Term Paper

Topic:
“Balanced Scorecard based performance
appraisal system”

Submitted To:
Dr. Neerja,
Lect. – P.M.S,
LIM.

D.O.S: December 10, 2009.

Contents:
Introduction
 Background of the Concept of Balanced Scorecard
 Balanced Scorecard – Concept
 The Concept of Performance Appraisal
Review of Literature

Benefits of simulation training

Balanced Scorecard Model

Major Perspectives of a BSC: Cause and Effect

Relationship
 The Financial Perspective
 The Customer Perspective
 The Business Process perspective
 The Learning & Growth Perspective

Features of Good Balanced Scorecard

Building and Implementing the System Using BSC

Using Balance Scorecard as a Strategic Management

Tool

Use of Balance Scorecard in Corporate Sector

 Balanced Scorecard at PRC’s
 Balanced Scorecard at Philips Electronics
 Balanced Scorecard at Tata Steel’s
 Balanced Scorecard at Sears Company
 Balanced Scorecard at Metro Bank
Critical Analysis of Balanced Scorecard

Conclusion

Bibliography
 1. INTRODUCTION
1.1. Background of the Concept of Balanced Scorecard
Throughout the history of contemporary management theories starting from the ones that
were introduced between the intrusion of the mass production in the beginning of the 20th
century and until today, all the gurus of management have been trying to find uniform
solutions on more efficient allocation and use of very limited resources available to
businesses.
In the down of the century, Frederick W. Taylor established the very concepts of resource
allocation in his Principles of Scientific Management. In 1920 it went around assembly line
and motion studies as the first experience from systematic mass production had given
theorists quite a lot of materials to be analyzed from the point of view of using traditional by
blue-collar employees more efficiently. In the 1930, the main topic was motivation of
employees, as it turned out that human nature does not enable to work long hours on a
repetitive tasks without frustration level getting so high enough to diminish productivity. In
the 1940 and 1950, the first statistical and linear methods were introduced in trying to
measure logistics of the operations management and its implications to overall company
success in financial-analysis side.
In the beginning of 1980, partly because of introduction of electronic data processing
equipment and quick development of computers, the whole array of management techniques
were initiated. The particular reasons for the vast development of the new theories were
catalyzed mainly by ever growing competition generated through more systematic use of
computers, and of course also by rapid growth of the importance of human capital.
During the industrial age, the financial control systems were developed in major companies
to facilitate and monitor efficient allocations of financial and physical capital. A summary
financial measure such as return-on-capital-employed (ROCE) could both direct a company’s
internal capital to its most productive use and monitor the efficiency by which operating
divisions used financial and physical capital to create value for shareholders.
The emergence of the information era, however, in the last decades of the 20th century, has
made obsolete many of the fundamental assumptions of the industrial age competition. The
information age environment for both manufacturing and service organizations requires new
capabilities for competitive success. The ability of any company to mobilize and exploit its
intangible assets has become far more decisive that investing and managing tangible, physical
assets.
Today automation and productivity have increased the number of people performing analytic
functions: engineering, marketing, management and administration. Therefore, these people
are more viewed as problem solvers, not as variable costs. In other words, information age
ahs brought about the concept of knowledge management.
The shift to successful knowledge management has introduced a variety of improvement
initiatives such as; JIT, TQM, Lean enterprise, Time-based competition, Customer-focused
organizations etc. Some of those programmes have meant in practice real breakthrough and
improvement, others have proven to be in the best case just a short-time disturbance, but in
the worst cases total failures resulting in disarray or even bankruptcy of a particular company.
The main reason for that lies in five main implementation problems:
1. Current performance measurement systems are based on the traditional financial
accounting model, which does not enable to objectively analyze information-age
companies;
2. If some non-financial performance measurement even is made, it is solely based on
employees’ tactical performance, not on strategic performance,
3. Majority of management and employee salary-based motivation schemes are only
short-run profit oriented, that does not enable to align towards long-run profit
oriented, that does not enable to align towards long-run goals;
4. Overall company strategy is not closely linked to organizational and personal
improvement programmes; and
5. Strategy is not generally linked to resource allocation, which results in under
financing some of the crucial parts of organization’s development.
As for today, superior financial performance and efficiency in production are just not enough
to gain sufficient competitive advantage but more and more attention needs to be paid to
intangible sides of business.
Introduced in the beginning of 1990 by Robert S. Kaplan and David P. Norton, the balanced
Scorecard uses a balanced measurement system that comprises of the old financial side and
three new perspectives of:
• Business processes (operational efficiency);
• Growth and learning (knowledge management);
• Customers (satisfaction and image of company to outside partners)
 1.2. Balanced Scorecard – Concept
The long-term success of any organization is determined by the capabilities and the
competencies it has developed. One of the tools for organizational appraisal that is gaining
immense popularity is the BSC, developed by Robert S. Kaplan and David P Norton in 1992.
i. This innovative tool is unique in two ways compared to the traditional performance
measurement tools. They are
ii. It considers the financial indices as well the non financial ones in determining the
Corporate performance level and
It is not just a performance measurement tool but is also a performance management system.
Today’s businesses require a better understanding of their customers (both existing and
potential) and their needs, better streamlined processes and highly skilled people for ensuring
future survival and sustainable growth. This shows that the focus of action has rightly
considered the non financial aspects apart from the financial indices. This tool is the end
result of sustained efforts to find an ideal tool to measure performance and provide a link to
strategy and action. The decisions about the future actions form the key to success of any
enterprise in this fast changing business environment.
The aim of the BSC is to direct, help, mange and change in support of the longer term
strategies are all about. It acts as catalyst for bringing in the change element within the
organization. This tool is a comprehensive framework which considers the following
perspectives and tries to get answers to the following questions-
1. Financial Perspective-how do we look at shareholders?
2. Customer Perspective – how should we appear to our customers?
3. Internal Business Processes Perspective – what must we excel at?
4. Learning and growth perspective – can we continue to improve and create value?
Hence, from the above lines we can say that this tool has considered not only the financial
results to be important but also those factors which actually drive an organization towards
future successes as mentioned earlier. The tool has given stress on the other areas which are
required to ‘balance’ the financial perspective in order to get a total view about the
organizational performance and improve the same. The framework tries to bring a balance
and linkage between the-
i. Financial and the Non-financial indicators,
 ii. Tangible and the Intangible measures,
iii. Internal and the External aspects and
iv. Leading and the lagging indicators
1.3. The Concept of Performance Appraisal
 The process of evaluating the performance of the holder of the job based on the
requirements contained in his/her job description.
 This is the most helpful tool an organization can use to maintain and enhance
productivity and facilitate progress towards strategic goals.
 It is a means to monitor the way employee work and assess how this matches with
organizational needs.
 Through this managers form impressions about the employees and seek to maximize
the contribution of each individual.

