Balanced Scorecard free essay sample

Rivalry amongst competing firms – Apple is in the unique situation that it has its own proprietary operating system and only used by Apple. So although the competition is fierce for customers, it is a different type of battle for Apple than for others such as Samsung, Google or Microsoft. Apple does face stiff competition but it is in the battle for use-case preference. The Android or Windows OS is different than the Apple iOS and consumers make a choice as to which road they are going to go down. Apple is competing for winning this important thought process and decision-making process. They are not competing on hardware alone because Apple alone produces their products with their OS. The competition will continue for easily the foreseeable future, 10 years and beyond, as the world becomes more digitized. Force: Moderate Potential Entry of New Competitors – The barriers to entry in this industry are steep. In addition, financial measure is suitable for managers to make short-term decisions rather than long-term decisions (Kang and Fredin, 2012. p639). To some extent, balanced scorecard can avoid these problems. The balanced scorecard includes both financial and non financial information, it help managers to balances short-term and long-term interests when they make decisions (Kang and Fredin, 2012. p639). The financial aspects of the balanced scorecard sets forth the organizations financial goals, and measure whether the implementation of the strategy and implementation to contribute to the improvement of the final results of its operations. Balanced scorecard objectives and metrics are linked, this linkage includes not only the cause-and-effect relationship, but also including outcome measures and results in a measure of combined, ultimately reflected in the organizational strategy. In fact, recently the balanced scorecard has been used by 60 percent of Fortune 1000 companies in the world (Lipe and Salterio, 2002, p539). According to Kaplan and Norton (1996), the balanced scorecard which is  illustrated in Figure 1 is different from another strategy measures, it consists of 4 perspectives to evaluate company performance: the financial perspective, the customer perspective, internal business perspective and learning and growth perspective. 1) Financial perspective: Financial measure is the important one in balanced scorecard; it define the long-term goals in decision making, and it also can reflect the corporate strategy, shareholder satisfaction, strategy implementation and enforcement which are to contribute to improving the profitability of company. Financial measures are usually associated with profitability, operating income, return on capital, economic value added measure, or may be the rapid increase in sales and to create cash flow. 2) Customer perspective: emphasizing customers, managers ensure the key goals of customers and market which they will be competed, as well as the indicators in these target customers and market segments, managers should identify the need of customers. The customer perspective indicators usually include market and account share, customer satisfaction, customer retention, customer acquisition and customer profitability. Hence, the managers can throw these information to clarify the need of customers and market strategies, and then to create an excellent financial return. 3) Internal business perspective: focusing on critical internal processes which are illustrated in figure 2. In this perspective, managers should confirm the organization the key internal processes, these processes can help business units to provide value proposition to attract and retain customers in the target segment market, to complete the corporate financial objectives and to achieve shareholder expectations of excellent financial returns. In fact, this strategy is always formulated after evaluating financial and customer perspectives. Hence, it is closely linked to customers. 4) Learning and growth perspective: it closely communicates to another three perspectives. It emphasizes that if the enterprise want to create long-term growth and improvement, they should establish the foundation of framework. It is a future key successful factor. The another three perspectives of the balanced scorecard will generally reveal the actual ability of the enterprise with the necessary breakthrough performance gap between the ability, in order to bridge this gap, companies need to invest in improving employee technology, organizational procedures and the management system, these are the goals that balanced scorecard learning and growth perspective pursuit for, such as employee satisfaction, employee retention, employee training and skills, and the drivers of these indicators. Balanced scorecard is an effective system to evaluate the performance. It is a system from the four aspects to evaluate the companys strategic management of financial and non-financial information, it not only can effectively overcome many defects such as the lag of traditional financial evaluation methods, emphasizing on short-term interests and internal interests, as well as neglect of intangible assets, but also a science management system which evaluates the performance of one set of management control and strategic management. According to Shutibhinyo(2013, p4), companies usually use balanced scorecard to achieve their both short-term and long-term strategic goals, to communicate with the strategy to guarantee that employees has the same working objectives, and based on company strategy to align and integrate corporate planning. It indicates that balanced scorecard reflects the balance between the financial and non-financial measure, the balance between long-term goals and short-term goals, the external and internal balance, the results and the process balance, the management performance and results of operations balance. They reflect the organization operating conditions, contribute the performance evaluation tends to balance and complete, and it improve the long-term development, it is conducive to the development of organization. In fact, many companies have been benefited from balanced scorecard. As mentioned now, there are many successful examples of the balanced scorecard implementation; the most famous one is Mobil USMR (Cited in Kaplan, 2010, pp23 to 26). The Mobil USMR division introduces the Balanced Scorecard in 1993, in order to help Mobil become a decentralized, customer-oriented organization from a highly centralized, production-oriented oil company. The result is rapid and dramatic. 