objectives which are as follow;
- This project will help in understanding the concept of balance scorecard and its applicability
- It will help in understanding the origin, importance, benefits and challenges related to the balance scorecard tool
- It will also help in understanding detail application of each component of the tool and their impact on performance of the company, the way it can be used to measure performance, its methods for implementation and benefits
- It will also help in understanding the way balance scorecard tool can be modified and developed for different organizations
- Major challenges in implementation and their expected solution
1.6.Hypotheses of the Study
Hypothesis formation help in setting clear goal for the research, it facilitate in framing the possible end outcomes from the research. It is very crucial aspect as it involve setting of two contradictory statements that can be expected at the end of the research, these statements are Null Hypothesis and the Alternate Hypothesis(Babbie, 2009). Null hypothesis is the one which can be regarded as accepted fact by the researcher during research initiation, whereas alternate hypothesis is the assumption made by the researcher. This paper aims to evaluate the impact of balance scorecard in aligning business activities with its vision and strategic action. Hypothesis states for this research will be as follow;
Ho (Null Hypothesis): Balance scorecard framework facilitates in aligning business activities with its vision and strategic action
Ha (Alternative Hypothesis): Balance scorecard framework cannot facilitate in aligning business activities with its vision and strategic action
1.7.Significance of the Study
The balance scorecard approach plays significant role in organizational success; it helps in conducting strategic functions, communication and evaluation adequately. According to Malmi, balance scorecard is a strategic tool used for setting objective and evaluating performance by management(Malmi, 2001). However, scorecards that do not have any target were merely serving the purpose of information system. Balanced scorecard can help organizations in achieving competitive advantage in the market, it can facilitate in setting realistic goals by understanding present performance and gap between expected and real results in different aspects.
This tool can also help in making strong strategic actions by evaluating possible trade off opportunities that can be adopted by management to improve organizational performance. However, application of this model varies between industry companies and market(Niven, 2010). There is no one fit size for all organizations that can be adopted. This research will help in understanding the way balance scorecard can be used for serving various organizational purposes, how it is being used by organizations as a tool to strategic action. Findings from this paper can be used by organizations that are merely using this tool as a performance measurement weapon for better strategic approach.
1.8.Scope and Limitations of the Study
This research has been done on balanced scorecard; it has relevance and pertinence in the present industrial context; however it would be difficult to research in global market, so this research has been limited to companies and employees from Saudi Arabia. This study solely focuses on elements of balanced scorecard and strategic management to improve strategic actions of the companies. Though a number of factors impact reliability, findings and validity of the paper, therefore it is important to evaluate limitations that can impact final findings of the paper. Limitations associated with this dissertation are as follow;
- Time constraint, it is crucial to understand the way limited time for conducting research impact its findings, it is not possible to conduct surveys for months, therefore this research is to be completed within a month time, so limited time impact comprehensiveness of data collection process.
- Cost of conducting research is another major constraint, limited budget for completing the research impact various decisions such as research tools, sample size etc.
- Research is also limited to geographical boundaries
- There is limited access to secondary data and primary data regarding internal scenarios of companies
- Several data has been collected from secondary sources, which might not be completely correct, further it was also difficult to cross check and verify them, it imposes limitation to the correctness of data researched.
1.9.Definition of Terms
1.9.1.Balanced scorecard
According to Kaplan and Norton, Balanced scorecard is a “collision between the irritable force to build long-range competitive capabilities and immovable objective of historic cost financial accounting model. (Kaplan & Norton, 1996, pp. 6-8)” This tool helps in complementing both past performance analysis with future scope of development. This tool helps in creating value for their customers. This tool captures critical activities that help in long term organizational success.