Figure 1: Balanced Scorecard as a performance appraisal method.

2. Review of Literature:
1. Balanced Scorecard Implementation in SMEs: reflection on literature and
practice
By Henrik Andersen, 2GC Active Management, Allborg University, February, 2009
This paper discusses the potential benefits to SMEs in adopting the BSC methodology and
the underlying management processes most relevant to SMEs. It also makes observations
about how use and value may differ between BSC application in large and smaller
enterprises.
Observing success criteria, BSC prove an effective tool for SMEs in meeting the challenge
posed by the need to introduce more efficient strategic planning processes while retaining the
competitive advantage of having relatively simple structures.
2. Study on BSC of Commercial Bank in Performance Management System.
 By Yansheng Zhang, South China University of technology, Academy Publisher
2009
This paper makes study about how to use the BSC as a tool, which is applied to commercial
banks performance management system, and points out that it breakthrough the defects in the
traditional single application of financial indicators which measures performance. And it
raises the value of performance management appraisal system based on the introduction of
customer factors, internal business processes, employee learning and growth and financial
factors. This paper also makes study about the commercial banks in the performance of the
BSC Management System mechanism, the strategy of application, application limitations,
and outlook on the future of commercial banks.
3. E-Balanced Score System for Performance Planning and Management of
Lectures in Higher Education Institutions.
By Yu May Leen, University of Malaya, Kuala Lumpur, November 2008.
In this study, an electronic based scorecard for measuring the job performance and the
excellence of lecturers in a public higher learning institution was proposed. The aim of the
study is to develop a better means of performance planning and performance measurement
and management. The results of data analysis showed a) poor alignment of top management
strategies with the tactical plans of staffs and b) positive support for an improved
performance measurement system, both from the respondents and the management. Possible
reasons for average awareness of the tool and top management aspirations are i) the current
performance measurement system is partially automated making alignment efforts futile and
ii) ineffective methods of communicating strategies.
4. Using The Balanced Scorecard: Lesson learned from the U.S. Postal Service and
the Defense Finance and Accounting Service
By Nicholas J. Mathys, Kenneth R. Thompson, University of Florida, Dec, 2008.
In this study an attempt is made to know how U.S.P.S & D.F.A.S developed the BSC, how
they modified the approach to meet their needs, what lessons were learned in its application,
and what organizations might do to increase their success with the BSC approach.
The results show that both the organizations had successful applications of the BSC.
Performance improved on all the key areas that each organization measured. In addition,
employee satisfaction improved in both organizations. This was especially significant for
Defense Finance and Accounting Service, as they had undergone some very dramatic
reductions in force. Finally, customer satisfaction improved dramatically in both
organizations and value added improved in the multiple measures that were used.
 5. Developing A System For Assessment of Organizational Performance Using
Balanced Scorecard Approach and SAP R/3
By Gary Baker & Kathleen M, International Journal of Quality and Productivity
Management, Vol. 07, No. 01, December, 2007.
It is suggested that strategic objectives will be achieved with effective corporate performance.
Accurately measuring corporate performance remains a challenge, not only with regard to
what indicators of performance should be measured, but also with regard to how to measure
the indicators. This paper provides a framework for exploring some of these challenges.
Measuring the effectiveness of HRM practices can be facilitated using an Enterprise
Resource Planning system such as SAP R/3. Such system generates information, data and
subsequently reports on HRM practices, independently and in relation to other functional
areas of business. Finally, it is proposed that the BSC approach for measuring corporate
performance be used since measuring HRM is a critical feature of this tool.
6. Using Balanced Scorecard for Subcontractor Performance Appraisal
By, S. Thomas NG, Hong Kong, China, FIG Working Week, 13-17 May, 2007
This paper discusses the issues in developing a BSC model for subcontractor performance
appraisal. The structure of the balanced scorecard model for subcontractor performance
appraisal is proposed. Finally, a prototype Internet-based model for appraising subcontractors
based on the balanced scorecard concept is presented. The initial results indicate that it is
possible to establish a BSC model to formalize the subcontractor performance appraisal
decisions. Being regarded as a reliable and practical means for performance evaluation, the
BSC should have a high potential for improving the quality of subcontractor appraisal
decisions.
7. Balanced Scorecard and Its Information System: The Performance Data
Warehouse
By, Ettore Riccciardi, London School of Economics, London, UK, 2005
This paper intents to highlight the importance of a particular Information System dedicated,
Performance Data Warehouse, and to describe how it supports the BSC on a long term
dynamic relationship. The BSC is both a performance appraisal tool and a strategic
management system that places particular emphasis on the business strategy definition. Once
the firm has defined its competitive strategy, the BSC needs an IS strategic orientation aimed
to support the organization and its information requirements.
The Performance Data Warehouse fits very well into this context because it enables any
member of the organization to read and to recognize aggregated data belonging to 14
different strategic areas.
8. Balanced Scorecard in Indian Companies
By Manoj Anand, B.S.Sahay, Vikalpa, Volume 30, No 2, April-June 2005.
In this article, the authors identify the extent of the usage of the Balanced Scorecard by
corporate India, explore whether Indian firms use all the four perspectives, namely, customer,
financial, internal business, and learning and growth in their performance scorecard and
evaluate the performance of the BSC as a management tool.
The major findings of this study are; the BSC adoption rate is 45.28% in corporate India
which compares favorably with 43.90% in the U.S. The difficulty in assigning ‘weightage’ to
the different perspectives and in ‘establishing cause and effect relationship among these
perspectives’ has been found to be the most critical issue in the implementation of the BSC in
Corporate India. Most companies claimed that the implementation of BSC has led to the
identification of cost reduction opportunities in their organizations which, in turn, has
resulted in improvement in the bottom line.
9. Overview of Construction and Implementation of Balanced Scorecard.
By Marko Rillo, Estonian Business School, Tallinn, 2000
The overall objective of the thesis is to analyze the use of Balanced Scorecard as a
performance measurement tool in the areas of general management and strategic
management. The author finds that the BSC is definitely a useful tool to renew an
organization’s mission and strategic objectives.
The author found in the thesis show that the BSC may be considered as one of the best
remedies in tackling with the questions concerning.
a) Linking strategic vision and long-term objectives to short term tactics; b). Directing
sophisticated and different critical paths of success in the light of strategic
management; c) Efficient performance measurement; d) Review of strategic vision in
the light of day-to-day operations management.
10. Management by Objectives and the Balanced Scorecard.
By David Dinesh, Elaine Palmer, Journal of Management History, 1998.
This article compares and contrasts the two management systems i.e. MBO & BSC. The
examination concludes that the philosophical intents and practical application of MBO and
the BSC stem from similar precepts. The examination of patterns of MBO implementation
also illuminates possible problems in the application of BSC. Implementation of MBO
suffers from two main problems. Partial implementation and Patent disregard for MBO’s.
The forecast is that partial implementation will remain as a problem for the BSC.

