n a simple way performance means “doing something successfully” mainly by using the available resources. Performance can be elusive concept. It deals with the outcomes, results, and accomplishments achieved by a person, group or Organisation. (William J. Rothwel, Carolyn K.Hohne & Stephen B. King: 2007). In many cases people do define performance based on financial aspects of the business. Focusing only on financial matters does not tell us what should we do and how to do in order to be successful. ‘Performance is the definition and progressive achievement of tangible, specific, measurable, worthwhile and personally meaningful goals.’ (Darryl D. Enos 2007). We get a clear point in this definition that organisation should have well defined, specific and measurable goals. This serves as the first requisite in assessing the organisation’s performance. Having vague and general goals without proper measurement, pose a problem in evaluating corporate performance and proposing techniques for improving the performance. Michael Milgate 2004 said that, ‘by monitoring performance for each measure and taking appropriate remedial action, improve revenues, business growth, reduced expenses and compliance with sector regulations have resulted.’
2.1 PERFORMANCE IMPROVEMENT
There is a clear relationship between performance improvement and change management (discussed in Section 2.5 of this chapter). Many studies concluded that most organisations either fail or achieve very limited success in their efforts to improve performance. ‘Success or failure in performance improvement efforts begins with the reasons why organisational decision makers decide to get involved in the first place.’ Darryl D.Enos 2007). Personally, I feel that there should be a motivation factor to stir up the process of improving performance. In addition to this Darryl Enos 2007 added that commitment and involvement of leadership is the most critical element for the performance efforts to be successful. Rephrasing Enos unless a leader is motivated by authentic interest and be committed in the process then efforts of performance improvement have little chance to work.
Every organisation has problems. A good start is to admit the problem and find what is to be accomplished to solve the problem. ‘Sometimes performance improvement starts with a targeted program for dealing with a problem that is limiting achievement of a worthwhile goal.'(Darryl Enos 2007). As a suggestion, before approaching any technique to boost performance or implementing the efforts, management should identify areas which need improvements. The problem of poor performance or constant/stagnant performance may be caused by the top management itself.( Refer Enron’s Scandal 2001).Thus, the areas for performance improvement must be clearly identified and evaluated to avoid investing efforts in areas which are not critical to performance improvement.
In trying to adopt efforts and strategies to achieve corporate performance, Organisations face challenges and end up failing. In one of their research Kaplan and Norton found that 9 out of 10 companies fail to implement their strategies. (Bob Paladino 2007). Paladino explains four barriers that contribute to Organisation’s failure to achieve expected results from their efforts and strategies put in process. There barriers are: Vision barrier (where research shows that only 5 % of company’s employees fully understand their company’s strategy); Management barrier (where 85 % of executive teams spend far less time discussing strategies and strategic issues than traditional operating results); Resource barrier (where most companies do not link their budgets to strategy): and the fourth barrier being People barrier (where research shows that only 25 % of managers have incentives linked to strategy).
2.2 PERFORMANCE MANAGEMENT SYSTEM (PMS1)
Performance management system (PMS1) is not an end by itself, but its improvement enables an Organisation to perform better. Improving its efficiency ensures the data generated will tell where the Organisation is, how it is performing and where it is going. ‘Effective management depends on the effective measurement of performance and results’ (Gobal. K. Kanji, 2002). Mohan Nair (2004) argued that Corporations sometimes measure too much of something and too little of others. Contributing to this it is even possible that Organisations unknowingly does not measure some of the business aspects. Moreover many organisations fail to link what they measure with corporate strategy. Nair added that many of these measurements are un-integrated and serve the wrong goals. ‘Many corporations lack an overarching model for monitoring, measuring and managing the business. Balanced Scorecard offers a broad and overarching skin to the structural architecture of the business.’ (Nair 2004)
Gobal K. Kanji (2002) explains the role of PMS1 and how an organisation may achieve business excellence by identifying areas to improve and how it can use its limited resources to reflect the improvement of the system. The design and implementation of a new PMS1 may in one way or another bring questions and tensions to employees. Kanji (2002) stated that, ‘It is important to build a measurement system where measures are used as a management and motivational tool’. I personally back this idea as will help in gaining management and employees support during designing and implementing the new system. In this regard, the PMS1 should be clear to employees explaining how each will contribute to the overall strategy. The efficient PMS1 also serves as the communication and rewarding tool.
