Balanced
Scorecard (BSC) Model in Implementation of Total Quality Management (TQM)
Part
A: Literature Review on BSC as an Approach TQM Implementation
Total
Quality Management (TQM) is an important tool that allows organizations to
enhance the quality of products as well as services offered by the organization
in a bid to build on customer satisfaction. TQM involves integrating unified
mission and vision of an organization that involves the entire enterprise form
the lowest eve to the level of top management. It is a customer oriented
approach that involves a systematic change management as well as continuous
improvement of processes, products and services. TQM revolves around the
combination of all the aspects of an organization into a holistic philosophy
that is subject to the concept of quality, teamwork, understanding, customer
satisfaction, and productivity (Tejaningrum, 2014). While TQM encapsulates four
fundamental principles; customer satisfaction, management subject to facts,
respect for each hierarchical rank, and continuous improvement, there are a
wide spectrum of principles that are often considered which include; obsession
with quality, focus on the customer, long-term commitment, a scientific
approach, education and training, team cooperation, unity of purpose, and
employee engagement.
Based
on the underpinnings of TQM, balanced scorecard (BSC) is a performance
management approach that puts emphasis on four main perspectives which are;
customer, financial, internal business, and learning and growth. Developed by
David Norton and Robert Kaplan (Kaplan & Norton, 1992), BSC maintains the
use of financial metrics as the ultimate outcome measures for the success of an
organization. However, it supplements these metrics from three other
perspectives which are; customer, internal process, and learning and growth (Kaplan,
2010). The financial perspective acts as the reference for the evaluation of
performance in BSC. The organization is assessed subject to the financial
wellbeing of the organization which can be inferred from the balance sheet as
well as profit and loss statement. The
measure used to assess the organization from a financial perspective include;
profitability ratio, debt ratio, activity ratio, and liquidity ratio
(Tejaningrum, 2014). Profitability ratios involved are net profit margin, gross
margin, return on equity rate, and return on assets. Accounts receivable
turnover, debt to net worth ratio, inventory turnover, quick ratio, and current
ratio, accounts for the ratio of activity.
Kaplan
& Norton (1992) postulate that a sound financial performance must be
attained with consideration to customer satisfaction levels. Consequently, the
financial health of an organization needs to be attributable to high customer
satisfaction level. The indicators employed to benchmark performance based on
customer satisfaction are: customer satisfaction level, customer retention,
market share, customer profitability, and customer acquisition. Kaplan &
Norton (1992) further highlights that high levels of customer satisfaction are achieved
through a reliable and efficient internal business. The concept of internal
business perspective accentuates that the organization must possess the ability
to generate continuous improvement. The indicators for a reliable internal
business are: improved product performance, decrease in the amount of waste,
new products. Level of innovation, investment value in design and products
improvement, level of scaling processes, costs reduction and procedures
simplification (Tejaningrum, 2014). The last perspective of BSC performance
management approach is the process of learning and growth. It is expected that
reliable internal business process is achievable if the leaning and growth
process in an organization are handle properly.
The indicators for growth and learning include the level of employee
satisfaction, workers retention rate, employee involvement in training,
employee productivity, and improvement of knowledge and skills of the workforce
(Kaplan, 2010).
Wiersma
(2009) argues that BSC is evidently the most popular management system in
modern organizations with its popularity springing from the belief that it
encapsulates all the strategic objectives of an enterprise into a single as
well as balanced framework. Kaplan and Norton (2003) holds that the BSC
approach was considered following criticism of employing only financial
measures to assess the performance of an enterprise. The concept suggests the supplementation of
financial measure with other measures that can capture the intangible assets of
an enterprise. Subsequently, customers, learning and growth, and internal
process are intended to supplement the financial measures in a bid to provide a
better perspective of the organization’s performance (Tanyi, 2011). The
definition provided by Kaplan & Norton (1992) is, BSC is a balanced
assessment approach that allow the top management of an organization to have a
comprehensive as well as quick view of the performance of the organization. The
measures in a balanced scorecard system aid the management to make better and
informed decisions that will be instrumental in enhancing the success of the
business. Presented below is a demonstration of the four performance
measurement areas of an enterprise that the top management need to ensure are
in congruence with the vision and strategy of the business.
According
to Malmi (2001), the success of the Balance Scorecard needs to be appraised
subject to the purpose for adoption arguing that it is only by placing the BSC
into context that its function can be appreciated in an enterprise. The author
further recommends that the best approach is to view BSC subject to the purpose
for adoption, the role of BSC in the organization, as well as the desired
benefits that are project from employment of BSC. Balanced Scorecard has also been considered
as a customized communication instrument within a larger management control system
that is employed at various levels of the organization and for various
strategies (Tanyi, 2011). Recent research work has sought to consider other
variables that can result into the successful implementation of balanced
scorecard. For instance, Law & Ngai (2007) discovered that attributes such
as support form top management, It staff skills, business process redesign
extent, as well as the compatibility of It infrastructure and systems have
significant impact on the adoption of the enterprise resource planning (ERP)
system. It is vital to note that most ERP applications and systems have a
module for BSC. Therefore the attributes mention above play a significant role
in the adoption of successful BSC at the organizational level (Tanyi, 2011).