3. Balanced Scorecard – The Diagrammatic Representation

Figure 2: Balanced Scorecard Model

Source: www.balancedscorecard.org, Balanced Scorecard Institute, USA

The Model – An Explanation

Hence, from the aforesaid model, it is clear that the following are to be done so as to utilize
the BSC as a strategic management tool:
1. The major objectives are to be set for each of the perspectives.
2. Measures of performance are required to be identified under each of the objectives
which would help the organization to realize the goals set under each of the
perspectives. These would act as parameters to measure the progress towards the
objectives.
3. The next important step is the setting of specific targets around each of the identified
key areas which would act as a benchmark for performance appraisal. Hence, a
 performance measurement system is build around these critical factors. Any deviation
in attaining the results should raise a red signal to the management which would
investigate the reasons for the deviation and rectify the same.
4. The appropriate strategies and the action plans that are to be taken in the various
activities should be decided so that it is clear as to how the organization has decided
to pursue the pre-decided goals. Because of this reason, the BSC is often referred to as
a blueprint of the company strategies.
Hence, the above paragraphs show that all the four areas have been given equal importance in
measuring performance level. The measures and the objectives, however, depend upon the
type of business the organization is in. the financial indicators are complemented by the non-
financial ones. Since, objectives and goals are set for each of the critical success factors under
each of the heads; it brings about a focus on the strategic vision.
Thus, all activities would be directed towards achievement of the long term goals which have
been set by the top management. The identification of the KRAs helps an organization inn
moving towards the right strategic direction. This tool creates a link between objectives,
measures, measures, targets and initiatives. It is , therefore, absolutely clear that the BSC acts
as a focal point for the organization’s efforts, designing and communicating priorities to the
managers, employees, investors and the customers.
4. Major Perspectives of a BSC: Cause and Effect Relationship
The aim of the BSC is to direct, help manage and change in support of the longer term
strategy in order to manage performance. The scorecard reflects what the company and the
strategies are all about. It acts as a catalyst for bringing in the change element within the
organization. This tool is a comprehensive framework which considers the following
perspectives and tries to get answers to the following questions
i. Financial Perspective – How do we look at shareholders?
ii. Customer Perspective- How should we appear to our customers?
iii. Internal Business processes Perspective – What must we excel at?
iv. Learning and Growth Perspective – Can we continue to improve and create value?
i. The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and
accurate funding data will always be a priority, and managers will do whatever necessary to
provide it. In fact, often there is more than enough handling and processing of financial data.
With the implementation of a corporate database, it is hoped that more of the processing can
be centralized and automated. But the point is that the current emphasis on financials leads to
the unbalanced situation with regard to other perspectives. There is perhaps a need to include
additional financial related data, such as risk assessment and cost benefit data, in this
category.

