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Balanced scorecard What exactly is a Balanced Scorecard? A definition often quoted as: 'A strategic planning and management system used to align business activities to the vision statement of an organization'. More cynically, and in some cases realistically, a Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a company's vision/mission statement into the practicalities of managing the business better at every level. A Balanced Scorecard approach is to take a holistic view of an organization and co-ordinate MDIs so that efficiencies are experienced by all departments and in a joined-up fashion. To embark on the Balanced Scorecard path an organization first must know (and understand) the following: The company's mission statement The company's strategic plan/vision Then The financial status of the organization How the organization is currently structured and operating The level of expertise of their employees Customer satisfaction level The following table indicates what areas may be looked at for improvement (the areas are not exhaustive and are often company-specific): Department Areas Finance Return On Investment Cash Flow Return on Capital Employed Financial Results (Quarterly/Yearly) Internal Business Processes Number of activities per function Duplicate activities across functions Process alignment (is the right process in the right department?) Process bottlenecks Process automation Learning & Growth Is there the correct level of expertise for the job? Employee turnover Job satisfaction Training/Learning opportunities Customer Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rate Once an organization has analysed the specific and quantifiable results of the above, they should be ready to utilise the Balanced Scorecard approach to improve the areas where they are deficient. A Balanced Scorecard approach generally has four perspectives: 1. Financial 2. Internal business processes 3. Learning & Growth (human focus, or learning and development) 4. Customer Each of the four perspectives is inter-dependent - improvement in just one area is not necessarily a recipe for success in the other areas. Implementing the Balanced Scorecard system company-wide should be the key to the successful realisation of the strategic plan/vision. A Balanced Scorecard should result in: Improved processes Motivated/educated employees Enhanced information systems Monitored progress Greater customer satisfaction Increased financial usage There are many software packages on the market that claim to support the usage of Balanced Scorecard system. For any software to work effectively it should be: Compliant with your current technology platform Always accessible to everyone - everywhere Easy to understand/update/communicate It is of no use to anyone if only the top management keep the objectives in their drawers/cupboards and guard them like the Holy Grail. Feedback is essential and should be ongoing and contributed to by everyone within the organization. And it should be borne in mind that Balanced Scorecards do not necessarily enable better decision-making! Criticism The Balanced Scorecard has always attracted criticism from a variety of sources. Most has come from the academic community, who dislike the empirical nature of the framework: Kaplan and Norton notoriously failed to include any citation of prior art in their initial papers on the topic. Some of this criticism focuses on technical flaws in the methods and design of the original Balanced Scorecard proposed by Kaplan and Norton, and has over time driven the evolution of the device through its various Generations. Other academics have simply focused on the lack of citation support. But a general weakness of this type of criticism is that it typically uses the 1st Generation Balanced Scorecard as its object: many of the flaws identified are addressed in other works published since the original Kaplan & Norton works in the early 1990s. Another criticism, usually from pundits and consultants, is that the balanced scorecard does not provide a bottom line score or a unified view with clear recommendations: it is simply a list of metrics. These critics usually include in their criticism suggestions about how the 'unanswered' question postulated could be answered. Typically however, the unanswered question relates to things outside the scope of Balanced Scorecard itself (such as developing strategies. There are a few empirical studies linking the use of Balanced Scorecards to better decision making or improved financial performance of companies, but some work has been done in these areas. However broadcast surveys of usage have difficulties in this respect, due to the wide variations in definition of 'what a Balanced Scorecard is' noted above (making it hard to work out in a survey if you are comparing like with like). Single organization case studies suffer from the 'lack of a control' issue common to any study of organizational change - you don't know what the organization would have achieved if the change had not been made, so it is difficult to attribute changes observed over time to a single intervention (such as introducing a Balanced Scorecard). However, such studies as have been done have typically found Balanced Scorecard to be useful Contingency theory Contingency theory is a class of behavioral theory that claims that there is no best way to organize a corporation, to lead a company, or to make decisions. Instead, the optimal course of action is contingent (dependent) upon the internal and external situation. Several contingency approaches were developed concurrently in the late 1960s.They suggested that previous theories such as Weber's bureaucracy and Taylor's scientific management had failed because they neglected that management style and organizational structure were influenced by various aspects of the environment: the contingency factors. There could not be "one best way" for leadership or organization. Historically, contingency theory has sought to formulate broad generalizations about the formal structures that are typically associated with or best fit the use of different technologies. The perspective originated with the work of Joan Woodward (1958), who argued that technologies directly determine differences in such organizational attributes as span of control, centralization of authority, and the formalization of rules and procedures. Gareth Morgan in his book Images of Organization describes the main ideas underlying contingency in a nutshell: Organizations are open systems that need careful management to satisfy and balance internal needs and to adapt to environmental circumstances There is no one best way of organizing. The appropriate form depends on the kind of task or environment one is dealing with. Management must be concerned, above all else, with achieving alignments and good fits Different types or species of organizations are needed in different types of environments Fred Fiedler's contingency model focused on individual leadership. William Richard Scott describes contingency theory in the following manner: "The best way to organize depends on the nature of the environment to which the organization must relate". The work of other researchers including Paul Lawrence, Jay Lorsch, and James D. Thompson complements this statement. They are more interested in the impact of contingency factors on organizational structure. Their structural contingency theory was the dominant paradigm of organizational structural theories for most of the 1970s. A major empirical test was furnished by Johannes M Pennings who examined the interaction between environmental uncertainty, organization structure and various aspects of performance There are many forms of contingency theory. In a general sense, contingency theories are a class of behavioral theory that contend that there is no one best way of organizing / leading and that an organizational / leadership style that is effective in some situations may not be successful in others (Fiedler, 1964). In other words: The optimal organization / leadership style is contingent upon various internal and external constraints. Four important ideas of Contingency Theory are: 1. There is no universal or one best way to manage 2. The design of an organization and its subsystems must 'fit' with the environment 3. Effective organizations not only have a proper 'fit' with the environment but also between its subsystems 4. The needs of an organization are better satisfied when it is properly designed and the management style is appropriate both to the tasks undertaken and the nature of the work group. There are also contingency theories that relate to decision making (Vroom and Yetton, 1973). According to these models, the effectiveness of a decision procedure depends upon a number of aspects of the situation: the importance of the decision quality and acceptance; the amount of relevant information possessed by the leader and subordinates; the likelihood that subordinates will accept an autocratic decision or cooperate in trying to make a good decision if allowed to participate; the amount of disagreement among subordinates with respect to their preferred alternatives.
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