The Application of BSC Model to Guide the Hi-Tech Company Strategic Management - a Case

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The application of BSC model to guide the Hi-Tech company strategic management - A case study of Acer

Name: Ming-Hon Hwang (1st Author)

Title: Assistant Professor, Department of Marketing & Logistics Management, ChaoyangUniversity of Technology

Address: 168 Jifong E. Rd., WufongTownshipTaichungCounty, 41349, Taiwan, R.O.C.

Phone: 886-4-23323000 # 5205

Fax: 886-4-23390072

Email:

Name: Kai-Fu Yang (2nd Author)

Title: Doctoral Student, Department of Industrial Education and Technology, National Chunghua University of Education

Address: Bao-Shan Campus, No.2, Shi-Da Road, Changhua City, Taiwan, R.O.C.

Phone: 886-4-7232105 # 7203

Email:

Name: Wen-Kuag Yang (3rd Author)

Title: Associate Professor, Department of Marketing & Logistics Management, ChaoyangUniversity of Technology

Address: 168 Jifong E. Rd., WufongTownshipTaichungCounty, 41349, Taiwan, R.O.C.

Phone: 886-4-23323000 # 3003

Fax: 886-4-23304896

Email:

Name: Yi-Chia Chen (4th Author)

Title: Master Degree Student, Department of Foreign Language, Chaoyang University of Technology

Address:168 Jifong E. Rd., Wufong Township Taichung County, 41349, Taiwan, R.O.C.

Phone: 886-4-22137063

Email:

Name: Hao-Wei Yang (5th Author and Corresponding Author)

Title: Assistant Professor, Department of Marketing & Logistics Management, ChaoyangUniversity of Technology

Address: 168 Jifong E. Rd., WufongTownshipTaichungCounty, 41349, Taiwan, R.O.C.

Phone: 886-4-23323000 # 7825

Fax: 886-4-23390072

Email:

Abstract

The purpose of this study is to utilize the BSC to analyze the business process re-engineering efforts of high-tech company—Acer Computer—to determine whether it is an effective strategic management tool. This study deliberately focuses on the business re-engineering efforts because in these initiatives, corporations seek to determine how they can modify their business processes and other aspects to increase their success in fulfilling organizational objectives. By analyzing these efforts within the context of the BSC, it should become clear whether the BSC can serve as a strategic management tool. More specifically, it also showed how appropriate strategic objectives and associated measures were identified by this model.

Keywords: Balanced Score Card, business re-engineering effort, business process, strategic management tool

1. INTRODUCTION

As corporations, especially those in the high-tech sector, confront the challenges of increased competition and a highly unpredictable business environment, they are seeking new ways to evaluate performance and better meet their targeted goals. For many decades, traditional performance management techniques have been used to measure the organization’s performance, for example key financial variables such as revenue generated, sales volume, gross and net profit. However, researchers, analysts and senior management have long since recognized the inadequacies of these tools, especially with regard to the long-term strategic management of their organizations (Missroon, 1999).

Among the various new management tools that have been devised, the BSC(Balanced Score Card) has been found to be a highly effective tool for helping corporations in their decision-making processes, for several reasons. The BSC not only allows managers to assess past performance, but also enables them to address specific problems to enhance the firm’s future performance (Missroon, 1999). Furthermore, because it incorporates non-financial and financial measures in one report, the BSC offers detailed information that cannot be represented by financial measures alone (Kaplan & Norton, 1992, 1993).

In light of its potential effectiveness, the BSC model continues to be revised and updated in order to enhance its applicability to different corporations and operating environments. Due to the vagueness of the initial concept, the application of the BSC model has been subject to criticism by some early adopters. Furthermore, the difficulties of selecting appropriate strategic goals and associated measures for the evaluation of the organization’s performance still present considerable difficulties for users (Cobbold & Lawrie, 2002).

2. LITERATURE REVIEW

The conceptual framework of the BSC and its applications in the real world will be presented. First, the origins and the evolution of the BSC are described, so as to illuminate the key components of this strategic management tool and the improvements that have been made to this model. Second, the applications of the BSC will be discussed to demonstrate how organizations can use it enhance managerial decision-making processes and increase organizational performance.

2.1 Conceptual Framework of the BSC

2.1.1 Origins and Evolution of BSC

Since its inception, the BSC has been updated and modified in accordance with the needs of individual organizations. In this section, the origins and the evolution of the BSC will be presented concisely. This discussion will not only indicate how flaws in the conceptual model are addressed, but also illuminate the fundamental components of the model.

According to Kaplan and Norton (1992), the BSC was originally designed to be a comprehensive tool that allowed managers to directly monitor their companies’ performance by acknowledging several perspectives at the same time. In order to increase the ease of using the balanced scorecard, Kaplan and Norton (1992, 1993) emphasized that the battery of measures should be limited to four specific perspectives: financial, customer, internal business, and innovation and learning (this measure was renamed learning and growth) (Hannula et al., 1999). The challenges confronted by many organizations in creating the BSC are: a) to limit the number of the measures to be included in the scorecard; and b) to group these measures according to the four perspectives appropriately. This aspect of the BSC still constitutes the key components of the model, which has remained unchanged in subsequent versions.