The results of Law and Ngai (2007) are corroborated by Wu et al. (2008) who
points out that the availability of IT resources as well as leadership style of
the management have significant impact on the adoption outcome of a management
information system.
Exploring
the effects of cultural, personal, action and results controls on attaining the
performance goals, Sandelin (2008) suggests that the type of controls to
introduce in a business organization is attributable to the functional demands
of the managers highlighting that in majority of small firms and organizations,
the controls are largely informal. As the firm grows, the need to adopt formal
controls becomes imperative. Consequently, the employment of informal cultural,
action, and personal controls used in harmony can standby for a more formal
control approaches in an organization.
The
BSC measures are derived through two major approaches. First, in the event that
BSC is employed as an information system it implies that here are no targets to
weigh and thus there is no responsible for the measure. However, when the BSC
is utilized as a management by objective (MBO) tool, the measures are derived
subject to key performance indicators (KPIs) (Tejaningrum, 2014). According to
Tanyi (2011), the KPIs are considered as the measures which an organization
must excel at in a bid for it to attain its vision. Nonetheless, it is
important to note that the KPS scorecard emphasize on what to measure in every
BSC perspective while ignoring the connection between the various perspectives.
This approach makes it difficult for employees to fully understand the business
strategy in situations where there is more than one KPI in the different
perspectives of BSC. However, Malmi (2001) argues that KPI BSC can be instrumental
if the intent of implementing the BSC seeks to mirror the level of
organizational performance.
The
second approach of deriving BSC measures is the generation of such measures
from the strategy of the business. The
business strategy is thus considered as a series of cause as well as effect
relationships between various perspectives and measures in the BSC
(Tejaningrum, 2014). To illustrate, if
an organization endeavors to maximize the its return on capital employed (ROCE)
a lagging measure of performance, then the other measures such as on-time
delivery, process quality, and customer base are indicators that will result in
the organization achieving its ROCE goal (Tanyi, 2011). This implies that the
organization ought to train its employees to enhance their performance in a bid
to attain higher ROCE. Consequently, better training will be instrumental for
process quality, satisfied customers, on-time delivery of products and
services, revenue increases and eventually higher ROCE for the business.
The
BSC model has its limitations too. The fact that BSC can be employed in all
types of businesses is disputed. In addition, Law & Ngai (2007) argues that
the assumed cause effect relationship in business strategy do not hold always.
This means that the assumption of BSC model that hold that the customer
perspective will automatically result into superior financial results is not
invariably true. Other drawbacks of BSC model revolves around maximization of
multiple objectives at ago. Jensen (2002) postulate that it is impossible for
an organization to maximize several objectives simultaneously. The stakeholder
BSC fails to specify any singular objective that the organization intends to
achieve but instead mandates the managers with unlimited power to do what they
please only based on financial market restrictions. Malmi (2001) in critiquing
the BSC approach questions the notion that the supply sides of businesses of
the BSC have had considerable effect on the decision of most enterprises to
adopt balanced scorecards.
Part
B: Reflections on Focuses on BSC Implementation and the Role of Information
Technology
There
is no single agreed upon purpose for organizations to consider the use of BSC
owing to the fact that majority of organizations make use of a control
mechanisms package. Malmi and Brown (2008) observes that some organizations
still make use of budgetary controls, while others employ economic value added
(EVA), with other using the return on investment (ROI) measures, or a blend of
two or more of the management techniques. It is important to note that the
organization’s rationale for using BSC differs from the individual manager’s
resolve for use. As an executive of an
organization, my focus on the implementation of BSC would revolve around
adopting BSC as an effective tool for communication of goals of the organization
to all the members and stakeholders. In addition, the need to earn awards such
as TQM certification, challenges associated with strategy execution,
difficulties of implementing change within the enterprise, a change from
budgetary practices, would serve as the motivating factors to adopt BSC (Kairu,
2013).