ii. The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of
customer focus and customer satisfaction in any business. These are leading indicators; if
customers are not satisfied, they will eventually find other suppliers that will meet their
needs. Poor performance from this perspective is thus a leading indicator of future decline,
even though the current financial picture may look good. In developing metrics for
satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of
processes for which we are providing a product or service to those customer groups.
iii. The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective allow
the managers to know how well their business is running, and whether its products and
services conform to customer requirements (the mission). These metrics have to be carefully
designed by those who know these processes most intimately; with our unique missions these
are not something that can be developed by outside consultants. In addition to the strategic
management process, two kinds of business processes may be identified:
Mission-oriented processes, and
Support processes. Mission oriented processes are the special functions of government
offices, and many unique problems are encountered in these processes. The support processes
are more repetitive in nature and hence easier to measure and benchmark using generic
metrics.
iv. The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related to both
individual and corporate self improvement. In a knowledge worker organization, people the
only repository of knowledge are the main resource. In the current climate of rapid
technological change, it is becoming necessary for knowledge workers to be in a continuous
learning mode. Government agencies often find themselves unable to hire new technical
workers, and at the same time there is a decline in training of existing employees. This is a
leading indicator of brain drain that must be reversed. Metrics can be put into place to guide
managers in focusing training funds where they can help the most. In any case, learning and
growth constitute the essential foundation for success of any knowledge-worker organization.
Kaplan and Norton emphasize that learning is more than training; it also includes things like
mentors and tutors within the organization, as well as that ease of communication among
workers that allows them to readily get help on a problem when it is needed. It also includes
technological tools.
5. Features of Good Balanced Scorecard:
i. It tells the story of a company’s strategy, articulating a sequence of cause and effect
relationships.
ii. It helps to communicate the strategy to all members of the organization by translating
the strategy into coherent and linked set of understandable and measurable operation
targets.
iii. A BSC emphasizes non financial measures as a part of program to achieve future
financial performance
iv. The BSC card limits the number of measures identifying only the most critical areas.
The purpose in to focus manager’s attention on measures that most affect the
implementation of strategy.
v. The BSC highlights less than optimal trade offs that managers may make when they
fail to consider operational and financial measures together.
6. Building and Implementing the System Using BSC
Step One, of scorecard building process starts with an assessment of the organization’s
mission and vision, challenges, enablers, and values. Step one also includes preparing a
change management plan for the organization, and conducting a focused communications
workshop to identify key messages, media outlets, timing and messengers.
In Step Two, elements of the organization’s strategy, including strategic results, strategic
themes, and Perspectives, are developed by workshop participants to focus attention on
customer needs and the organization’s value proposition.
In Step Three, the strategic elements developed in Steps One and Two are decomposed into
strategic objectives, which are the basic building blocks of strategy and define organization’s
strategic intent. Objectives are first initiated and categorized on the strategic teme level,
categorized by perspective, linked in cause effect linkages for each strategic theme, and then
later merged together to produce one set of strategic objectives for the entire organization.
In Step Four, the cause and effect linkages between the enterprise wide strategic objectives
are formalized in an enterprise wide strategy map. The previously constructed theme strategy
maps are merged into an overall enterprise wide strategy amp that shows how the
organization creates value for its customers and stakeholders.
In Step Five, Performance Measures are developed for each of the enterprise wide strategic
objectives. Leading and lagging measures are identified, expected targets and thresholds are
established, and baseline and benchmarking data is developed.
In Step Six, strategic initiatives are developed that support the strategic objectives. To build
accountability throughout the organization, ownership of performance measures and strategic
initiatives is assigned to the appropriate staff and documented in data definition tables.
In Step Seven, the implementation process begins by applying performance measurement
software to get the right performance information to the right people at the right time.
Automation adds structure and discipline to implementing the BSC system, helps transform
disparate corporate data into information and knowledge, and helps communicate
performance information. In short, automation helps people make better decisions because it
offers quick access to actual performance data.
In Step Eight, the enterprise level scorecard is cascaded down into business and support unit
scorecards, meaning the organizational level scorecard is translated into business unit or
support unit scorecards and then later to team and individual scorecards. Cascading translates
high-level strategy into lower level objectives, measures, and operational details. Cascading
is the key to organization alignment around strategy. Team and individual scorecards link
