Balanced Scorecard and Total Quality Management

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Table of Contents

Introduction
Literature Review
Principles of the Balanced Scorecard
Practical Perspectives of the Balanced Scorecard Implementation
Use of the Balanced Scorecard in the United Arab Emirates
Student’s Reflection
Conclusion
References

Introduction

Over the years, researchers and practitioners in the field of business have developed several different tools and standards for performance evaluation and management. The present paper examines one of the most popular strategic planning and measurement methods – the Balanced Scorecard (BSC), which aims to align the organization’s operations and activities with its strategy, mission, and goals. The first part of the report provides an overview of the principles of BSC, considers the method’s advantages and drawbacks, and examines the reality of its implementation, with a specific focus on the United Arab Emirates. The second section of the paper is dedicated to examining the links between BSC, leadership, and information technology.

Literature Review

The Balanced Scorecard was first introduced by researchers Norton and Kaplan in the early 1990s (Kaplan, 2010, p. 2). The authors recognized the importance of performance measurement to companies and their managers, and they also noticed the problem experienced by the organizations whose value creation models primarily relied on intangible assets. Thus, Kaplan and Norton came to realize that the most frequently used measures of performance – that is, financial indicators – do not always reflect the value created by some companies (Kaplan, 2010, p. 3). Having recognized the existing gap in performance measurement, Norton and Kaplan aimed to address it by developing a comprehensive tool that would take into account not only the company’s financial performance, but would also consider such intangible parameters as the organization’s mission, strategy, values, and interests.

The two researchers consequently worked on operationalizing an organization’s strategy and mission into tangible and quantifiable objectives and performance measures (Assiri, Zairi & Eid, 2006, p. 938). Their primary goal was to develop not merely a set of metrics. Rather, they intended to create a system of indicators and measures that would reflect the complexity of a company’s performance and demonstrate the intricate cause-and-effect relationships between the different activities and units of an organization (Assiri et al., 2006, p. 939). Norton and Kaplan were not necessarily the first to recognize and attempt to operationalize the BSC’s underlying structure as similar models existed in France, Japan, and other countries, business sectors, and companies (Kaplan, 2010, p. 7). However, it was the BSC that gained widespread popularity in the management community.

Principles of the Balanced Scorecard

The BSC can be thus best defined as a “strategic planning and management system” or framework that helps organizations examine their performance in the context of their vision and strategic goals (Assiri et al., 2006, p. 938). The BSC is broadly used in private, public, and non-profit sectors alike, and its popularity is not limited geographically. Currently, more than half of large companies in the United States have adopted this approach, and this number is equally high in Europe and Asia. As Western business practices spread to the economically growing Middle East and Africa, the BSC is becoming increasingly popular in these regions, as well. It is the fifth most commonly used global management practice and the management’s satisfaction level is quite high for this tool: it typically receives a score of four on a five-point Likert scale (Lueg & Vu, 2015, p. 307).

The design of a balanced scorecard has to include at least four basic elements. It does, first of all, retain the financial performance indicators, even though it aims to supplement them with other measures. Three additional perspectives are included in the BSC. The first one is the focus on the customers, the second – on internal processes, and the third dimension deals with the organization’s learning and growth. Norton and Kaplan have identified these metrics to be essential for creating long-term value for the company’s shareholders (Kaplan, 2010, p. 4). While these categories are rather broad, each organization needs to develop the specific objectives, measures, and indicators to analyze how well it is achieving its goals: for instance, it can be the level of customer satisfaction and retention for the customer-focused dimension (Assiri et al., 2006, p. 938). Depending on the specific metrics included in it, the BSC can be used for different levels of analysis, be it the entire organization, its departments, or even particular individuals (Assiri et al., 2006, p. 939).

Practical Perspectives of the Balanced Scorecard Implementation

Thus, it is quite clear how and why the Balanced Scorecard came into existence. While its merits and benefits are rather evident, the actual implementation process may not be necessarily easy and without obstacles. Implementation of different management practices and tools has been widely researched in the business literature, with other terms such as adoption, integration, or organizational change being used to denote this phenomenon. Regardless of how one refers to it, implementation of new practices, by definition, brings significant changes and, consequently, risks and challenges to the organization. However, if the process is carried out correctly, it has the potential to bring about positive benefits for the company, so this trade-off is justified. The success of the implementation process depends on several structural, organizational, environmental, and managerial factors, and it can only be evaluated when the practice is fully adopted by the organization (Lueg & Vu, 2015, p. 309).