Generally,
the two major drivers for the adoption of BSC would be to support decisions
making and rationalism. Here the BSC approach is employed, first, for problem
solving, and secondly, for decision rationalizing. Employing BSC to solve
problems implies that the organization’s management makes use of BSC report in
justifying that the reported measures are correct subject to cause and effect lucidity
of the BSC model. Conversely, decision rationalizing implies to vindicate
business decisions on the basis of information from the BSC reports
particularly to superiors. Therefore, the use of BSC for purposes of
coordination revolves around employing it to incorporate work both vertically
and horizontally. It is important to note that horizontal integration encircles
the coordination of an individual’s own work with others in the work
environment. On the other hand, vertical integration takes into consideration
how the individual managers organize their work as well as communicate
vertically with subordinates and superiors (Tanyi, 2011). Encouraging the use
of non-financial measures in assessing performance is strongly encouraged in
BSC. The use of non-financial attributes is vital in overcoming the limitations
and drawbacks evident in just using financial performance measures. There is
need to make use of ‘lenient’ measures such as employee commitment and
satisfaction in a bid to revolutionize the business performance measurement and
complement the conventional financial focus with easier data (Kumari, 2011).
The
advancement in modern technologies development has enhanced the development of
various kinds of BSC applications software. Initially, the BSC was implemented
through the use of simple tools such as MS Excel spreadsheets or MS Access. Nonetheless,
owing to the complex nature of today’s forms of organizations as well as the
need to report real time information has presented challenges to the
implementation of BSC by use of the traditional simple applications (Tanyi,
2011). Today, it is reported that over 70 per cent of organizations
implementing scorecard systems make use of software. There is need to integrate
BSC software applications with other systems that are in use in the
organization in a bid to optimize their performance. It is important to note
that information compatibility from incongruent application software impacts
the adoption as well as possible benefits from application of management
information systems. The BSC applications software and systems are designed and
developed by the information Technology (IT) personnel of an organization. The
systems may also be bought off-shelve from software and IT systems vendors.
References
Jensen,
M. C (2002), Value Maximization,
Stakeholder Theory and the Corporate Objective Function, Business Ethics
Quarterly, Vol. 12, No. 2
Kairu,
E. W; Wafula, M. O; Okaka, O; Odera, O. & Akerele, E. K (2013), Effects of Balanced Scorecard on Performance
of Firms in the Service Sector, European Journal of Business and
Management, ISSN 2222-1905, Vol. 5, No. 9, pp. 81-88
Kaplan,
R. S. & Norton, D. P (1998), Putting
the Balanced Scorecard to Work, in the Economic Impact of Knowledge, eds.
Dale Neef, G. Anthony Siesfeld & Jacquelyn Cefola, Butterworth-Heinemann,
Boston, pp. 315-324.
Kaplan,
R. S. & Norton, D. P (1992), The
Balanced Scorecard: Translating Strategy into Action, Harvard Business
School Press, Long Range Planning, Vol. 30, No. 3, pp 467-467
Kaplan,
R. S (2008), Conceptual Foundation of the
Balanced Scorecard, in Handbooks of Management Accounting Research, ed.
Christopher S. Chapman, Antony G. Hopwood, & Michael D. Shields, Elsevier,
pp. 1253-1269
Kaplan,
R. S (2010), Conceptual Foundations of
the Balanced Scorecard, Working Paper 10-074, Harvard Business School,
Retrieved from <
http://www.hbs.edu/faculty/Publication%20Files/10-074.pdf> Accessed 23 June
2016
Kumari,
N. (2011), Balanced Scorecard for
Superior Organizational Performance, European Journal of Business and
Management, Vol. 3, No. 5, pp. 73-86
Law,
C.C.H. & Ngai, E. W. T (2007), ERP
Systems Adoption: An Exploratory Study of the Organization Factors and Impacts
of ERP Success, Information & Management, Vol. 44, No. 4, pp. 418-432
Malmi,
T. (2001), Balanced Scorecards in Finnish
Companies: A Research Note, Management Accounting Research, Vol. 12, No. 2,
pp. 207-220.
Sandelin,
M (2008), Operations of Management
Control Practices as a Package: A Case Study on Control System Variety in a
Growth Firm Context, Management Accounting Research, Vol. 19, No. 4, pp.
324-343
Tanyi,
E (2011), Factors Influencing the Use of
Balanced Scorecard, Master’s Degree Thesis, Hanken School of Economics,
Helsinki, Retrieved from <
https://helda.helsinki.fi/bitstream/handle/10138/26702/tanyi.pdf> Accessed
23 June 2016.
Tejaningrum,
A (2014), TQM in Perspective the Balanced
Score Card, International Journal of Humanities and Management Sciences
(IJHMS), Vol. 2, Issue 4 (2014), ISSN 2320-4044). Retrieved from <
http://www.isaet.org/images/extraimages/P1214047.pdf>, Accessed on 23 June
2016.
Wiersma,
E (2009), For Which Purposes do Managers
Use Balanced Scorecards?: An Empirical Study, Management Accounting
Research, Vol. 20, No. 4, pp. 239-251
Comments
Post a Comment