The Usefulness of Balance Scorecard as a Tool in Performance Measurement in a Chinese Business Organisation
The Usefulness of Balance Scorecard as a Tool in Performance Measurement in a Chinese Business Organisation
. BACKGROUND
The circumstances of complexity and continuous change that characterise the current economic and production context have led companies to modify how their systems operate. Approaches such as Total Quality Management (TQM) and Just-In-Time (JIT) production both helps in developing more efficient and effective processes, thus, resulting into an improvement with respect to the generic parameters of quality, cost and time. It was precisely these actions in the area of production which brought to light the shortcomings of information derived from the use of only financial indicators to measure the success of organisations.
It is increasingly recognised that measuring the success of organisations using purely financial criteria is no longer appropriate. As a result, many organisations are spending considerable amount of time, effort and resources in redesigning their measurement systems. Survey data suggests that between 40 and 60% of companies will have significantly changed their measurement systems between 1995 and 2000. (from: http://www.som.cranfield.ac.uk/som/cbp/Evolut.htm)
In order to overcome the limitations of financial indicators, there is a need to monitor non-financial indicators both quantitatively and qualitatively. There is no doubt that the use of Balanced Scorecard, which focuses on the different dimensions of performance, is the best-known technique (Valentin, Azofra, 2003) to carry out such task. Balance Scorecard helps translate the organisation's strategy into tangible objectives and measures encompassing customers, internal process, learning and growth and financial perspectives.
China is currently one of the most progressive countries in Asia. With more and more companies investing and expanding, monitoring of both financial and non-financial indicators are inevitable to prevent possible losses. This monitoring can be accomplished through the use balance scorecard as it is one of the important tools to performance measurement that would be able to ensure a continuous progress and growth of a company .
This research will explore how the integration of performance monitoring using balance scorecard affect the operation of a Chinese business organisation.
2. OBJECTIVES
The aim of the research project is to analyze how the use of balance scorecard for performance measurement can affect a Chinese Organisation.
To accomplish the above objective, the following specific objectives must be attained:
> To use case study method to analyze how Balanced Scorecard can be applied in a Chinese organisation
> To demonstrate the effectiveness of Balanced Scorecard in a Chinese organisation
> To illustrate the effect of the four perspective of Balance Scorecard to the success or failure of a Chinese Business Organisation
> To identify the implication of the use of performance measurement system in the organisation.
3. BRIEF REVIEW OF PREVIOUS RESEARCH
3.1 Balance Scorecard
Most of the literatures on performance management either address only a particular aspect of performance measurement or provide only empirical evidence to support good or bad practices with respect to performance measurement. Very few publications provided a complete and structured view for Balanced Scorecard approach. Only a few literature provide a comprehensive view of the Balance Scorecard Approach. These include the following:
* Balanced Scorecards (Kaplan and Norton, 1992 and ...
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> To identify the implication of the use of performance measurement system in the organisation.
3. BRIEF REVIEW OF PREVIOUS RESEARCH
3.1 Balance Scorecard
Most of the literatures on performance management either address only a particular aspect of performance measurement or provide only empirical evidence to support good or bad practices with respect to performance measurement. Very few publications provided a complete and structured view for Balanced Scorecard approach. Only a few literature provide a comprehensive view of the Balance Scorecard Approach. These include the following:
* Balanced Scorecards (Kaplan and Norton, 1992 and 1996)
* The Balanced Scorecard-measures that drive performance (Kaplan and Norton, 1992).
* Linking the balanced scorecard to strategy (Kaplan and Norton, 1996).
* The effective performance measurement system (Vadim. K. 2003)
Robert Kaplan and David Norton first developed the Balanced Scorecard in 1990. It was developed to communicate the multiple, linked objectives that companies must achieve to compete on the basis of capabilities and innovation, not just tangible physical assets (Robert.K , David. N, 1998).
The balanced scorecard is a management system (not only a measurement system). It provides feedback around both on the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.
Kaplan and Norton describe the innovation of the balanced scorecard as:
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age 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 journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
As a summary, the Balanced Scorecard provides a means of communicating and disseminating the strategy to all levels of the organisaiton.
In addition, the Balanced Scorecard supports key processes, which aids the following:
* Clarify and update strategy
* Communicate strategy throughout organisation
* Allign departmental and personal goals to strategy
* Identify and align strategic initatives
* Link strategic objectives to long-term target and annual budgest
* Alliagn strategic and operational reviews
* Obtain feedback to learn about and improve strategy
3.2 Framework for Designing a Set of Measures
According to Vadim (2003),the Balanced Scorecard provides a framework for designing a set of measures for activities chosen by you as being the key drivers of your business. By considering the four distinct perspectives - financial, customer, internal process and innovation and learning - it promotes a more holistic balanced view of any organization. By creating measures under each of these headings, no important area would be missed.
The Balanced Scorecard itself is just a framework and it doesn't say what the specific measures should be. "That is a matter for people within the organization to decide, and the set of measures for each organization (or even sections within the same organization) will be different. Much of the success of the scorecard depends on how the measures are agreed, the way they are implemented and how they are acted upon." (Source: http://www.dmem.strath.ac.uk/CSM/Research/IPMS.html ) So, the process of designing the scorecard is just as important as the scorecard itself.