As far as the implementation of the BSC is concerned, there is no one clear strategy as to how the practice should be introduced to the company. However, one can say that the implementation approaches that have been developed over time are largely consistent with the six-stage model proposed by Kaplan and Norton themselves in 2008. The first step of the implementation model concerns the development of the organizational strategy. In fact, Kaplan and Norton have also emphasized the importance of strategy mapping not only at this stage but also before it (Assiri et al., 2006, p. 938). The second stage is dedicated to detailed planning of the strategy that has been formulated. The next two stages deal with the alignment of the organization, in general, and its activities and operations, in particular, with the strategic goals and objectives of the company. During the fifth stage, the organization should monitor the BSC and gather feedback for continuous learning and improvement. Finally, the last stage is dedicated to testing the framework and fine-tuning it in line with the observations made during the preceding step (Lueg & Vu, 2015, p. 309).

Pros. Given the extensive reach of the BSC implementation in an organization, it is clear that this process is likely to bring significant changes to the company. Depending on how well the organization is prepared to begin the implementation – that is, how supportive the management and employees are of the initiative and how many resources are allocated for this project – the outcome may bring either benefits or disadvantages to the company. For instance, the BSC implementation plan frequently includes an almost complete overhaul of the entire organizational strategy, mission, and value system. This process gives the organization an opportunity to reconsider and re-evaluate its foundations in the contemporary context and identify and eliminate any outdated notions and assumptions. The implementation process can also help boost employee engagement, satisfaction, and productivity if the top management actively involves the employees in the process. Consequently, this kind of a “team-building” activity can help improve the overall morale and strengthen the organization’s corporate culture (Lueg & Vu, 2015, p. 315). In many cases, both employees and managers will find themselves needing to develop new skills and gain new knowledge to successfully adapt to the changing environment. If the company provides adequate training and support, the process will considerably contribute to the employees’ learning and professional growth (Lueg & Vu, 2015, p. 314).
Cons. At the same time, the BSC implementation process may also bring about some undesirable consequences and disadvantages. As far as the employees’ motivation and morale are concerned, they can, in fact, go down as a result of organizational changes. Typically, people are prone to resisting change as they are likely to be skeptical about the perceived benefits of the overhaul. Thus, unless the employees are well-informed about the process, they may feel alienated as a result of the occurring changes. Moreover, if they are not able to embrace the changes – that is, they do not have the skills necessary for it – training can prove to be rather time-consuming and expensive (Lueg & Vu, 2015, p. 314).

As a matter of fact, resources may be a considerable challenge for the company implementing the BSC. If the organization is not ready to commit its resources to the change, the transition will not be smooth and quick. The BSC implementation process is a complex, lengthy, and resource-consuming procedure that requires full support from both top management and employees. Unless the organization has realistic expectations about the associated expenditures and necessary time commitment, the implementation is likely to be unsuccessful (Lueg & Vu, 2015, p. 316).

Use of the Balanced Scorecard in the United Arab Emirates

Research indicates that strategic planning becomes more prominent in the United Arab Emirates, impacting both small and large entities in private and public sectors (Elbanna, 2010, p. 26). Quite expectedly, the BSC approach is gaining popularity, as well: a 2010 study of 112 organizations revealed that the BSC is the thirteenth most popular strategic planning tool, outperforming such methods as the stakeholder analysis, scenario planning, and even Michael Porter’s five-forces analysis. Less than a quarter of the surveyed organizations’ representatives claimed to be unfamiliar with this tool. On average, larger entities used the BSC more frequently, but it is consistent with the general findings of the study, as large companies tend to have more resources that allow them to adopt organization-wide changes (Elbanna, 2010, p. 34). Interestingly, the BSC is especially popular in the public sector, being the fourth most commonly used strategic planning tool in government agencies, both at federal and local levels (Elbanna, 2013, p. 432). The BSC’s popularity in the private sector is somewhat lower than in the public sector (Elbanna, 2010, p. 34).

