2. Question 1)
The perceived advantages and disadvantages of the Balanced Scorecard approach of measuring and managing tangible and intangible resources.
There are many advantages and disadvantages to using this approach, after reading through various sources, we have analysed and summarised the main points below.
3.1 Tangible Resources
An advantage of the scorecard approach is that it helps organisations to achieve their overall strategy by translating the strategy into specific measurable objectives in the critical areas of business (Kaplan and Norton 1992). For example, in ECI’s Balanced Business Scorecard, they used an on-time delivery measure, which is using a customer perspective, to achieve its goal of improving supply responsiveness.
The scorecard also provides another advantage, with the balance between the external and internal measures of an organisation’s performance (Kaplan and Norton 1992). Operating income and new product development measures could be balanced to achieve competitive advantage through introducing a new product. This also gives the advantage of achieving goals without making trade-offs among key success factors.
A disadvantage of the scorecard to managing tangible resources is that the involvement of senior managers is required to implement the scorecard, not just the organisation’s financial executives (Brown and McDonnell 1995). This is because the scorecard focuses on strategy, not control, and it is the managers who set the company’s objectives and priorities. Therefore the financial controller must adapt to ensure their strategic development relates to their set performance measures.
3.2 Intangible Resources
The Balanced Scorecard has an advantage, in that it can be seen as a focal point to an organisation (Kaplan and Norton 1993). As it clearly defines and communicates priorities to managers, investors, employees and customers, helping to measure and manage the resources by focusing on integrating the different functions of business performance. For example, all new projects of a company can be evaluated against the Business Scorecard, and each department e.g. Marketing, Finance and Operations can work together and not lose focus of objectives.
Another advantage can be linked specifically to the hotel industry. As many of the performance measures are concerned with non-financial aspects, like guest satisfaction and employee attitude. This is specifically targeted to the particular industry, and is important to a hotel’s success. (Brown and McDonnell 1995)
A disadvantage with the scorecard is that organisations do not define measures of success that have to be emphasised (Phillips 1999). Instead it contains performance indicators, which, although easy to determine, make it difficult to communicate the scorecard throughout the levels of the organisation. This is demonstrated in the hotel industry, where their performance measurement systems did not have the ability to measure and manage the many dimensions of performance. They have now started to focus on such measures as the occupancy percentage, which will identify the amount of rooms in use at a time.
Also in the hotel industry, another disadvantage is that there is only a slight account of likely time-lags taken, that exist between the action and effect of a decision being taken (Brown and McDonnell 1995). For example, it would be the time it takes to implement a computerised billing system, or the time taken from a customer checking out to the time it has been cleaned and ready for the next customer. It is vital to account for time lags not only to maintain competitive advantage, but also for the rate at which performance measures are carried out and reported.
After analysing the ways of managing both tangible and intangible resources, it appears that the Balanced Scorecard does not consider every important process of a performance measurement system, for example employee morale is hard to quantify. In spite of its weaknesses though, it is commonly used by organisations worldwide, especially America (P. Hepworth 1998), so the scorecard plays a significant role in measuring and managing resources.
3. Question 2)
Extent to which the balanced scorecard approach tackles the management issues of Functional integration, Added value, and Competitive Advantage for the individual hotels and the group as a whole.
3.1 Functional integration:
The Balanced Scorecard can help organisations integrate their functions more efficiently by serving as the focal point for the organisations effects (Kaplan, and S. Robert, 1993), and see if any important interrelationships that exist by applying the model to individual departments, and then bring together measures that integrate the key business process (J Brown and B McDonnell, 1995). Alternatively 2GC (Active Management 2002) feels the best way to approach this is to have a corporate balanced scorecard and then each department create their own separate aligned versions from that. Each way is effective. A practical example of functional integration has happened is Rockwaters, who used their internal business when measures to focus on more integrated processes instead of each functional department on its own (Kaplan, and S. Robert, 1993). Thus giving them a competitive advantage over competitors. If Frazer Digby were to consider this approach, communication and efficiency within Wheatley Park would increase. An example where functional integration would help Wheatley Park is in week 1, where the night porter could not get a customer some towels because they came under house keeping duties.
A point to consider is that some departments might become to focused on their own targets, they forget about the overall strategy of the business. A gain in one area of the business might be at the expense of another.
3.2 Added value:
In order for an organisation to add value to its products and services, through the balanced scorecard approach, they have to set goals in customer satisfaction, internal business use, innovation and improvement. They then have to translate these into measurable outcomes such as the ‘occupancy rate’ ratio (R. Kaptan and D.P Norton, 1992). This is shown in week five by Frazer Digby, as his objective was to decrease the day-to-day operational costs, by measuring and analysing the number of employees needed compared with the annual average occupancy rate. This approach can sometimes be misunderstood. The balanced scorecard can only add value to an organisation such as Wheatley Park, if it manages to convert its operational performance into financial gains. An organisations particular view, or what they see as a key factor for success is not necessarily correct (R. Kaptan and D.P Norton, 1992). An example of this in Wheatley Park would be in week 5 where it became obvious that Frazer Digby had not been measuring some important factors such as wages and employee progress, which clearly puts an organisation at a disadvantage compared to its competitors.