Furthermore, Kanji (2002) explains the past and present performance measurements and their implication on today’s business era. ‘Traditionally, performance measurement focuses on financial measures …………….. that do not match entirely with competencies & skills companies require to face today’s business environment.’ In insisting that financial measures of performance are under criticism in today’s world, Paul Niven (2003) said that ‘they lack predictive power, reinforce functional silos, may sacrifices long term thinking and are not relevant to many levels of the Organisation.’. Kanji then supports the significant contribution by Kaplan & Norton (1992) to overcome the shortcomings of traditional PMS1 that employs only financial measures.
2.3 THE BALANCED SCORECARD (BSC)
Robert S. Kaplan and David P. Norton (2005) invented BSC in 1992 due to the fact that traditional accounting measures like Return on Investment and Earning per Share give misleading picture while in today’s business environment continuous improvement and innovation is very important. The authors realised that many managers do not depend on single set of measures in isolation of the other. This implied the need of balanced presentation of both financial and non financial measure. Kaplan & Norton complemented financial measures by operational measures calling it Balanced Scorecard (BSC).
Kaplan and Norton define BSC as, ‘a set of measures that gives top management a fast but comprehensive view of the business. The BSC includes financial measures that tell the results of actions already taken. And it complements the financial measures on customer satisfaction, internal processes, and Organisation innovation and improvement.’ These (including financial measures) are the four perspectives of BSC as mentioned by the authors. They suggested that for each of the perspective, managers should translate their visions and missions to strategic goals and objectives and these goals should be translated into specific measures.
The word “Balance” in the Balanced Scorecard represents the balance between financial and non financial performance indicators; internal and external elements & stakeholders of the Organisation; and lag & lead indicators (Paul Niven 2003). Michael Milgate (2004) defines scorecard as a ‘balanced management system in which shared vision and strategy are reference points for the management process; achieving this balance enables synergy and a practical fit with other frameworks’. BSC serves as a powerful tool as it focuses on achieving breakthrough performance considering all measures without isolating non financial performance measures (Kanji 2002).Since its creation in 1992 by Drs. Norton & Kaplan of Harvard Business School the Balanced Scorecard has been implemented by different business units in the Public as well as in the Private sectors-worldwide.( Michael E. Nagel- Vice President, BSC Collaborative)
Henri .JF (2006) applied the BSC framework in his survey on how top management in a manufacturing company could use PMS to improve the strategic management and Organisational performance. ‘Given its depth as a strategic management system, the BSC principle will continue to be widely adopted and further refined in user Organisation as experiences in its implementation emerge’ ( Michael A.Milgate 2004). This shows how widely BSC is used to improve the PMS if the Organisation chooses to adopt and implement it. Henri .JF (2006) poses a question that top managers should ask themselves; â€˜How can we improve our system?’ .However, the author suggested that the improvement of the PMS is a continuous process that involves changing measures to reflect the new ideas and insights brought to the Organisation through creativity and other development activities.
BSC can be successfully implemented in any organisation where the management is committed and devote time to formulate strategy and ready to accept changes. BSC has been implemented many organisations including services business , military units, schools, government institutions and also for profit organisations ( Wikipedia). An important point to note here is that an organisation should design its own BSC as management is knowledgeable of its responsibilities & organisations operations rather than adapting another Organisation’s BSC.
David P. Tarantino (2003) complements the work of Kaplan and Norton. He defined BSC, ‘as a performance management tool that is used to provide an integrate perspective of an organisation.’He also pointed out the four perspectives of the BSc as, external (how customers views the Organisation; Internal (Look at where the organisation must succeed and improve); Growth & learning (examine how organisation grows and learns) and Financial (study financial performance of the organisation).These perspectives depend and influence one another. Tarantino (2003) said, ‘To concentrate on only one, such as financial performance fails to recognise the contribution and balance of the other three perspectives.’ Of interest from the author is the explanation on how to develop the BSC. The first step he suggested is for the organisation to decide which goals are to be measured that should be included in the four perspectives. Then the organisation should figure out the measures for each of the four BSC perspectives and determine the weight of each for ultimate evaluation of overall performance.
