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M. Punniyamoorthy
R. Murali
Faculty of Human Resources and Finance, Department of Management Studies,
National Institute of Technology, Tiruchirappalli, India
Abstract
Purpose The purpose of this paper is to create a model called Balanced score for the balanced
score card and to provide an objective benchmarking indicator for evaluating the achievement of the
strategic goals of the company.
Design/methodology/approach The paper uses the concepts of Balanced scorecard proposed
by Robert. S. Kaplan and David P. Norton. This paper also adopts the model given by Brown P.A. and
Gibson D.F. and the extension to the model provided by P.V. Raghavan and M. Punniyamoorthy.
Preference theory is used to calculate the relative weightage for each factor, using the process of pair
wise comparison. The balanced score for balanced scorecard provides a single value by taking into
account all the essential objective and subjective factors be it financial or non-financial. It also
provides a suitable weightages for those parameters. The target performance and the actual
performance are compared and the analysis is made.
Findings Information from a leading organization was obtained and the balanced score for a
balance scorecard was calculated for that organization. The variations were analyzed through this
model. The depth and objectivity in the analysis is highlighted.
Research limitations/implications This provides a single bench marking measure to evaluate
how far the firm had been successful in achieving the strategies. The paper has adopted the preference
theory which limits the weightage to be accorded to the factors concerned. However, further
refinement can be provided by the usage of analytic hierarchy process for arriving suitable
weightages.
Practical implications The organization can calculate the balanced score by themselves, by
assigning appropriate importance to the activities as they deem fit. It is a tailor made benchmarking
information system created by the firm for itself.
Originality/value This is of value to the top management to identify the important activities and
setting suitable target measures to be achieved in those activities. The variations are arrived by
comparing the targeted performance with the actual. This will help the firm to take suitable actions
under those parameters where there are significant deviations.
Keywords Balanced scorecard, Benchmarking, Corporate strategy, Analytical hierarchy process
Paper type Research paper
Benchmarking: An International
Journal
Vol. 15 No. 4, 2008
pp. 420-443
q Emerald Group Publishing Limited
1463-5771
DOI 10.1108/14635770810887230
Introduction
Businesses houses are continuously striving to be successful amidst the increasingly
competitive and constantly changing environments. To achieve that, they must be
willing to adopt any processes and accept any benchmarking standards which would
help them in not only doing things right but also in doing the right thing.
Every act initiated by the competitors or its customers of the company has far reaching
consequences. It may be that any single desire or the ambition by the top management
can alter the destiny of the company.
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Porter (1985) has suggested the five force model and in this model he provides emphasis
on all the relevant factors that an organization should consider. He says that for an
organization to succeed it needs to take into account the firm, its competitors, its suppliers,
its customers and also its substitutes. If all these are not monitored properly and the
linkages not understood correctly, then it can impede the performance of an organization.
A study contrasting high- and low-performing organizations yielded the data as
shown in Table I.
So it becomes imperative for the managers to have the clear understanding of the
ultimate performance standards the firm has to achieve. Obviously, mere
understanding may not suffice. They should also ensure that the information is
properly communicated down the line. Further the top management must be in a
position to periodically monitor the progress with regard to the achievement of the
strategic goals in order to ensure successful achievement of the strategies. For making
a meaningful evaluation, they must be having some objective measures to review the
efficiency of the company taking into account all the dimensions of its operation.
It is observed that, in the present day context in any organization the intangible
factors drive the tangibles assets. In a report on the Accounting for Intangibles, it was
stated that:
Human capital and structural capital are an indication of a companys future value and ability
to generate financial results. This is why a more systematic method of reporting on and
managing these intangible dimensions is needed (Skandia Reporting Model, 2001).
So the present day managers should also be proficient in reviewing the efficiency of the
company in all the intangible components of the business operation, viz. in employee
satisfaction, quality standards, social obligations, customers and other non-financial
which are very important to the success of an organization.
All the above requirements can be only linked effectively with the help of an
appropriate strategy. This is because company can say to itself that it has fulfilled the
purpose of its existence only if it achieves the goals derived out of the strategic
thinking process. If the company were to achieve its goals, then it would only mean
that all the parameters set for all the functions and activities of the firm are to be
accomplished.
Porter (1996) further describes:
Ultimately, all differences between companies in cost or price derive from hundreds
of activities required to create, produce, sell and deliver their products or services [. . .]
differentiation arises from both the choice of the activities and how they are performed.