3.3 Competitive Advantage for the individual hotels and the group as a whole:
A manager such as Frazer Digby using the scorecard approach needs to measure, from a customer’s perspective time, quality, performance, and service. Performance and service measurements together measure how a product or service contributes to adding value, and gaining a competitive advantage (R.S Kaplan. And D.P Norton, 1992). But if a firm was to simply measure these factors it would not guarantee competitive advantage, they would then have to monitor trends and fluctuations. Failure to do this may cause serious long-term problems, and may be to late to take corrective action. G.A Denton, and B White (2000) agrees with this view by pointing out that by observing measurements you can pull out negative trends in their early stages. An example of this within Wheatley Park would be week 1, when Frazer Digby stated that there are clearly fewer business people now using the hotel during the week. There was no senior manager monitoring this issue, just the receptionist informing Frazer, which inevitably will end with a smaller share of the business segment.
Day (1994) cited in (P.A. Phillips 1999) mentioned that academic researchers believe that the key to superior performance is to gain competitive advantage. However the balanced scorecard is not going to give a firm competitive advantage on its own. It fails to tell a manager anything new apart from how one aspect of the business may relate to another, which arguably should be know at senior level.
The balanced Scorecard would benefit individual hotels and the Grand Cosmopolitan Company as a whole, if they were to implement this approach to specific areas, departments or hotels. As in J. B Brown and B McDonnell’s (1995) article which points out a scorecard developed for a hotel group would differ from an individual hotel. Different key factors might be needed for each hotel and be measured in different ways, also the external environment would vary from location to location.
4. Question 3)
Extent to which the Balanced Scorecard approach informs the tasks of Managing, Markets and competition, Processes, and People.
4.1 Markets and competition
This is primarily related to the customer side of the balanced scorecard.
Analysing the factors of supply and demand is vital for an organisation to achieve competitive advantage within a competitive environment (Phillips 1999). By applying the Balanced Scorecard alone, the organisation would be ignoring the competitor perspective (Neely et al 1995) cited in (Phillips 1999). This is because the scorecard only concentrates on four main perspectives, which may lead to complacency within the organisation. Therefore if other companies were introducing innovative products, the organisation would be losing its competitive advantage and market share. This means it would be of benefit for a company in the hotel industry to be flexible, and take a long-term orientation when applying business models (Phillips 1999). Also if the balanced scorecard was used alongside another model, e.g. Porters five forces, a superior performance management system could be created to cover more important factors within the external environment. For example, rival hotels may have used innovation to gain a competitive advantage, like implementing a computerised billing system to improve efficiency. Without a model like Porters 5 forces it would impossible for an organisation to realise this and that action.
For organisations that are market-orientated and in a competitive environment, such as Apple Computers (Kaplan and Norton 1993), producing many products for each of their market segments is vital (Phillips 1999). To analyse these market segments, managers would utilise the marketing planning index, which will create the data needed for objectives to improve their market strategy.
4.2 Processes
This is primarily related to the Internal business process side of the balanced scorecard.
It has become apparent that within the hotel industry they generally have poor information systems, which hinders there ability to measure and monitor performance (PA Phillips 1999). If Wheatley Park was to use the balanced score card, alongside there new management information system which 2GC (Active Management 2002) believes is a key strength of the balanced scorecard, (its ability to work with other management processes) it would enable the company to capture key factor for success, as well as make good use of a firms resources (inputs) and capabilities (process), which PA Phillips (1999) points out is a useful way of gaining competitive advantages. For example, Rockwater, (Kaplan 1993) believes from the time they recognised a customers needs; a life cycle of the project was created to when that need had been accomplished. This meant that the processes had each been identified, enabling them to be clearly managed.
4.3 People
This is primarily related to the Learning and growth side of the balanced scorecard.
When applying the balance scorecard an organisation’s measurements are set, which will then be used to achieve strategic targets. Teams within the organisation will use information within the scorecard to create their own targets (2GC Active Management 2002). This will eventually lead to increased demand for the services provided by Human Resources such as performance appraisals, and Total Quality Management because of the increased focus on the changes in behaviour and performance. (2GC Active Management 2002). If people have their own individual or team targets that they have to achieve, their morale will be high and feel more motivated to reach them. This is proven because Mintzberg (1979) in S.R. Letza (1996) says, “performance control systems can serve two purposes, to measure and to motivate”.
5. Conclusion
The balanced scorecard can clearly help an organisation increase its performance, by linking together different aspects within a business and integrating departments to work together where possible. However it fails to examine some important information, for example the competition within the market, also if what a company sees as a key factor for success is wrong then they will be putting themselves at a disadvantage especially if they do not have the right information systems in place to stop the error in the early stages. This is why overall it is important for a business to select the right measures when adopting the Balanced Scorecard. And use it along side other aspects of the business.
6. Recommandations
After analysing the Balanced Scorecard approach to organisational performance, we have concluded that it is an effective measure of performance, but it does have weaknesses. Therefore we recommend that the Balanced Scorecard could be implement to the Cosmopolitan Hotels Group, but not on its own. This is due to the fact that it does not account for competition within the highly competitive UK hotel industry (Phillips 1999). Alongside the Scorecard we would implement Porter’s Five Forces model. This is because it identifies the threat of competition, of both existing firms and the possible threat of new entrants. The customer and supplier perspectives are also included in the model, which will reinforce the information that the Scorecard gives. This will help to draw more accurate and reliable conclusions on proposed market strategies.
7. Appendices
Appendix 1
Shows the linkages between the perspectives
Financial
Perspective
Customer Internal
Perspective business
Perspective
Innovation and
Learning
Perspective
Source of model: (J Brown and B McDonnell, 1995).
9. Bibliography
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