Harvard Management-Update (2000), ‘No need to wait for a companywide initiative-the key principles of this strategic-management system can be put to work in your unit right away.’The author of the article tries to convince management to apply BSC reporting system. He is of the views that even if companies take years and spend millions to implement the scorecard across their operations the effects can be dramatic when the system takes root. He said that managers today don’t have to wait for a scorecard- inspired corporate transformation before learning- and implementing some of the methods centred ideas. He explained the four lessons from BSC that can be applied right away in virtually any business unit or department.
Watch a variety of metrics
Connect your metrics to strategy
Develop a strategic budget
Get everyone involved in tracking metrics
The author still insists that BSC is a method that helps managers to develop a well -rounded strategy and then get everyone in the company involved in implementing it.
Mohan Nair 2004, arguing in favour of BSC, the changes in the character of business assets has exaggerated the challenges faced by business. ‘In the past company assets would be reflected in the balance Sheet but now 85% of the assets are intangibles.’Having the same arguments as previous authors about the inefficiencies of the financial measures, Nair also added that those financial measures are applied only to tangibles, when the intangibles are what fuels the future.
According to an online source, www.balancescorecard.org/BSCresources the benefits of BSC are: improve organisation alignment, improve communication, more emphasis on strategy and organisational results, linked strategy and operations, and integrated strategic planning and management.
2.3.1 BSC development
Kaplan and Norton explained four steps which many organisations have used to develop their balanced scorecard. The process includes:
Define the measurement architecture – To a beginner, it is recommended to start with a business unit applying the metrics as designed in the BSC rather than to the corporate level.
Specify strategic objectives – This step includes deriving strategic objectives for each of the four perspective from corporate goals.
Choose strategic measures – The third step is to choose related measures for the strategic goals to evaluate the performance so as to achieve the strategic objectives.
Develop the implementation plan – After selecting measures for each of the perspective, remains implementation process.’Target values are assigned to the measures’. A link is then established from various metrics from the top to bottom of the BSC. The established scorecard is then incorporated in the organisation’s management system..
The online source www.balancescorecard.org/BSCresources also recommended nine steps to success develop and deploy BSC framework- In a sequential order these are; Organisation assessment, strategy development, strategic objectives, strategic mapping, performance measures and targets, strategic initiatives, automation, cascading the BSC throughout the organisation and last evaluation. Overall the BSC involves the following steps:
Clarify the vision
- Communicate to middle manager and develop business unit scorecards
- Eliminate Non-strategic investments and launch corporate change programs
- Review business unit scorecard
Refine the vision
- Communicate the BSC to the entire company and establish individual performance objectives
- Update long-range plan and budget
- Conduct monthly and quarterly reviews
- Conduct annual strategy review
- Link everyone’s performance to the BSC
2.3.2 BSC criticisms
The use of the balanced scorecard system may not result to what managers expect. Some professionals spoke some problems that make the BSC under criticisms. It has been noted by professionals that the BSC concept does not guide how the approach can be deployed within an organisation. It is just been viewed as an approach that attracts managers to install and implement without a real sense on how it works, and what should be expected. (Stephen Smith 2006).From his article â€˜problem with a balanced scorecard’, Smith pointed out some of the key issues that can cause BSC initiatives to fail. These are:
Poorly defined metrics – These should be relevant ,clear and easily understood
Lack of efficient data collection and reporting – Smith is concerned with the investments made in collecting metrics data, whether consuming too much time and energy. He then suggests the importance of prioritising key performance indicators to get most relevant information.
Lack of formal review structure – This is necessary to accommodate any change in metric value. Reviewing is a cross functional activity.