Well-performing organizations
(per cent)
Poorly-performing organizations
(per cent)
67
33
26
Obviously, the strategies adopted by the firm even to arrive a common generic goal
such as, accomplishing higher sales, may be different depending upon the
environments in which they operate and the strengths and weaknesses they possess.
The researchers have observed Managing strategy is fundamentally different from
managing operations (Hope and Fraser, n.d.). It has also been outlined that:
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[. . .] Changing one element has a ripple effect that impacts other parts of the model, which in
turn have their ripple effects and so on (Miller, 1998).
From the foregoing observations, we find that the Balanced scorecard is precisely the
framework that enables the organization to implement the strategy successfully, as
this approach helps in providing adequate linkages, to enable the organizations to
implement complex and intricate activities involved in implementing the corporate
strategies and monitor every activities of the firm with the intent to achieve the
strategic objectives. It has also been observed that:
The balanced scorecard is a strategic performance management system that links performance
to strategy using a multi dimensional set of financial and non-financial performance measures.
It focuses on better understanding the causal relationships and links within organizations and
the levers that can be pulled to improve corporate governance (Dye, 2003).
The BSC has grown out itself from being just a strategic initiative to its present form of a
performance management system. The BSC, as it is today, is a performance
management system that can be used by organisations of any size to align the vision and
mission with all the functional requirements and day-to-day work. It can also enable
them to manage and evaluate business strategy, monitor operational efficiency, provide
improvements, build organization capacity, and communicate progress to all employees:
The Balanced Scorecard concept has been successfully employed by many companies in
recent years to better measure their financial results. According to one study, fully 40 per cent
of Fortune 500 companies were using this system to evaluate performance at the end of 2000.
In essence, the Balanced Scorecard was developed because it was becoming increasingly
apparent to many executives that traditional financial measures of performance were not
allowing companies to relate financial measures of performance to long-term company
objectives. For example, traditional financial analysis fails to take into account such key
variables as levels of customer service, employee morale, market share by segment and other
important factors that influence an organizations ultimate success (Analyst, 2001).
Hence, it is being adopted by many companies across the world today cutting across
the nature of the industry, types of business, geographical and other barriers.
Balanced scorecard (BSC) as a concept
The mission set by the corporate entity normally reveals the cherished dreams of the
firm, which are strategic to its sustained growth. Such guiding principles arising out of
the strategic intent of the company, is not fully captured in any traditional system. If
this can be calculated and be integrated into the traditional method then it will
facilitate to formulate a well-devised plan for the future growth:
In the knowledge-driven economy of today, intellectual capital and other such intangible
assets have not got desired presentation in the annual reports of companies (Corrigan, n.d.).
The BSC retains traditional financial measures. But financial measures tell the story of
past events, an adequate story for those companies for which investments in long-term
capabilities and customer relationships were not critical for success. These financial
measures are inadequate, however, for guiding and evaluating the performance of the
modern companies as they are forced by intense competition provided the
environment, to create future value through investment in customers, suppliers,
employees, processes, technology, and innovation.
Kaplan and Norton describes the BSC as a processs which move beyond a
performance measurement system to become the organizing frame work for a strategic
management system.
The BSC is a system that enables the organization to clarify their strategy and
translate them into action. It is a system, derived from the strategy, reflecting the
business objectives which the firm had set for itself. The approach supports
the strategic planning and implementation by integrating all the activities of the
organization around a common understanding, viz. the goals of the organization.
The BSC translates an organizations strategy into a comprehensive set of performance
measures that provides framework for the implementation of strategy.
Thus, BSC essentially is a means of focusing employees attention on desired behavior
and desired results. By combining financial and non-financial measures in a single report
the BSC aims to provide the managers with richer and more relevant information about
activities they are managing than is provided by financial measures alone.
The BSC enables the companies to develop a more comprehensive view of their
operations and to better match all operating and investment activities to long- and
short-term strategic objectives. The BSC approach provides a clear prescription as to
what companies should measure in order to balance the implications in all the
functional areas, arising out of the strategic intent.
The components under these can be linked through a cause and effect diagram. For
example, we can from the strategy, make out a strategy map and get all the linkages,
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which will be triggered in order to achieve the desired goal. This can diagrammatically
bring out cause and effect relationship between the measures. This gives the clearer
idea of the complex linkages with which the company has to mow through for its
ultimate successes. Strategy map can be made for the entire activities as a whole or for
a specific segment.