1995, Mobil industry profit margins from the last one jumped the first, and for four consecutive years to maintain this status (1995 to 1998). Adverse cash flow changed dramatically and the investment rate returns to the top among the same industry. Bob McCool, CEO of division, described how to use the Balanced Scorecard to improve their performance system: â€Å"For a meeting with a BU manager, I have the manager plus representatives from various [support units], like supply, marketing, and convenience-stores. And we have a conversation. In the past we were a bunch of controllers sitting around talking about variances. Now we discuss what’s gone right, what’s gone wrong. What should we keep doing, what should we stop doing? What resources do we need to get back on track, not explaining a negative variance due to some volume mix. The process enables me to see how the NBU managers think, plan, and execute. I can see the gaps, and by understanding the manager’s culture and mentality, I can develop customized programs to make him or her a better manager. † (Cited in Kaplan, 2010, pp23 to 26). Another successful example is Chemical Retail Bank, the Balanced Scorecard was introduced in 1993 to help banks absorb and merge another bank, the introduction of an integrated financial service, to accelerate the use of electronic banking. Balanced Scorecard clearly stated strategic focus, and establish the contacts for strategic management and budgetary framework with the planned three years, the rate of profit increased 20% after introduced balanced scorecard (citied in Kaplan and Norton, 2001, p3 ). Balanced Scorecard emphasizes the causal relationship in performance evaluation system, by the completion of the financial perspective, customer perspective, internal business, and learning and growth assessment indicators to achieve the ultimate financial goals. Here, balanced scorecard is used to associate the original objectives and the translation of management strategy (Figge, Hahn, Schaltegger and Wagner, 2002, p272). Apart from this, the study by Davis and Albright (2004, p152) pointed out that the balanced scorecard can improve the financial performance to some extent, they supposed that compared with the traditional management accounting system, it can improve the financial performance. That means even in financial perspective the balanced scorecard performance system is still better compared with the traditional system which only focus on financial information, so in fact, because balanced scorecard have four perspectives which were connected with each effectively, to some extent it will improve not only financial performance of organization but also another performance. It is obviously that balanced scorecard have many beneficial perspectives in organization performance system, but how it work effectively with organization strategic management system? A role of balanced scorecard in strategic management accounting According to Figge, Hahn, Schaltegger and Wagner (2002, p269), the balanced scorecard provides a valuable methods for managers, managers need a model which includes both financial and nonfinancial measures, with the cause relationship between customers, financial, internal business process, and capabilities. That supported that balanced scorecard is an effective system for many companies, but in fact it is not suitable for every companies. Through the literature review, balanced scorecard is suitable for these organizations:senior managers who have a short-term behavior. 2. Lack of effective employee performance management system. 3. There are many problems with branch companies’ performance management, such as false profits, short-term behavior. 4. The company which hope to achieve breakthrough performance. 5. The firm hopes to achieve long-term development and to create a famous brand. 6. The company needs standardized management; improve the overall management level and improve organizational strategic management capacity. 7. The firm which want a faster response with the market. Implementation difficulties and solution There is no doubt that balanced scorecard is a successful performance evaluation system, but in fact how to use balanced scorecard efficiently is hard to do. In fact, sometimes balanced scorecard may not be a suitable for some companies, because balanced scorecard is not easy to implement. According to Norreklitt (2003, p592), he address an example, if now is a raining weather, the floor will be wet, but conversely, it can not be concluded that if the floor is wet, the weather must be raining, it may be snowy or just sprinkled by automatic sprinkler. Therefore, use the balanced scorecard not means success. Norreklit also indicated (2003, p592) that the balanced scorecard focuses on to solve the strategy implementation problems, but the management control system is a hierarchical system which is from top to bottom, so the balanced scorecard is hard to carry out in the system, and to some extent it is a questionable model in strategic management accounting. All the information reflects that how to use the balanced scorecard in right way in strategic management accounting is very hard but necessary. As a result, in what way to use the balanced scorecard effectively and what company is suitable for balanced scorecard implementation? Let through some different examples to analysis this problem. Before address the examples, some barriers of balanced scorecard implementation should be showed, the barriers are existed in organization when implement the balanced scorecard, there are some different from different study. According to Kasurinen(2002, pp325 to 328), Argyris Kaplan(1994) announced that the barriers are erroneous education and sponsorship process which need to change in the future with some innovation, and another one is erroneous internal commitment creation process. The second study is suggested by Shields (1995), the internal processes are related to behavioral and organizational implementation, and it is stored with variables. Thirdly, the structures of company may be the barriers which need to change (Roberts Silvester, 1996). Furthermore, Markus Pfeffer (1983) supposed that the successful strategy implementation is closed to companies’ culture and the distribution of managers’ rights, and in addition the erroneous agreement of companies’ objectives is also the factor and organizations need to improve technology for achieving objectives. Fifth, Brooks Bates’ (1994) study supported that the foundation of organizations culture are the barriers with implementation. In addition, how to protect a new system is a problem, some companies are failure to do it, and some organizations are failure to find a right way to balance production and accounting though a new performance