day-to-day work with department goals and corporate vision. Performance measures are
developed for all objectives at all organization levels. As the scorecard management system is
cascaded down through the organization, objectives become more operational and tactical, as
do the performance measures. Accountability follows the objectives and measures, as
ownership is defined at each level. An emphasis on results and the strategies needed to
produce results is communicated throughout the organization.
In Step Nine, an evaluation of the completed scorecard is done. During this evaluation the
organization tries to answer questions such as, Are our strategies working?’, ‘Are we
measuring the right things?’, ‘Has our environment changed?’ and “Are we budgeting our
money strategically?’
 7. Using Balance Scorecard as a Strategic Management Tool
The tool has become a weapon for organizations to identify the pressure points, conflicting
interests, objectives setting, prioritization of objectives, planning and budgeting. The four
main important steps that need to be taken care of are;
i. Translating the vision
It is to be remembered that the vision of any organization should be understood by each and
every employee of the organization. If it’s understood by the top management only, then it is
definite that the organization will fail to realize its goals. Hence, before starting with the
strategic implementation process, the organizations needs to be clear about the reason for its
existence, where it wants to see itself after a certain number of years and properly decide its
business definition. The managers should build a consensus around the organization’s vision
and strategy. The strategies, in fact, emanate from the vision and mission of the company
which means that a linkage is formed between the strategies of the different business units
and the vision of the organization. The lofty statements must be translated into an integrated
set of objectives and measures. Thus, by using this tool, the overall strategic objectives for
the company gets clarified which helps to achieve consensus across different business units
on the overall strategic objectives for the company.
ii. Communicating and Linking
Just communicating the vision and the strategies is not an end in itself. The strategic goals
and the measures to be set in the different areas have to be decided upon. The long-term
strategic goals have to be translated into both departmental and the individual goals which
should be aligned to each other in order to realize the long-term goals. In fact, each and
everyone at different levels in the organizational hierarchy needs to be educated about the
action plans and reasons for accepting the same. The tool contains three levels of
information:
i. It describes the corporate objectives, measures and the targets
ii. It helps in deciding the business unit targets and
iii. It helps in framing the departmental and the individual objectives,
iv. Which will help in attaining the objectives of the business unit directly which would
 lead to the attainment of the corporate goals. The employees are given the freedom to
decide teir measures, objectives and the targets attainment of which would move the
organization oin the right strategic direction. Then the compensation level is linked to
the performance level which in reality involves a lot of subjectivity.
iii. Business Planning
This step helps in the resource allocation process. One has to keep in mind that objectives
form an important criteria in deciding the quantum of resources that are required to be
allocated to the various departments, activities and the processes. No strategy can bring
successful results to an organization if the allocation is not in line with what is required to
meet the results. This allocation is dependent on the budgeted estimates which are decided on
the basis on the said objectives. Hence, through this step the BSC tries to bring about
integration between strategic planning and the budgeting exercise. The short term milestones
are also needed to be figured out which in totality brings about a linkage between strategic
goals and the budgets. This procedure helps in actualizing what ahs been set by the
organization. Thus, this step brings about a shift form the ‘thinking’ exercise to the ‘doing’
stage and the organization tries to achieve the long term goals through the short term actions.
iv. Feedback and Learning
The first three steps as mentioned above help in the strategic implementation process. But, for
knowing whether the organization is in a position to achieve the strategic goals and whether it
is in the right track, the process of feedback and learning is essential. The strategic learning
consists of acquiring knowledge about which way the organization is moving to, testing
whether the premises considered before hold true even now and finally making adjustments
wherever required. The corrective measures are required so that the necessary rectifications
are made which will help an organization pursue the correct path. Another point is that an
organization gets to know whether the cause and effect relationships among the different
perspectives really hold true, to what extent they are strongly linked and also whether
positive results are being obtained. In case, an organization realizes the existence of a gap in
the cause effect relationships, an immediate correction would be required so that a positive
relationship can be build among the various factors. Thus, the tool with its specification of
the causal relationships between performance drivers and objectives allows corporate and the
business unit objectives executives to use their periodic review sessions in order to evaluate
the validity of the unit’s strategy and the quality of its execution. Also, this feedback and
learning exercise may force an organization to change the measures set in each of the
perspectives and adopt those, which if attained would ensure the success of the corporate and
the business strategies.