The strategic content of the company can be grouped under different perspectives,
which will cover the entire activity of the firm. Kaplan and Norton introduced four
different perspectives through which the firms entire activity can be integrated. They are:
(1) Financial perspective. It evaluates the profitability element of the strategy.
(2) Customers perspective. It identifies the targeted market, segments and
measures the companys success in these segments.
(3) Internal and business perspective. It focuses on internal operations.
(4) Learning and growth perspective. It identifies the capabilities in which the
organization must excel in order to achieve superior internal process that
creates value for customers and share holders.
The four perspectives are complete in so far as no additional perspective is required to
represent any element of organizational activity that management team might believe
worth the focus. Each perspective influences and influenced by the other perspectives
and can be shown in Figure 1.
This classification covers the entire gamut of activities in the major functional areas of
the business. The financial focus concentrates on traditional return-based efficiency and
effectiveness metrics. The customer focus lists metrics about customer satisfaction,
business potential and unit growth. The process and development focus provides details
about efficiency, outputs, and savings and of future growth. The innovative and learning
focus gives information pertaining to employee loyalty, skills and competencies.
Obviously a good strategic plan is one, which is successfully implemented. The BSC
provides a format whereby, all the requirements under the different perspectives will
be consolidated and each of the functional departments, viz. production, personnel,
marketing and finance would exactly know what they are expected to do and when.
This coordinated effort only can make the strategy successful. The growth plan of any
Financial Perspective
Customer
Perspective
Figure 1.
Internal Business
Process
Perspective
Innovative and
Learning Perspective
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Measures are constructed by devising suitable metrics that aid target-setting and
performance measurement in those areas. For better understanding and management
these measures can be broken down to the individual level, group level, business level
and then finally aggregated to the corporate level.
Metrics are designed to support strategies. They are carefully selected yardsticks
that help in the performance measurement.
From our own experience, we expect strategy scorecards to have 20-25 measures.
Here, is a typical allocation across the four perspectives (Kaplan and Norton, n.d.):
(1) financial five measures (22 per cent);
(2) customer five measures (22 per cent);
(3) internal eight to ten measures (34 per cent); and
(4) learning and growth five measures (22 per cent).
Best Practices LLC (1999) analyzed the scorecards of 22 organizations that had
successfully implemented and found just about the same distribution of measures.
The metrics are usually determined via a detailed and carefully analyzed survey or
interviews. The management should be able to identify shortcomings, to prioritize
action items, and then conduct follow-on studies to choose appropriate metrics and the
fix the targeted performance to be achieved under each of those metrics.
Metrics give numerical standards against which a clients own processes can be
compared. Metric benchmarks are of the form:
.
finished-product first-pass yield of 97 per cent;
.
scrap/rework less than 1 per cent of sales;
.
cycle time less than 25 hours;
.
customer lead times less than 20 days;
.
productivity levels of $150,000 or more per employee; and
.
plant-level ROA better than 15 per cent (Metrics benchmark, available at:
www3.best-in-class.com/bestp/domrep.nsf/).
For example, the following can be set of metrics chosen under each perspective, firm as
a whole for specified target requirements:
(1) Learning and growth perspective:
.
involve the employees in corporate governance;
.
inculcate leadership capacities at all levels; and
.
become a customer driven culture.
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constructed taking into account all the strategic issues. The balanced score, which we
are suggesting is basically derived for the balanced score card. If the single bench mark
measure The balanced score for the balanced scorecard is created then it would
clearly mean that the firm will be reasonably be in a position to evaluate the
achievement of the strategic targets.
The balanced score for the BSC tries to arrive at a single value for comparing the
target performance and the actual performance of the organization by suitably taking
into account the weightage to be assigned to each factor by considering the users view
point. His opinions and perceptions are used to create weightages for the parameters
selected and a balanced score for the BSC is arrived.
Further, if we are able to devise a single benchmark measure, which would give the
indication as to the direction in which the organization is proceeding with regard to
achievement of the strategic intent, the decision maker can either maintain the status
quo or make any required modification. This decision he may be able to take in an
objective manner given the required benchmark figure.
In short, it is a single benchmarking measure, which evaluates under or over
achievement of the firm in respect of fulfilling the goals set by the company. It can also
provide the variation of the actual measure from the targeted measure under each of
the factors considered.
Balanced scores of two different time periods can also be compared to evaluate the
performance of the organization over those periods.
Thus, the balanced score model for a BSC, as suggested in this paper will provide a
single bench mark information for the decision makers to take appropriate action and
concentrate on such measures which would result in the achievement of the strategic
needs of the company.