No press improvement methodology – Many organisation lack basic and standard toolkits and approaches for tracking problems. It therefore consumes a lot of time an efforts to address a problem that is caused by the performance gap.
Too much internal focus – Smith ranks this as one of the major criticism of BSC. He suggests that Organisation should always start with an external focus through analysing organisation’s markets, shareholders, competitors, employees and other stakeholders.
However Smith assured that all is well with the introduction and the concept of balanced scorecard. This means that the BSC approach is a useful tool and can bring desired results if management knows how to structure it and take the above points in considerations to avoid its initiatives from failing.
It has also been learnt that BSC is being criticised by academic society on its practical nature, applicability and functionality. (Wikipedia).They also noted that some of the criticisms focus on technical flaws in the method and design of the original BSC proposed by Kaplan & Norton. Supporting the main problem as seen by Smith 2006 other academicians have focused on the lack of citation support. ‘Another criticism is that the BSC does not provide a bottom line score or a unified view with clear recommendations; it is simply a list of metrics.’ (Wikipedia). Regardless of these criticisms the studies done so far indicated that BSC is a useful tool in strategic performance management in an Organisation. An online source www.netmba.com added to the BSC pitfalls that during implementation managers should avoid the use of generic measures, which are being adopted by successful firms.
Management should not take BSC as a guarantee of success in company’s operations. It should think clearly the company’s strategy and implement the scorecard for improving performance in operational level that derives improved financial performance. Kaplan and Norton said, ‘Even an excellent set of BSC measures does not guarantee a winning strategy. The BSC can only translate a company strategy into specific measurable objectives.’ They also advised that by combining the four perspectives, the BSC helps managers understand implicitly many interrelationships.
The four perspectives relate to each other and the effect on either of the perspective will impact the other. ‘A well designed BSC should describe your strategy through objectives and measures you have chosen. These measures should link together in a chain of cause and effect relationships’ (Paul Niven 2003). Thus, it is suggested that all have equal importance and neither should be taken in isolation of others.
2.4 COMPARISON BSC AND OTHER PERFORMANCE IMPROVEMENT TECHNIQUES
When we talk of performance improvement in an organisation apart from BSC, Six sigma and Total Quality Management (TQM) come under discussion. Both tools when applied properly work to achieve what management really expects. These tools are contrasted with BSC in the subsequent sections.
2.4.1 Balanced Scorecard (BSC) Vs Six Sigma
It has been learnt that BSC and Six Sigma work independently from each other. BSC translates corporate strategy into actions that help to achieve the strategy. Six Sigma aims to solve the problem of poor performance by closely looking at the root cause of performance problem. In this case Six Sigma tries to minimise the errors and reduce other causes of defects in business processes. However, ‘these frameworks are complementary and if used together they offer huge potential value.’ (Michael E. Nagel). BSC and Six Sigma when used together can deliver great and unexpected business performance (Alastair Horn 2006) . Nagel justifies his idea by clarifying that ‘BSC and Six Sigma are complementary because the former provides the strategic context for targeted improvement initiatives and the latter is a business improvement approach that solve a myriad of performance issues.’ To make the difference more clearly, Nagel stated that, unlike Six Sigma, BSC is not a solution for closing specific strategic performance shortfalls. He then concluded that BSC describes the strategy for creating value and aligns resources to ensure the strategy is successfully executed. Six Sigma executes the strategy by using data and process improvement tools.
It has been learnt that both BSC and Six Sigma strive for good performance through fixing up the performance gaps. In a clear manner a corporation may choose to implement any of the frameworks but the use of both the approaches would result to high performance according to the way each of them works. Rephrasing Horn, Six Sigma focuses on the best processes that organisation may adopt to improve its performance of products and processes on a continuous basis. while BSC focuses on performance management that translates strategy into executions.
In explaining how both BSC and Six Sigma can work together, Henry Killackey (2008) speaks his idea that it is a very common practice to label organisation performance matrix in the BSC with red ( poor performance), yellow ( mixed results),and green ( excellent). If the organisation implements Six Sigma approach then the red ratings alert Six Sigma practitioners the areas which need immediate attention so that they can figure out ways of reversing the poor situation. In simple words, we may say that BSC serves as a communication tool for Six Sigma professionals. It has been learnt that BSC prompts weak and bad performing areas for Six Sigma professionals to act upon.