8. Use of Balance Scorecard in Corporate Sector:

8.1. PRC’s First Use of the Balanced Scorecard

The BSC has been in use in the PRC since 1996. In 1996, the largest food company sought
consulting support for an organizational transformation project in its PRC operations. The
project included multiple elements: localization of General Manager, BSC deployment,
business process improvement, management development, team building, and culture change.
The BSC was the central organizing framework and system for creating focus and alignment
within an organization that was challenged by numerous growth opportunities and conflicting
stakeholder needs. The project was successful, as the General Manager position was localized
on schedule, the BSC was deployed successfully, and profitability was established.
The BSC assisted the senior management team to identify key customer needs and the critical
process improvements necessary for meeting those needs. Additionally, the management
team identified the learning and growth objectives critical to achieving the desired process
improvements. This linkage of learning, process, customer, and financial objectives was
central to implementation of the BSC methodology.
As a result of the implementation, the management team improved the organization’s overall
performance and profitability by focusing on objectives in the four perspectives of the BSC.
These improvements were a critical factor that enabled the organization to be sold to and
even larger global consumer product company.
 8.2. Balanced Scorecard at Philips Electronics:
Philips Electronics is a large, multinational company with several divisions and vast product
diversity. The company used the BSC to streamline its complex processes and structure.
Philips followed a top down policy in building the scorecard.
It started from the board in Europe down to all divisions and companies the world over.
Through the balanced scorecard, the company aimed at aligning its vision at all levels,
making the employees aware of the company strategy and vision, educating them about the
drivers of business success and their role and relationship with vision and strategy. Philips
identified the following four critical success factors underlying value creation:
• Competence – knowledge, technology, leadership and teamwork
• Processes – drivers for performance
• Customers – value propositions
• Financial – value, growth, and productivity.
The company first determined the top level scorecard criteria which were used to drive the
scorecard criteria at the lower levels of the organization. The focus was on value creation by
converting the relationship between customer satisfaction and product sales into CSFs. The
customer and financial CSFs were first determined and then followed by process CSFs.
Competence CSFs are the drivers of other CSFs. The management team established a
measurement system that links the short term actions with long-term strategy. This enables
employees to see the link between their day to day activities and the company’s strategic
objectives.
The company’s BSC was used to set up operational goals and targets for divisions worldwide
and linking them with business strategy through CSFs. Each division should consider
competition in developing its CSFs and measurement metrics. Targets are based on the
current performance gap and are set for the current year plus two and four years in the future.
The factors that drive targeting include market size, customer base, brand equity, innovation
capability, and world class performance. Philips also implements individual employee
scorecard. Thus, it has a three tier balanced scorecard:
• Strategic review card
• Operation review card
• Individual employee review card
In Philips experience of implementing the BSC, all units faced six common key indicators:
• Profitable revenue growth
 • Customer delight
• Employee satisfaction
• Drive to operationalize excellence
• Organizational development
• IT support

Figure 3: Philips Electronics Balanced Scorecard.

Source: I.M. Pandey, Balanced Scorecard: Myth And Reality, Vikalpa, Volume 30, No 1, January -
March 2005, PP-60.
8.3. Tata Steel’s Strategy for Business Excellence and the Balanced
Scorecard
Tata Steel’s was established in 1907; it is Asia’s first and India’s largest integrated private
sector company. Tata steel achieved business excellence and the status of the lowest cost
producer through several strategic initiatives over a period of time.
The company found the BSC a good tool to translate strategies into measurable goals
(metrics) and communicate metrics and strategic actions to the lower levels of the
organization. The company uses the BSC – a performance management and strategy
deployment methodology – to break down strategy into its component elements and track
performance form the top to the bottom. The company extended the balanced scorecard’s
review process to monitor the performance of individual employee, divisions, and
organization in the knowledge management initiatives as well. It is significant which focused
on quality and its implementation through strategic QIP. The Balanced scorecard acted as
component of the quality improvement strategy and performance tracking. The strategic
initiatives of quality improvement taken by Tata Steel paid-off well. The company was able
to reduce its workforce, achieve ISO 9001 certification of all its departments, involve all
employees in QC and increase the number of QCs over years, significantly improve the ratio
of professionals in the total workforce, reduce consumption of raw materials used in steel
making, reduce consumption of refractory, and increase the quantity of saleable steel. In
terms of non-financial variables, the reduction in the number of workers, increase in QCs,
and increase in professionals led to significant improvement in productivity. These non
financial variables also caused reduction in costs and increase in the production of saleable
steel.