Development of balanced score model
Let us now see the development of balanced score model for BSC. As discussed earlier,
the BSC divides all the activities under four perspectives. The perspectives, the
measures under each perspective, the target and actual values of each measure are
analysed in a framework as shown in Figure 2.
The target and actual performance were calculated using the following method:
Balanced score for BSC target performance
a1 b1 c1 b2 c3 b3 c5 a2 b4 c7 b5 c9 a3 b6 c11 b7 c13 a4 b8 c15 ;
There are four levels in the balanced score for balanced scorecard model.
Level 1
The first level is the goal of the model, i.e. balanced score for BSC.
Level 2
This level consists of the criteria for evaluating organizational performance under the
following categories:
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I-Level
Goal
II- Level
Criteria
430
Financial Perspective
(a1)
Customer
Perspective
(a2)
Internal Business
Perspective
(a3)
Learning &
growth
Perspective (a4)
III- Level
Sub Criteria
b1
b2
b3
b4
b5
b6
b7
b8
IV- Level
Alternatives
Figure 2.
Framework for calculating
the balanced score for BSC
c1 c2 c3 c4 c5 c6
TP AP TP AP TP AP
.
.
.
.
c7 c8 c9 c10
TP AP TP AP
c15 c16
TP AP
Level 3
Each perspective may have sub-criteria for measuring organizational performance.
To measure each criterion or sub-criteria the measures are identified. These have been
referred to as bis.
Level 4
For each measure, identified targets are set. These target performance values are then
compared with the actual performance achieved.
In nutshell, the score is arrived based on the relative weightages of the items
incorporated in the model based upon the classification suggested in the BSC approach.
The factors of levels 2 and 3 are evaluated using the preference theory. The relative
weightage for each factor is arrived at by pair wise comparison using the preference
theory. These factors are compared pair wise and 0 or 1 is assigned based on
the importance of one perspective over another. In each level, the factors relative
weightage is established by pair-wise comparison. In the process of comparison, if the
first factor is more important than the second factor, 1 for the first and 0 for the second
is assigned. If the first factor is less important than the second factor, 0 for the first and
1 for the second are assigned. If both perspectives are valued equally, 1 is assigned for
both perspectives. When the values are assigned, it is to be seen that results of the
comparison decision are transitive, i.e. if the factor 1 is more important than factor 2
and factor 2 is more important that factor 3, then the factor 1 is more important than
factor 3.
The factors of level 4 are grouped into financial and non-financial factors to measure
the effectiveness of the organizations activity. The financial factors are cost and
benefit. Non-financial factors are classified into factors related with time dimensions
and other factors. The above said factors could be brought under categories, which are
to be maximized, and the factors, which are to be minimized.
The whole framework is given in Figure 3.
Now, we can frame a general expression considering the entire factors. The
expression is framed in such a manner that the factors are converted into consistent,
dimensionless indices. The sum of each index is equal to 1. This is used to evaluate the
factors in order to assist to arrive at the relative weightage at the lowest level. This is
the framework developed by Ragavan and Punniyamoorthy (2003):
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Tangible Factors
To be Maximized
Financial
Factors
Monetary
Dimensions
-Labour saving
-Material
saving
-Inventory Cost
saving
To be Minimized
Non Financial
Time
Dimensions
Utilisation
Time
Financial Factors
Others
Produc
-tivity
Monetary
Dimensions
-Labour Cost
-Material Cost
-Overheads
Non Financial
Factors
Time
Dimensions
Others
-Cycle
time
-set up
time
Loss
Figure 3.
Framework for calculating
level 4 alternatives
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X
X
X
1=CM21 BTI 1= BT
ESI BMI 1= BM CMI
X
X
X
1=TM21 NFI = NF NFMI = 1=NFM21 ;
TMI
where, ESI effectiveness score for alternative I; BMI benefit in money for alternative I;
BTI benefit in time for alternative I; CMI cost to be minimized for alternative I; TMI
time to be minimized for alternative I; NFI non-financial factors for alternative I to be
maximized; NFMI non-financial factors for alternative I to be minimized.
The relative weightage for all the factors are arrived and the balanced score for the
BSC is arrived using equations (1) and (2) for sample framework is shown in Figure 2.
Comparing the figures of targeted performance and the actual performance, we may
be able to say how the company had fared.
Balanced score model in an IT industry
In order to illustrate this model using real-time data, information from a leading
organization was obtained and the balanced score for a BSC has been reached.