2.1.2Three Generations of BSCs

In their article, Cobbold and Lawrie (2002) described three generations of BSCs. Each subsequent generation was created to eradicate the flaws and limitations of their predecessors:

First generation scorecard. The first generation BSC introduced the managers to the four different perspectives in measuring the performance or organizations (see Figure 1). To help managers address each of the perspectives and select the relevant measures, Kaplan and Norton (1992) posed the following questions and provided some relevant suggestions:

• Financial perspective measures should deal with how the company has succeeded in achieving profitability and increasing shareholder value.
• Customer perspective measures should address the question: How do customers view the organization? Managers are thus expected to focus their attention on identifying measures that are important to customers. Typical customer concerns center around issues such timely provision of products and services, quality of product and/or service, and price of product and/or service. Through customer surveys, firms can determine the principal concerns of their customers.
• Internal business measures address the question: What must the organization do to fulfill the needs of the customers? The measures that are selected must be focused on the business processes that will exert a significant impact on the customers’ level of satisfaction: time of service cycle, quality of processing, and employee skills.
• Learning and growth measures deal with the issue of how the organization can continue to improve itself in order to contribute to the success of the organization. The company can increase its learning and growth by enhancing the skills of its employees and improving the business processes, thus leading to the generation of new products and sources of revenue.

The first generation Scorecard was limited in some ways. Although Kaplan and Norton (1992) briefly mentioned the interconnections between the perspectives, they did not actually provide concrete examples of their relationships. Their focus was on the identification of a limited number of measures and proper categorization in the four perspectives. Apart from highlighting the importance of vision and strategy, Kaplan and Norton (1992) did not specifically indicate how the BSC could be used to improve performance (Cobbold & Lawrie, 2002).

Figure 1. Four Perspectives of the First Generation BSC

From “Total Quality Management and Balanced Scorecard: A Comparative Analysis” by M. Hannula, H. I. Kulmala and P. Suomala, 1999, in W. Werther, Jr. et al. (Eds.), Productivity & Quality Management Frontiers-VIII, Refereed papers presented at the 8th International Conference on Productivity & Quality Research, 640. Bradford, UK: MCB University Press.

Second generation scorecard. The practical difficulties of identifying the specific measures and the clustering of the measures into the four perspectives for companies undermined the effective implementation of the BSC. This situation prompted additional changes that led to the creation of the second generation BSC. In this model, Kaplan and Norton (1993) introduced the concept of strategic objectives that consisted of short sentences to help managers identify their key measures. Therefore, the selection of measures became interlinked with the organizational strategy.

Even more importantly, the second generation increased the causality between the perspectives by forging connections between the measures. Essentially, the determination of the key measures also involved the consideration of how each of the measures from the different perspectives were interconnected with one another based on the measures themselves (Cobbold & Lawrie, 2002). Kaplan and Norton (1996a) provided an example of how measures can be connected to one another (see Figure 2). If return-on-capital is utilized as a measure in the financial perspective, it can be interlinked with the following measures in the following perspectives:

• Customer: To increase return-on-capital, increased and repeated sales from customers will need to occur. Another interconnected measure is the quantity of on-time delivery orders, which may be considered to be highly important to customers, depending on their preferences.
• Internal processes: To increase the on-time delivery orders, internal processes as measured by short cycle times and quality of process need to be enhanced.
• Learning and growth: To improve the performance of the internal processes, employees will in turn need to receive training to improve their skills.

Based on this description, it is evident that a chain of causal linkages can be established among themeasures from the different perspectives.

Figure 2. Chain of Causal Linkages in BSC Context

From “Total Quality Management and Balanced Scorecard: A Comparative Analysis” by M. Hannula, H. I. Kulmala and P. Suomala, 1999, in W. Werther, Jr. et al. (Eds), loc. cit.

With these modifications, Kaplan and Norton (1996a) noted that the BSC had been transformed from a performance measurement tool into an integral strategic management tool. According to Kaplan and Norton (1996b), use of the BSC enables managers to link long-term strategic goals with short-term business processes at all levels of the organization. Essentially, through the BSC, organizations can conduct the following business processes:

1. Realizing the vision: Managers are better able to elicit the support of other employees to realize

the vision by providing them with action- oriented information.

B. Transmitting thestrategy:Managers can explain how the strategy is relevant to individual departments within the organization and interlink them within the organizational context.

C. Planning business strategies: Managers will be able to combine their business and financial plans and formulate appropriate plans to realize their long-term objectives.

1. Offering feedback and learning: Through the scorecard, managers can learn from their company

performance and make the necessary changes to their current strategies.

In spite of the improvements of the BSC, several obstacles were found with the changes. As Cobbold and Lawrie (2002) pointed out, the establishment of the linkages between the strategic objectives and the measures from different perspectives spawned many relationships and measures, which undermined the determination of the key measures and strategic objectives. Member of management teams were unable to identify a common reference point or a collective a vision to help them determine the most important strategic objectives and measures. Furthermore, due to the extensive linkages, the relationship between specific measures and the strategic objectives also became hazy and uncertain. Even when the scorecard was clearly to the top-level managers who created it, it was too complicated to be communicated to other employees.