evaluation system (Scapens Roberts, 1993). Finally, Strebel (1996) showed that when the organization does the implementation, the different voices will come into the public, that is a barrier when the new system is implemented. From these barriers, it can be seen that managers are important factor in balanced scorecard implementation, Rich’s (2007, p10) study supported that the decision making were based on managers, and in fact the decisions they thought at beginning were not important factor related to the results. But if pre-weighting is used for the outset of decision making process, managers should do more at the time division when they make decisions. However, if they do not to make decisions by workable thinking to balance each performance measures, the  performance may not be reflected the general business strategy in the right way. Finally, this study indicated managers can not use all performance for their decision making, but the important thing is that managers would be the most important part in balanced scorecard measures. This investigation also supported that manager is an important factor in balanced scorecard implementation. As mentioned above, because of the barriers, the implementation of balanced scorecard is very difficult in some ways. Hence, even for a successful manager sometimes is also difficult to use balanced scorecard effectively, Wynder (2010, pp229) also pointed out that â€Å"The Balanced Scorecard with its large number of performance measures presents a complex task to a manager asked to use the scorecard to evaluate a division’s performance. The manager could, theoretically, weight and combine the many measures into an overall evaluation of the business unit but this is, cognitively, a very difficult thing to do. Research in cognitive psychology has repeatedly shown that humans are able to retain and use only a small number of items in working memory (Baddeley, 1994 and Miller, 1956). With this limit on working memory, holding 20 or more individual measures in one’s head and mentally manipulating them simultaneously is extremely difficult, if not impossible. Thus, the volume of data in a Balanced Scorecard suggests that it may overload human decision makers with information. (Lipe and Salterio, 2002, p532). † In addition, according from another study (Libby, Salterio and Webb, 2004, p1091), with their experiment result, it can be concluded that when the balanced scorecard was used by the senior management, the divisional managers should evaluate the performance and gather the relevant information it would be helpful for managers to use the revelent information to make decision and evaluate performance in balanced scorecard system. Theses evidences all supported that it is hard to use balanced scorecard, but balanced scorecard is a system, managers need to accord some principles. There are some principles of balanced scorecard implementation, Kaplan (1996, p3) pointed out that a successful example of balanced scorecard implementation is Mobil, CIGNA and Chemical (Chase) Retail Bank which introduced balanced scorecard measures early in 1993. The balanced scorecard measures by these companies all relied on five principles: â€Å"1. Translate the strategy into operational terms. 2. Align the organization to the strategy. 3. Make strategy everyone’s everyday job. 4. Make strategy a continual process. 5. Mobilize change through executive leadership. † The study by Kaplan and Norton (2001, p6) provide a example which related to principle 3, the National Bank Online Financial Services (OFS) have used balanced scorecard to improve the screen and rank budget initiatives. The first time it used have set three criteria:†1. Helps OFS achieve a strategic objective (defined by the strategic themes on the balanced scorecard). 2. Builds competitive advantage. 3. Builds sustainable points of differentiation. † Theses three criteria were used to grade each initiative which handled into two categories, â€Å"strategic† and â€Å"business as usual†. Thus, screens were separated operational budgeting task from strategic budgeting tasks effectively. And the senior managers used new methods to support strategic objectives which were based on the balanced scorecard ranked for the budget. This is a good example which is linked to the principle 4: make strategy a continual process, it focuses on strategy implementation especially the continual process and always sorted into two different processes: operational budgeting and strategic budgeting. In terms of the pitfalls of balanced scorecard implementation, Kaplan and Norton (2001, p8) showed that the pitfalls of balanced scorecard implementation are in two main perspectives: design failure and process failure. In terms of design failure, they pointed out that balanced scorecard is not suitable for design strategies; the premise of using balanced scorecard is that companies should have the common strategies. Apart from this, senior managers should not use too many or too few measures in performance evaluation system and they need to make the strategies in any level. When it comes to process failure, the balanced scorecard is not a process improvement method it is similar to the sports scorecard, balanced scorecard does not process how to do it, it is just based on quantitative way to tell the companies to do what. However, sometimes because of the poor organizational process the most common failures can be separated from seven aspects: â€Å"1. lack of senior management commitment. That means the companies should improve their management standard, because senior management should  make the long-term strategies and another mangers should have abilities to implement. 2. Too few individuals involved. Commitment must come from the appropriate decision-makers to keep business practices in line with strategic objectives. 3. Keeping the scorecard at the top. The balanced scorecard is effective; it must be share with everyone in the company. 4. An over-long development process. The most successful implementations always start with missing measurements; the organizations simply learn by doing. 5. Treating the balanced scorecard as a systems project. This has little to do with the engaging strategy that should be at the center of the balanced scorecard management system. 6. Hiring inexperienced consultants. 7. Introducing the balanced scorecard for compensation only. Companies must translate the strategy into term each of employees can understand. †(Kaplan and Norton, 2001, p8). In fact, not all companies are suitable for balanced scorecard, although the company have become a big organization in the world, it still have different difficulties in strategy implementation.