The company is one of the worlds leading international insurance and financial
services organization, with operations in more than 130 countries and jurisdictions. Its
member companies serve commercial, institutional and individual customers through the
most extensive worldwide property-casualty and life-insurance networks. In the USA, its
companies are the largest underwriters of commercial and industrial insurance and its
global business also include retirement services, financial services and asset management.
Its financial services businesses include aircraft leasing, financial products, trading
and market making. The organizations common stock is listed in the USA on the
New York Stock Exchange and ArcaEx, as well as the stock exchanges in London,
Paris, Switzerland and Tokyo.
Beyond this small briefing, let us see how the balanced score for the BSC is calculated.
The frame work to arrive at the balanced score for BSC for the industry concerned is
shown in (Figure 4).
Level 1 goal
Balanced score for BSC.
Level 2 criteria
In this model four perspectives are considered. They are:
(1) financial perspective;
(2) customer perspective;
(3) internal business process perspective; and
(4) learning and growth perspective.
Weightage for each perspective are arrived by preference table. In this case of
perspectives, 4C2 pairs are considered for pair-wise comparison using preference
theory. The possible pair-wise combinations are:
.
finance and customer perspective;
.
finance and internal process perspective;
.
finance and learning perspective;
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II-Level
Criteria
Financial Perspective
(a1)
Customer Perspective
(a2)
Internal
Business
Perspective
Learning &
growth
perspective
III-Level
Sub-Criteria
*
-BR-Onsite (b1)
-BR-OffShore (b2)
-Realization-Onsite (b3)
-Realization-OffShore (b4)
-Outstanding
Receivables (b5)
-Billed Vs Allocated (b6)
-BA Ratio (b7)
*
-CSI Coverage (b8)
-Customer satisfaction
Index (Average)
(b9)
IV-Level
Alternatives
c1 c2 c3 c4 c5 c6
TP AP TP AP TP AP
c7 c8 c9 c10
TP AP TP AP
c11 c12 c13 c14
TP AP TP AP
c15
TP
c16
AP
c17 c18
TP AP
*
-On-time Delivery (b10 )
-On-Budget Delivery (b11)
-Billing Analysis (b12)
-Audit Coverage (b13)
-Time sheet compliance
(WON) (b14)
-Time sheet Compliance
(SWON)
(b15)
*
Training
Days/
person
b16
c31 c32
TP AP
*(the metrics shown here are company specific ones in which we had made the observation,
the details of which is given in the ensuing paragraph and not generic in nature; these are
shown here to highlight how this is being worked out)
.
.
.
After thorough consultation with the top management, the relative weightage for each
factor is arrived at by pair-wise comparisons using the preference theory as described
earlier. The weightage thus calculated are used to attach importance for the respective
perspectives in the preference table and the relative weightage are shown in Table II.
Calculations for level 3 sub-criteria
Each perspective will have sub-criteria for measuring organizational performance.
To measure each criterion or sub-criteria measures are identified under each of the four
perspectives, viz financial, customer, internal and learning.
Now let us find out the weightages of every measure under each perspective.
Figure 4.
Framework for calculating
balanced score for BSC for
the firm in question
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Financial perspective
We do not disregard the traditional need for financial data. Timely and accurate
financial data will always be a priority, and the managers will do whatever necessary
to provide it. In fact, we want to only point out that there is often more than
enough handling and processing of financial data at the cost of other relevant and
important information and not to entirely ignore them. We have already seen that the
current emphasis on financial parameters leads to the unbalanced situation
with regard to other perspectives, viz. customer, internal process and learning
perspectives.
Under the financial perspective, the following measures were identified by the
industry in question as very important. The information regarding the degree of
importance in respect of the following sub-factors for the industry concerned are
collected (all the metrics mentioned are company specific and not generic in nature):
.
billing revenue onsite;
.
billing revenue offsite;
.
realization per person onsite;
.
realization per person offshore;
.
number of days of outstanding receivables;
.
billed vs allocated; and
.
BA ratio.
In this case, 7C2 pairs are considered for pair-wise comparison using preference theory
and the relative weightage for each measure (sub-factor) is shown in (Table III).
Factor
Table II.
Table for level 2 criteria
Finance
Customer
Internal
Learning
Factor
Table III.