Figure 3. Second Generation BSC: Strategic Linkages

From “Development of the Balanced Scorecard as a Strategic Management Tool,” by I. M. Cobbold and G. J. G. Lawrie, 2002, paper presented at the PMA 2002 Conference, Boston, MA. Retrieved May 12, 2004, from

Third generation scorecard. According to Cobbold and Lawrie (2002), the third generation scorecard originated with the inclusion of an additional design element at the end of the process of the creation of the BSC during the late 1990s. At the time, this new design element—the Destination Statement--was simply considered to be a final estimate of the outcomes of the organization in the immediate future, for example, within a three-year period, after it had accomplished its strategic objectives. Various characteristics such as financial status, relationships with others, organizational culture, along with business processes were incorporated in this statement. The discussion of these characteristics contained specific figures such as quality levels and financial revenues that could be used to verify the attainment of annual target levels. It was found that management teams were able to work with the Destination Statement with considerable ease.

As a result, Cobbold and Lawrie (2002) noted that the creation of the Destination Statement was determined to be the first step in the creation of the BSC process. The management team was able to utilize the Destination Statement to help them select strategic objectives and draw strategic linkages between strategic objectives and measures.

Therefore, the new components of a third generation BSC in the appropriate sequence are as follows:

A. Create a Destination Statement: This detailed description should depict the ideal organization in the immediate future;

B. Identify strategic objectives: Based on the Destination Statement, the strategic objectives should refer to activities and that will enable the organization to become the ideal organization described in the Destination Statement. In formulating the strategic objectives, the organization must adopt a systems thinking approach (Senge, 1990, cited in Cobbold & Lawrie, 2002), or a holistic and integrated approach, by recognizing the cause-and-effect relationships between them.

1. Assign the strategic objectives to the four different perspectives: The two perspectives concerning the Internal processes and Learning and Growth delve with the operation of the business processes at the present and the in long term. The remaining two perspectives deal with the effects of the processes on customer satisfaction and financial well-being of the organization.
2. Select and/or construct measures: Once these strategic objectives are determined, then measures are selected and/or constructed, which will allow managers to monitor the progress of the organization.

2.2. Applications of the BSC

The previous section has provided an abstract conception of the BSC as a strategic management tool. The following discussion will address the practical aspects of implementing the BSC as a strategic management tool. According to Andersen et al. (2000), the BSC can be utilized to fulfill various strategic management objectives. They include: a) helping management to focus on specific strategic objectives; b) promoting the integration of strategic objectives and organizational performance; c) ensuring investment of time and resources in activities identified as top priorities; d) highlighting the importance of engaging in the continuous process of change and learning; and e) ensuring the compatibility of goals and rewards within the organization.

During the actual formulation of the BSC, various researchers (Andersen et al., 2000; Mintzberg, 1990) emphasized the need to involve the full participation of management team and other key employees. To create a successful BSC, organizations that elicit the involvement of management team members and representative employees can benefit from their combined knowledge and experience. More pertinently, each of these individuals will provide their perspectives of the strategic linkages between the different objectives and measures. Together, they will offer a comprehensive picture of the organization’s goals and performance. Moreover, this collective approach will also ensure that those who are supposed to execute the processes will be willing to achieve these strategic objectives.

Apart from involving the key stakeholders in the organization, Andersen, Cobbold and Lawrie (2001) also emphasized that the extent of the effectiveness of the BSC is also dependent on how it is utilized to effect change in the organization. As Schneiderman (1999) explained, corporations who simply use their BSC to formulate strategic objectives and identify performance measures, but do not implement appropriate changes to their organizational structures and processes, will not benefit from the creation of the BSC. Changes that need to take place may involve modifying the budgetary planning process from the short-term to the long-term perspective and modifying management policies and perspectives.

Furthermore, Andersen et al. (2001) emphasized that the active utilization of the BSC can enhance the management of the organization by improving the delegation of tasks that will ensure the achievement of goals. First, the BSC leads to the collective construction of the strategic objectives and the identification of the associated tasks that need to be performed. Second, the measures for evaluating progress are identified. Due to these two aforementioned factors, the management and employees are able to channel their time and efforts to specific functional tasks and business processes.

In addition, since the BSC is also ideal for determining strategic linkages, it can also promote the coordination of activities between different departments within the organization based on specific organizational strategies. Knowing that the employees are able to perform their tasks with the appropriate organizational strategies in mind, senior management is able to divert their time and energies from operational management control to work on the future developments of the organization (Andersen et al., 2001).

Moreover, the application of the BSC can also increase the responsiveness of the organization to changes in the external environment and problems identified within the internal organization. By addressing the questions that need to be addressed in the Learning and Growth perspective of the Balanced Scorecard, organizations can evaluate whether they need to change their strategic objectives and their measures used to monitor their achievement of the objectives. Organizations that utilize the BSC are adept at determining how these changes in the internal and external environment can affect the strategic linkages of their objectives and business processes. Therefore, they will be flexible and responsive to the necessary changes that need to be made.