As previously explained, the ultimate aim of both BSC and Six Sigma is to improve the performance of the organisation. In this regard the organisation can simultaneously implement both the approaches. They both rely on accurate data from customers and external stakeholders. Moreover the output indicators in Six Sigma may be used as measures in the BSC framework where by both the BSC and Six Sigma professionals will concentrate on the same goals. (Henry Killackey 2008)
However Paul Grizzell (2004) in his article admitted that many authors see Six Sigma as the most effective performance management control system ever. But he cautioned readers that it is important to first consider the assumptions that were used to generate the opinions. Grizzell put forward his opinion that all performance management tools (in his case, Six Sigma, lean, BSC, Baldrige) when used as an integrated approach to maximise performance will lead to breakthrough and not just incremental improvement.
2.4.2 Balanced Scorecard (BSC) Vs. Total Quality Management (TQM)
It is argued that the best approach for an organisation between BSC and TQM depends on the organisation itself. When developing a business strategy an organisation must consider multiple factors including leadership, customers ,business processes, financial goals and the structure, culture and the size of the corporation.( Schwartz Jay 2005). Jay continues that TQM and BSC share a common theme of improving communication in an organisation. He also added another shared goal of the BSC and TQM as the reduction of costs and improvement of services of an organisation. Moreover both TQM and BSC need management support to ensure that all employees support the new initiatives.
However BSC and TQM differ in other aspects. ‘The difference between TQM and BSC is in the number of people involved in the process; TQM requires full participation, compared with limited involvement for the BSC'(Schwartz Jay 2005).With my little knowledge on the BSC, I think it also requires full participation. This is very important to prevent any possible resistance. Another difference named it ‘major difference’ by Schwartz is that BSC places more emphasis on finance i.e. using traditional financial objects; TQM while not diminishing the importance of financial solvency, it focuses more on the systems of the organisation, the concept of empowering people and employees involvement. I also raise my concern to Schwartz’s views on where the focus is in BSC .i.e. finance!!.Looking at the four perspectives of the BSC ( financial, customer, internal process and learning & growth) it is clear that BSC involves both financial and non financial aspects. BSC was established to compliment the financial measures, so it does not put much emphasis on financial matters only but includes also non financial measures. The BNET business dictionary defines BSC as ‘ a system that measures and manages an organisation’s progress towards strategic objectives. Introduced by Kaplan & Norton (1992) ,the BSC incorporates not only financial indicators but also other perspectives……’ .
To conclude this Schwartz (2005) suggests that before managers decide whether TQM or BSC which fits the organisation they must ask themselves the following questions: What is the organisation structure?, What is the corporate structure? What is the size of the organisation?. He then recommends that for a large and bureaucratic organisation BSC fits best and TQM fits best with small & service related organisation. However Schwartz didn’t make it clear how to define a ‘large organisation’ either in terms of capital, employees ,etc. I would rather say that whether using BSC or TQM the most important aspect to consider is whether the organisation is real committed and has a leader to initiate the change including involving all the employees. I would personally recommends the use of BSC as its structure is clear and helps the organisation to put the strategy into measurable goals.
2.5 MANAGEMENT CHANGE
Management change involves the process of reducing the chances for resistance done by top management personnel and executives. In many organisations the tendency of management to resist changes, especially in adopting a new system keeps on growing day by day. Thus for the organisation to manage the changes there should be a systematic process, planned properly and which involves the shareholders and other key stakeholders. In this respect a change may be defined as any addition to an existing or modification to an old system or any deletion of an aspect of an old system. Some of the reasons for making changes could be solving problems, growth motives/purposes, improving performance, accommodating technology change, etc.
In any organisation for a change to be successful, management should commit itself to make the change operational within a reasonable time. In many organisations this has not been the case as it has been relative difficult to implement changes especially adding a new thing to an existing system. It may be said that the systematic approach to implement changes reduces the negative impact of changes and the possible failure.