8.4. Using Balance Scorecard at Sears Company

Sears radically improved profitability using the BSC’s four perspectives. However, shortly
after Sears’ implementation of the standard scorecard, Quinn discovered that maintaining the
company’s increased shareholder value would require more change. For Sears, sustaining the
BSC’s initial improvements required senior management to alter the company’s overall
vision and incorporate a new perspective into the company’s Scorecard.
Quinn was vice president of quality when he introduced Sears to the BSC concept in late
1992. Sears had a net loss of almost $4 billion that year, but the company posted largest profit
in its history in 1993. After the company’s financial rebound, Quinn lost most of the audience
for his idea. It soon became clear to him that a small group of people had caused the
company’s turnaround and that different long term measures would have to be taken in order
to sustain Sears’s renaissance. As a result of this realization, Quinn began holding visioning
sessions in early 1994 with the organization’s top 100 executives. In off site three day
sessions, Sears’s corporate managers developed a list of the company’s five year objectives.
In addition to examining needed internal changes, the group discussed methods for aligning
itself more with what was happening outside the company.
Initially, Quinn formed task forces around the four basic perspectives of the BSC. Each group
was asked to define “world class status” in the area of its perspective, identity Sears’s
obstacles to achieving world class status in that area, and design metrics for measuring the
company’s progress in the area. The customer task force was determined to get a firsthand
assessment of how well the company was listening to its clientele. “Satisfaction to your
money back” had been a sears mantra since the company’s inception in the 1890, but the
group was skeptical about whether senior management and frontline employees were doing
everything they could to increase customer satisfaction. Some stores had trouble keeping
merchandise in stock. Customers frequently complained about being unable to find sales
associates and rated Sears’ quality of overall service as poor.
To learn more about Sears’ customer-service challenges, the task force held 80 focus group
sessions with customers around the country. As a result of its findings, the customer task
force set four goals;
• Offering the right merchandise at competitive prices,
• Providing superb customer service by hiring,
• Training and retaining the best employees,
• Building customer loyalty and making Sears a fun place to shop.
The internal business task force held 26 employee focus groups and studied extensive data on
employee attitudes and behavior. Each Sears’s employee was asked to complete a 70 question
opinion survey every other year. The internal business task force found that repeatedly
employees responded with the clear message that they were interested in the company’s
success and were proud to work for Sears. The task force also learned that two dimensions of
employee satisfaction, attitude toward the job and toward the company, had a greater effect
on employee loyalty and behavior toward customers than all the other dimensions of
employee satisfaction, attitude toward the job and toward the company, had a greater effect
on employee loyalty and behavior toward customers than all the other dimensions put
together.
The financial task force focused on shareholder return and tried to determine what path Sears
should take to be in the top 25 percent of fortune 500 companies. The learning and growth
task force conducted outside benchmarking launched a research project into the nature of
change and suggested an effort to generate 1 million ideas of employees.
Ultimately, Sears’s managers added a fifth perspective to the company’s BSC. This
perspective was designed to measure overall company values, and it, too, was assigned to a
task force. The values task force used employee surveys to identify six core values that
Sears’s employees felt strongly about: honesty, integrity, and respect for the individual,
teamwork, trust and customer focus. The task force determined that Sears’ corporate culture
was too paternal in nature and didn’t value people as much as it should. The task force
decided that performance should count more in employee appraisals than effort.
In 1992 the customer satisfaction was below the industry average and 16 percentage points
behind the leading competitor. But after implementing the BSC by 1996 Sears’s customer
service was above the industry average.
8.5. Using Balanced Scorecard at Metro Bank
Metro Bank was the retail banking division of two major banks. The agendas of the two
parents had never been fully rationalized into a single vision. At the same time, without
having achieved a synthesis or consensus on an operating style and strategy for the Metro
Bank, its managers had launched a major transformation programme in order to be more
innovative and to create a bank tailored for the twenty-first century.
Unfortunately, the transformation programme had gone wild, leaving the bank with more
than 70 different action programmes, each competing for management time and resources.
Metro Bank had 30% market share of the core deposit accounts of the region but weith
deregulation, increased competition, and a lower interest rate environment, income from
these retail accounts could no longer be sustained. A strategic review revealed excessive
reliance on these accounts and a cost structure that could no longer profitably serve 80% of
the bank’s retail customers.
Metro embarked upon a two-pronged BSC based strategy to deal with these problems:
• Revenue Growth Strategy – Reduce the volatility of earnings by broadening the
sources of revenue with additional products for current customers.
• Productivity Strategy – improve operating efficiency by shifting non-profitable
customers to more cost effective channels of distribution (e.g. electronic banking
instead of personal banking).
In the process of developing a balanced scorecard at Metro, these two strategies were
translated into objectives and measures in the four perspectives. Particular emphasis was
placed on understanding and describing the cause and effect relationships on which the
strategy was based. The financial objectives were clear: broaden the revenue mix.
Strategically, this meant that metro would focus on its current customer base, identify the
customers who would be likely candidates for a broader range of services, and then sell an
expanded set of financial products and services to these targeted customers.
When customer objectives were analyzed, however, Metro’s executives determined that its
targeted customers did not view the bank, or their banker, as the logical source for a broader
array of products such as mutual funds, credit cards, and financial advice. The executives
concluded that if the bank’s new strategy were to be successful, they must shift customer’s
perception of the bank from that of a transactions processor of checks and deposits to a
financial adviser.
Having identified the financial objective, Broaden Revenue Mix, and the new customer value
proposition dictated by the financial objective, Increase Targeted Customers Confidence in
our Financial Advice, the scorecard design process then focused on the internal activities that
had to be mastered for the strategy to succeed. Three cross business processes were identified
• Understand Customers,
• Develop New Products and Services, and
• Cross-Sell Multiple Products and Services