Table for level 3
sub-criteria financial
perspective
1
2
3
4
5
6
7
F&C
F&I
F&L
1
0
0
0
C&I
C&L
1
1
1
0
I&L
0
1
Weightage
a1 0.4286
a2 0.2857
a3 0.1429
a4 0.1429
3
2
1
1
7
1 1 1 1 1 1 2 2 2 2 2 3 3 3 3 4 4 4 5 5 6
2 3 4 5 6 7 3 4 5 6 7 4 5 6 7 5 6 7 6 7 7
BR-on
1 1 0 1 0 0
BR-off
1
1 1 1 1 1
Real-on
1
0
1 1 0 1
Real-off
1
1
1
1 1 1
Outstanding
0
0
0
0
1 1
Bills/alloc
1
1
0
0
0
BA
1
0 0
0
0
0 1
Weightage
3
6
4
6
2
2
2
25
b1 0.1200
b 2 0.2400
b3 0.1600
b4 0.2400
b5 0.0800
b6 0.0800
b7 0.0800
Customer perspective
Obviously, the firm felt that the customer satisfaction information is key knowledge
and a critical success factor. They informed that the poor performance of this
perspective is a leading indicator of future decline, even though the current financial
picture may look good.
The sub-factors considered are (all the metrics mentioned are company specific and
not generic in nature):
.
customer satisfaction index coverage; and
.
customer satisfaction index average.
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In this perspective, 2C2 pairs are considered for pair-wise comparison using preference
theory. Equal weightage (0.5) was assigned to both the factors (Table IV).
Internal perspective
Under this perspective, the firm had broadly identified two kinds of business process.
They are:
(1) mission-oriented process; and
(2) support-oriented process.
After identifying the type of process, the sub-factors for the internal perspective for the
industry concerned are identified as follows (all the metrics mentioned are company
specific and not generic in nature):
.
on-time delivery;
.
on-budget delivery (within 10 per cent over-run);
.
billing timeliness;
.
audit coverage
.
time sheet compliance (WON); and
.
time sheet compliance (SWON).
In this perspective, 6C2 pairs are considered for pair-wise comparison using preference
theory. The relative weightage are as shown in Table V.
Learning and growth perspective
The industry considers only one metric, viz. training days/person under this
perspective. In this perspective, since only one factor is considered total weightage of 1
was assigned to the factor. The weightage is shown in Table VI.
Level 4 alternatives
The target and the actual performance value of the measures mentioned are considered
as factors which could be grouped into financial and non-financial factors to measure
Factors
CSI coverage
Customer satisfaction index
Weightage
b8 0.5
B9 0.5
Table IV.
Table for level 3
sub-criteria customer
perspective
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the organizations activity effectiveness. The financial factors are cost and benefit.
Non-financial factors are classified into factors related with time dimension and other
factors. The above factors could be brought under the catogories that are to be
maximized or to be minimized as shown in Figure 4.
Here, the actual and targeted values for each constituent of the level 3 are
substituted in the equations (1) and (2), respectively, to arrive at the weightage for
the targeted and actual performance values for the industry concerned. All the
weightage are shown in Table VII. These weightage are multiplied and summed to
arrive at the balanced score for the BSC.
Calculations
Financial perspective:
TP a1 b1 c1 b2 c3 b3 c5 b4 c7 b5 c9 b6 c11 b7 c13 ;
AP a1 b1 c2 b2 c4 b3 c6 b4 c8 b5 c10 b6 c12 b7 c14 :
Customer perspective:
TP a2 b8 c15 b9 c17 ;
AP a2 b8 c16 b9 c18 :
Internal process perspective:
TP a3 b10 c19 b11 c21 b12 c23 b13 c25 b14 c27 b15 c29 ;
AP a3 b10 c20 b11 c22 b12 c24 b13 c26 b14 c28 b15 c30 :
Learning and growth perspective:
TP a4 b16 c31 ;
AP a4 b16 c32 :
Substituting the respective values.
Factor
Table V.
Table for level 3
sub-criteria internal
process perspective
Table VI.