Student’s Reflection

Balanced Scorecard and Leadership

Given the literature review provided above, the research on the BSC implementation has several important practical implications for the top management in public and private institutions. As an executive, I will focus on the following areas in the BSC implementation. First of all, evidence indicates that transformational leadership helps facilitate the adoption of the BSC at an organization (Yang & Islam, 2012). Essentially, this leadership style describes the kinSd of behavior whereby the leader works closely with their employees to identify the areas in need of change and develop the steps necessary to implement the changes. Thus, I will strive to adopt a transformational leadership style. Such an approach would help enhance employee satisfaction and improve their productivity and morale.

Secondly, I will make sure to encourage employee engagement and participation in decision-making at all stages. For instance, at the first stage of the BSC implementation, I will encourage the creation of employee focus groups to solicit their response regarding the direction and strategy that the organization should adopt. Finally, I will also try to provide adequate and consistent support throughout all the stages of implementation, since leadership’s engagement is believed to be a crucial factor in determining the implementation’s success (Lueg & Vu, 2015, p. 316). What it means in practical terms is that I will ensure adequate financing and planning of the implementation process. Moreover, I will seek to identify the skills and knowledge necessary for the employees to make a successful transition, and I will implement training programs designed to address any gaps in their knowledge.

Balanced Scorecard and Information Technology

Finally, given the advances in the modern information technology, it is essential for the management of an organization to take full advantage of the existing opportunities related to the implementation of the BSC. There are several ways in which an organization can adopt information technology to facilitate organizational change. First of all, most evidently, there are several software tools that allow automating the BSC implementation process. For instance, the Balanced Scorecard Institute (n.d.) advertises one particular software program that helps the organization structure its data and information in such a way that it becomes easier for it to implement the BSC approach. Thus, such programs are essentially a one-stop-shop solution for those organizations that would like to adopt the BSC method but are not sure as to where they should start.

At the same time, software programs do not necessarily need to fully automate the BSC implementation process. In fact, many tools not designed for such purposes specifically can still be used to facilitate the process. For instance, virtually any data collection, calculation, and analysis software will be useful for the organizations adopting the BSC method. Such programs help the company and its employees by collecting and treating large amounts of data that may be difficult for humans to process. Thus, organizations can use these calculations for their decision-making purposes. Apart from that, several useful software solutions can help coordinate and structure the company’s internal communication which is especially important in the times of change. For instance, online surveys can be used as a mechanism to gather feedback from the employees.

Conclusion

To sum up, the BSC is one of the most popular strategic management tools that still continues to gather support in the Middle East and other regions. Adoption of the BSC method can yield several benefits for the company, ranging from increased employee motivation to growth and learning. However, the process should be conducted carefully, as the implementation plan that has not been thought through can, in fact, harm the organization rather than help it. Currently, information technology offers several valuable software solutions that can the BSC implementation process at an organization.

References

Assiri, A., Zairi, M., & Eid, R. (2006). How to profit from the balanced scorecard: An implementation roadmap. Industrial Management and Data Systems, 106(7), 937-952.

Balanced Scorecard Institute. (n.d.). Balanced Scorecard software: Business intelligence, dashboards and performance management systems.

Elbanna, S. (2010). Strategic planning in the United Arab Emirates. International Journal of Commerce and Management, 20(1), 26-40.

Elbanna, S. (2013). Processes and impacts of strategic management: Evidence from the public sector in the United Arab Emirates. International Journal of Public Administration, 36(6), 426-439.

Kaplan, R.S. (2010). Conceptual foundations of the Balanced Scorecard. Web.

Lueg, R., & Vu, L. (2015). Success factors in balanced scorecard implementations: A literature review. Management Revue, 26(4), 306-327.

Yang, Y., & Islam, M. (2012). The influence of transformational leadership on job satisfaction: The balanced scorecard perspective. Journal of Accounting & Organizational Change, 8(3), 386-402.

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