9. Critical Analysis of Balanced Scorecard

Advantages of BSC
1) The Balanced Scorecard tool is being used by several organizations throughout the
world because of certain advantages it has been able to deliver as below:
2) It translates vision and strategy into action
3) It defines the strategic linkages to integrate performance across organizations
4) It communicates the objectives and measures to a business unit
5) It aligns the strategic initiatives in order to attain the long term goals
6) It aligns everyone within an organization so that all employees understand how they
support the strategy
7) It provides a basis for compensation for performance
8) The scorecard provides a feedback to the senior management if the strategy is
working
9) Focusing the whole organization on the few key things needed to create
breakthrough performance.
10) Helps to integrate various corporate programs such as: quality, reengineering, and
customer service initiatives.
11) Breaking down strategic measures towards lower levels, so that unit managers,
operators, and employees can see what’s required at their level to achieve excellent
overall performance.
Disadvantages of Balanced Scorecard
1) It is not easy to implement this tool because it involves a lot of subjectivity.
2) The tool is much more complex compared to the other tools.
3) The measures that need to be taken are contingent upon the kind of environment,
industry and the business the organization is in.
 4) A lot of refinement is still required to be done so that it becomes understandable to
every stakeholder associated with the organization.
Though BSC framework incorporates multiple performance measures, both financial and
nonfinancial, but it is difficult to achieve balance between the financial and non-financial
measures and that the firms do not adhere to this balancing act because of implementation
problems. It fails to highlight the employees’, suppliers’, and the community’s contribution in
the achievement of organizational objectives. In the service sector, the role of motivated
employees is critical to success and that the BSC fails to consider it. The BSC is based on
empiricism and there is a gap between the theory and empirical case studies developed on it.
The process of selection and prioritization of the key performance indicators in the BSC is
not systematic as it does not lend itself to sensitivity analysis and scenario analysis.
BSC makes non-financial performance indicators difficult to measure. The financial
measures dominate as far as employee compensation is concerned. It did not provide
guidance on how to combine the dissimilar measures into an overall appraisal of
performance.
10.Conclusion
The BSC is therefore a very important strategic management tool which helps an
organization to not only measure the performance but also decide the strategies which are
needed to be adopted so that the long term goals are achieved. Thus, in other words, the
application of this tool ensures the consistency of vision and action which is the first step
towards the development of a successful organization. Also, its proper implementation can
ensure the development of competencies within an organization which will help it to develop
a competitive advantage without which it cannot expect to outperform its rivals.

BIBLIOGRAPHY:
Journals Referred:
 Gary Baker & Kathleen M, December 2007, International Journal of Quality and
Productivity Management, Vol. 07, No. 01.
 David Dinesh, Elaine Palmer, 1998, Journal of Management History, Vol. 7.
 Marko Rillo, 2000, Overview of Construction and Implementation of Balanced
Scorecard, Estonian Business School, Tallinn, Vol-30.
 Manoj Anand, B.S.Sahay, April-June 2005, Vikalpa, Volume 30, No 2.
 I.M. Pandey, January - March 2005, Balanced Scorecard: Myth And Reality, Vikalpa,
Volume 30, No 1, PP-60.
 Abhijit Sinha, March 2006, Balanced Scorecard: A Strategic Management Tool,
Vidyasagar University Journal of Commerce, Vol. 11.
Website Address:
 www.balancedscorecard.org, Balanced Scorecard Institute, USA.
 www.managementhelp.org
 http://www.ucsfhr.ucsf.edu/files/implementationguide.doc
 http://www.emeraldinsight.com/10.1108/00251749810223529