Table for level 3
sub-criteria learning
and growth perspective
1
2
3
4
5
6
On time delivery
On bud
Bill time
Audit coverage
TS-WON
TS-SWON
1
2
1
3
1
4
1
5
1
6
1
1
Factors
Training days per person
0
0
2
3
2
4
2
5
2
6
0
1
0
1
0
1
1
0
1
3
4
3
5
3
6
4
6
5
6
1
1
0
1
1
4
5
1
0
1
1
Weightage
3
2
3
3
3
3
17
b10 0.1765
b11 0.1176
b12 0.1765
b13 0.1765
b14 0.1765
b15 0.1765
Weightage
b16 1
M
Q
M
M
M
Per cent
Per cent
Per cent
Per cent
Days/pm
Internal perspective
Customer perspective
M
M
Q
Q
M
M
M
M
M
M
M
USD
USD
USD/hr
USD/hr
No of
days
Per cent
Per cent
Per cent
Per cent
Per cent
Per cent
Financial perspective
Frequency
Unit
Measure
Perspective
0.1429
0.1429
0.2857
0.4286
Weights
(ai)
0.1765
0.1765
0.1765
0.1765
1.0000
0.0800
0.0800
0.5000
0.5000
0.1765
0.1176
0.1200
0.2400
0.1600
0.2400
0.0800
Weights (b1)
ij
Actuals
0.5048
0.4481
0.4856
0.5126
0.7656
0.4565
0.3724
0.4878
0.5000
0.5000
0.4762
0.4975
0.5000
0.4975
0.5000
0.4834
0.493873
Targeted (c1)
ij
0.4952
0.5519
0.5144
0.4874
0.2344
0.5435
0.6276
0.5122
0.5000
0.5000
0.5238
0.5025
0.5000
0.5025
0.5000
0.5166
0.506241
Balanced score
for the balanced
scorecard
437
Table VII.
Table indicating
balanced score for BSC
BIJ
15,4
Financial perspective
TP a1 b1 c1 b2 c3 b3 c5 b4 c7 b5 c9 b6 c11 b7 c13 ;
TP 0:42860:12 0:4952 0:24 0:5519 0:16 0:5144 0:24
0:4874 0:08 0:2344 0:08 0:5435 0:08 0:6276
438
0:215843;
AP a1 b1 c2 b2 c4 b3 c6 b4 c8 b5 c10 b6 c12 b7 c14 ;
AP 0:42860:12 0:5048 0:24 0:4481 0:16 0:4856 0:24 0:5126
0:08 0:7656 0:08 0:4565 0:08 0:3724 0:212757:
Customer perspective
TP a2 b8 c15 b9 c17 0:28570:5 0:5122 0:5 0:5
0:144593;
0:141107:
therefore make a detailed analysis of all the criteria and sub-criteria in each of the
perspective.
Financial perspective
From the financial perspective, the companys actual performance score (0.212757) is
less than the target score (0.215843) (Table IX).
It is evident that the organization varies in terms of financial performance from the
targeted or the desired level. The reason quoted by the organization for this under
performance is inadequate employee training. This is true, because under the learning
and growth perspective there is a significant variation of 0.004744. We know that
shortage of training results in lower skill levels of the employees, which in turn affect
the employee output. But, we feel that this alone cannot be the reason. In fact, we find
that under financial perspective the variation in Billing revenue off shore (b2) is
0.010677, which is more than the variation shown under training. This clearly shows
that the management did not perceive this larger difference in the variation.
This is possibly because they were actually working on the financial value of the
activity and not on the importance value, the activity deserves. Further under the
sub-criteria b1 (billing revenue onsite), b4 (realization per person offshore), b5
(number of days of outstanding receivables) though the actual performance is more
than the targeted performance, it is necessary for the management to ensure the reason
for such a positive variance. Possibly, the firm is diverting more resources than it needs
to for the performance of those sub-criteria.
For example, if we look at the variance in b5-, number of days of outstanding
receivables, we find the variance as very large, which call for a review to find the cause
for such a variance.
Perspectives
Financial perspective
Customer perspective
Internal process perspective
Learning and growth perspective
Targeted performance
Actual performance
Variance
0.215843
0.144593
0.071983
0.073822
0.506241
0.212757
0.141107
0.070931
0.069078
0.493873
0.003086
0.003486
0.001052
0.004744
0.012368
Measure
Billing revenue onsite b1
Billing revenue offshore b2
Realization per person onsite b3
Realization per person offshore b4
Number of days of outstanding receivables b5
Billed vs allocated (T&M) b6
BA ratio b7
Sub-total
Balanced score
for the balanced
scorecard
439
Table VIII.
Calculation of the
balanced score for the
BSC arriving at the
overall variance
Targeted
Actuals
(ai bi ci) (ai bi ci) Variance calculations
0.025469
0.056771
0.035275
0.050136
0.008037
0.018636
0.021519
0.215843
0.025963
0.046093
0.033301
0.052728
0.026251
0.015652
0.012769
0.212757
20.00049
0.010677
0.001975
20.00259
20.01821
0.002983
0.00875
0.003086
Table IX.