The researcher will evaluate the performance of the Local Authorities Pensions Fund ( LAPF) using the metrics as structured in the proposed Balances Scorecard (Table 1) which is relevant to the Fund’s operations. Some metrics may be in use while others may not. In this case LAPF may wish to fully adopt the performance metrics as shown in the proposed BSC. Thus all issues relating to change management should be considered before trying to implement BSC approach to measure and improve the overall performance. This is the essence of analysing how change process may be done, possible challenges and change failure together with suggesting how to maximise chances for successful change process. Improving the performance is a continuous process, that necessitates new measures and approaches to be adopted. This also justifies why changes cannot be avoided by an organisation if it wants to occupy large market share, beat competition and improve the overall performance.( Henry J.F, 2006).
‘Change management means to plan, initiate, realise, control and finally stabilise change process on both corporate and personnel level. In some situation change brings problems for instance disturbing system , staff programs and other development programs that are in progress. ( Oliver Recklies 2001).The author shows much concerns on those management and staff who have negative thoughts and perception on what is change and why change.. Management always fears to be questionable for failure while employees have fears of losing their jobs. Majority of employees tend to put forward resistance to change without considering that change facilitates improvements (Oliver Recklies 2001). The effects of change may be unclear to employees and thus fear something bad may happen that affects their tasks, responsibilities and worse enough even their lives. Management should consider possible aspects that may have negative impact on the change initiative so as to achieve the desired results. The success of change projects depends on the Organisation’s ability to make all their employees participate in the change process in one way or the other.’ ( Oliver Recklies 2001).
Lawler (1986), viewed from Rob Paton & James Mc Calman (2008),said that overall change is not impossible but it is often difficult. ‘The difficult is that most organisations view the concept of change as a highly programmed process which takes as its starting point the problem that needs to be rectified, breaks it down to constituent parts, analyses possible alternatives, select the preferred solution and applies this relentlessly- problem recognition, diagnosis and resolution’
Recklies (2001) made a significant contribution on how to minimise the negative effects of change to arrive at successful change process. He therefore divided the change process into seven stages it is relative better for management to understand in which stage they should expect what kind of problems. The stages are : shock and surprise, denial and refusal, rational understanding, emotional acceptance, exercising and learning, realisation and last being integration.( diagrammatically presented in figure 2.1)
Shock & surprise- This involves confrontation with unexpected situations
Denial & refusal-No need for change, i.e. Change is not necessary
Rational understanding- people realised the need for change but unwilling to change own pattern of behaviour
Emotional acceptance – This is the most important stage characterised by slow pace. Management should succeed in creating willingness for change for the organisation to exploit its real potentials that lie in different aspects.
Exercising & learning – This is the learning stage that will be influenced by people’s willingness. It is a trial for a new system and process. The stage is characterised by failure and success. This leads to the increased perceiveness of people own competence.
Realisation – This stage highly depends on stage 5 above, as people get more information through learning and allows mind to receive new challenges and experiences, The stage is characterised by flexibility and thus perceived competency increased.
Integration – At this stage people have acquired new skills and patterns of thinking The introduced change becomes familiar and a routing process.
Figure 2.1 .Change process ( adapted from Oliver Recklies 2001)
The seven stages simplify the implementation of the new process or change. Those who are responsible to accommodate the changes into the business should understand these stages so as to apply them systematically.
John P. Kotter (1996) in his book ‘Leading change’ explained clearly the most common mistakes done by organisations when adopting change and also he came up with their solutions. As Recklies 2001 (above) Kotter 1996 also explained eight stages for change process. Let’s now examine the change mistakes done by management ( by Kotter ) and later we will explain the change stages and contrast them with Recklies’ change stages.
Allowing too much complacency – This is one of the biggest mistake as ranked by Kotter. The over confidence attitude of an executive wishing to process change may cause change failure. Having been successful in the past drives the executive to proceed with change plan without establishing and understanding the urgency of