4. RESEARCH METHODOLOGY
The author has already sent electronic mails to the various companies who are taken Balanced Scorecard listed below to participate in the study.
Beijing NaNO Sunshine Technology Co.Ltd, Coherent Beijing, ChengYin Technology Co.Ltd, Foctek Photonics. Inc, NanJing saifei Electro-optics Co.Ltd.
However, none of the companies has given any response of interest yet as the moment.
4.1 Method of Data Collection
Choosing the appropriate research method is very important because it affects the achievement of research. It will either strengthen or weaken the research effectiveness or efficiency.(Jacqueline, 2002, "Business Research Methodology")
The data collection involves collection of primary and secondary data. The primary data is mainly gathered from questionnaire and interview. Because of the chosen topic, it is difficult to get a person who will agree to be interviewed. The questionnaire method designed with open-end and close-end questions will be carried out to get the relatively accurate information.
> Questionnaire
Questionnaires would allow the researcher to get information from the different people within the case companies. And give the author wide ideas and opinion of various personnel of the company. In this research, questionnaire is designed according to usability and reliability. The people who are familiar with Balanced Scorecard could give more value points for the research.
The questionnaire will reflect the following aspects:
* Effectiveness of the four perspectives of Balanced Scorecard
* Difficulty of deciding appropriate performance indicators for each perspectives
* Problems encountered during executing the Balanced Scorecard approach
* Benefits of Balanced Scorecard
* Other related questions which can help attain the objectives
The questionnaire will be distributed to the employees, middle manager, department manager in the case companies.
> Secondary data
The secondary data will be gathered from the books, newspaper, and others new articles from magazines that can be found in the Frewen library, Portsmouth library and internet. Furthermore, news reports from articles coming from China will also be used. Using secondary data, author can obtain relevant and useful information to carry on the research. By reviewing the relevant academic work and industrial practices, it helps to establish a research baseline.
Aside from this, articles pertaining to the individual companies will also be used for the research. If the companies publish their own newsletter, then this will also be a good opportunity to get ideas.
> Sampling
Sampling techniques provides a range of method that enable the Author to reduce the amount of data needed, by considering only data from a sub-group rather than all possible cases or elements, which have taken Balanced Scorecard. The number of case studies depends on the number of companies who are willing to participate in this study. But the maximum number is for 3 case studies in order to carry out good analyze for the chosen companies.
4.2 Research Strategy
In this research, case studies are widely used to give the reader rich understanding of the context being discussed. The main reason for adopting this research strategy is that, in agreement with Yin(1994) it allows investigation of a contemporary phenomenon, within its real context, when the limits between the phenomenon and the context are not clear and when the main questions needing an answer can be classified in terms of 'how ' and 'why'.
Case studies were considered in this research. The understanding of how and why performance indicators are being used requires an in-depth study of the interaction which are established between these indicators and different elements of the organizational environmental in which they operate. Therefore, analyzing the case study attempts to identify how the Balance Scorecard is implemented, how the performance indicators being decided in each area, how the four perspectives are being utilized to assess the company's performance, and how the performance measurement system maintains in complete congruence with the company's strategic objectives, in relation to the theory of literature review part. And through analysis of the case studies, major positive factors that contribute to the of Balanced Scorecard will be discussed.
In short, the case study method has allowed the author to take an inside look at the nature of internal accounting practices, at the reasons why they are introduced, and how they evolve, situating them in the specific time and organizational context in which they acquire meaning.
4.3 Methods of Analyzing the Results
The results of questionnaire will be displayed in the series of tables and figures according to different questions, which will give the reader a more straightforward picture of what is the data about. A comparison of the different case companies will also be done. The advantages and disadvantages of using Balance Scorecard can be also be pinpointed as the data are analysed. Furthermore, its strengths and weaknesses will also be assessed. This will give the reader a clear picture of what factors can greatly affect the success of the utilisation of balanced scorecard. Depending on the results, the recommendations for successful implementing Balanced Scorecard will be presented.
4. Limitation of the Research
Due to the chosen topic, methodologies such as participant observation, and experiment, can not be used, which usually takes several years. Furthermore, it is hard to find the company who are using Balanced Scorecard and if ever they are applying it does not necessarily mean they are willing to participate in this study because some companies are not willing to divulge their data.
And because of limited time and resources, the number of case studies that will be presented will depend on the number of companies that are willing to participate (minimum of two companies).
Due to financial and resource constraints, the questionnaire is only designed to be distributed to 100 people. It covers only small number of people so it can't represent all people's opinion. And there maybe have some bias information existing in the questionnaire. The open-close question gives the people freedom to write their opinions.
In addition, Balanced Scorecard is a relatively new approach. There are still arguments existing about the usefulness of Balanced Scorecard. And some books and journals written are very subjective which may affect the quality of the information. Thus, this limitation may affect the outcome of report.
Bibliography
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China Daheng group, Inc. (2002-2003). Accessed on April 20, 2004. From : http://www.cdhcorp.com/english/e_about_us/e_about_us.asp
Evolution of Measurement Systems (n.d.), Retrieved on 20, April, 2004. from:
http://www.som.cranfield.ac.uk/som/cbp/Evolut.htm
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What is the Balanced Scorecard(n.d.) Retrieved on 21, April,2004, from: http://www.balancedscorecard.org/basics/bsc1.html