Arriving at the variance
for financial perspective
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15,4
440
Customer perspective
Regarding the customer perspective the actual performance (0.1312) varies from the
target performance (0.1344), thus producing the variance of 0.003242 is given in Table X.
Interestingly, in the two sub-criteria selected, one sub-criteria, viz. customer
satisfaction index (average) b9, shows a significant difference and hence calls for a
detailed review.
Internal perspective
In the internal, perspective shows the actual performance (0.08783) varies from the
target performance (0.0762) is given in Table XI.
Here, also we observe that the sub-criteria time sheet compliance WON ( b14)
needed managements attention. Possibly, the performance under this subcriterion may
be enhanced by providing adequate internal training for the employees.
Learning and growth perspective (a4)
Training days=person b16
0:073822
0:069078
0:004744:
Learning and growth perspective also shows difference in that the actual performance
(0.06908) varies from the target performance (0.073822). This will naturally happen, as
in the only metric identified under this perspective the actual performance under the
measure training days/person varies from the targeted weightage. Inadequate training
like this can possibly result in increased rework constituting a major problem.
Findings and contributions
If we have a resource, which needs to be distributed to different activities, then the
resource is not obviously divided equally amongst the activities. For example, if we
have a resource of $1 million and five activities are to be attended to we do not earmark
$200,000 for each activity. This is also true for the allocation of any other non-financial
resources such as employee allocation, managements attention, machines training
needs, quality requirements, etc. According to the importance the activity deserves, we
provide suitable weightages and allocate the resources, be it financial or non-financial.
Table X.
Arriving at the variance
for customer perspective
CSI coverage b8
Customer satisfaction index (average) b9
Sub-total
Table XI.
Arriving at the variance
for internal perspective
0.073168
0.071425
0.144593
0.069682
0.071425
0.141107
0.003486
0
0.003486
0.012611
0.012611
0.008802
0.012674
0.012611
0.012674
0.012611
0.071983
0.008003
0.012548
0.012611
0.012548
0.012611
0.070931
0.0008
0.000126
0
0.000126
0
0.001052
True to this observation, we are providing a benchmark figure which would enable to
evaluate the performance in the implementation of the strategy. In this process, we
have taken into account the subjective factors also and provided a suitable measurable
index. Many objective methods exist to find out the causes of under performance in the
areas of financial measures. There are not many objective methods available to find out
which are the areas of non-financial measures affecting the performance of the firm and
to what extent.
Limitation of the research
The levels 2 and 3 factors are evaluated using preference theory and it has certain
limitations. When we compare the degree of importance of one factor over another and
assign 1 for a factor and 0 for another, it means that 0 importance is attached to that
factor. There is a possibility, that factor may have uniformly 0 value in all the pair-wise
comparisons. This results in factor getting 0 relative importance. In other words, in the
decision a 0 value factor does get a role, which is not necessary.
Balanced score
for the balanced
scorecard
441
BIJ
15,4
442
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Excerpts from the Supplement to Annual Report 1994, Skandia Analyst, October.
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About the authors
M. Punniyamoorthy is a Graduate in Mathematics, with a BTech in Production Technology from
Madras Institute of Technology, Chennai, and MTech in Industrial Engineering and Operations
Research from Indian Institute of Technology, Kharagpur. He possesses ICWAI (inter)
qualification and did his Doctorate in Management from Bharathidasan University,
Tiruchirapalli. He is presently working as an Assistant Professor in the National Institute of
Technology. One of his papers A strategic decision model for the justification of technology
selection published in the International Journal of Advanced Manufacturing Technology, UK
(Vol. 21, 2003, pp. 72-8) has been selected by the American Society for Mechanical Engineers as
one of the best ten papers in the area of technology selection. M. Punniyamoorthy is the
corresponding author and can be contacted at: punniya@nitt.edu
R. Murali is a Post Graduate in Mathematics and has a Management Degree from Indhira
Ghandhi National Open University. He is also a cost accountant and is presently a Fellow in the
Institute of Cost and Works Accountants of India, which is the apex body of cost accountants in
India. He has worked in one of the biggest Nationalized Banks of India having a large network of
branches in India and abroad for more than 26 years and has also served for more than ten years
in the staff training college of the bank handling in the areas of credit and human resources.
He is presently working as a Lecturer in the National Institute of Technology in cost and
management accounting, financial management, economics, strategic management and human
resources related topics.
Balanced score
for the balanced
scorecard
443
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