Phase 2: Qualitative Study
2.10 CONSEQUENCES OF THE BALANCED SCORECARD
2.10.1 Improve Organisational Strategic Performance
The premise of the strategic benefit of BSC is that organisations will improve performance.
Performance will firstly improve, according to Kaplan and Norton (1996a), through management clarifying and gaining consensus about strategy. This will occur when senior managers “work together to translate its business units strategy into specific strategic objectives” (Kaplan & Norton, 1996a, p.80). According to these authors, the “BSC will then enable the strategy to be communicated throughout the organisation for personal and departmental goals to be aligned”.
According to Kaplan and Norton (1996a, p.82), as part of this strategic process, long term strategic initiatives will be identified and aligned through a “reduced emphasis on short term financial measures”, and more of a “focus placed upon drivers of long term success”. These authors believed that the BSC provided a “strategic learning framework where the capability for organisational learning is able to take place at an executive level”. They further suggested
“that by enabling a feedback loop on the strategic process, managers will be able to question strategic priorities and the assumptions made, leading to a realignment of strategy and organisational objectives where necessary.
The use of the BSC as a strategic management system has yielded positive results. For example, the world class Institute of Technical Education (ITE) in Singapore “began using the BSC as a strategic management system to improve quality and performance in its institution” (Yek, Penney, & Seow, 2007, p.1). The aim of the study, according to these authors, was to explore and enhance the understanding of “quality and performance with regard to Vocational Educational Training (VET) in Singapore, and how using the BSC, to best measure, manage
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and realise these as a strategic management system”. According to Yek et al. (2007, p.6), the ITE “linked the four perspectives of the BSC to 12 strategic objectives and 31 key performance indicators”. The results by these authors revealed that there was a significant improvement in
“the quality and performance of VET delivered by ITE using the BSC”. According to Yek et al. (2007, p.20-21), “these improvements have been observed through qualitative assessments by independent SQA assessors, as well as others, and are reaffirmed by quantitative data over the period”.
Martinsons et al. (1999, p.71) proposed using the BSC to “measure and evaluate IT application projects and the IS department or functional area as a whole”. These authors found that the
“BSC framework does represent a strategic IS management tool that can be used to monitor and guide specific projects as well as general performance improvement efforts”. According to these authors, “the balanced IS scorecard will allow managers to see the positive and negative impacts of IT applications and IS activities on the factors that are important to the organisation as a whole”. These authors concluded that the value of the BSC information system rises if it is used to co-ordinate a wide range of information “system management processes, such as individual and team goal-setting, performance appraisal and rewards for IS personnel, resource allocation, and feedback-based learning”. According to these authors, the management of both information system people and projects are “likely to benefit from a systematic framework based on goals and measures that are agreed upon in advance”.
The use of the balanced scorecard in business has not seemed to diminish in recent years.
According to Kaplan and Norton (2001), some of the companies that have had success using the BSC include Mobil Oil North America Marketing and Refining Division, CIGNA, Chemical Retail Bank, and Brown and Root Energy Services and Rockwater Division, Aetna, Amoco Corporation, Bellsouth Communications, Sears, Sprint, Sears, Tesco and Dow Chemical.
The performances of some of the companies that first used the BSC are illustrated below (Norton & Daum, 1999). Their performances are very impressive. For example, in 1992, Mobil Oil’s US Marketing and Refining division was performing poorly and was last in its industry.
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The Balanced Scorecard was introduced to Mobil Oil in 1993. By 1995, according to Norton and Daum (1999, p.6), “Mobil had moved from last place to first place in industry profitability and has maintained the number 1 position for four consecutive years”. Furthermore, these authors stated that “the negative cash flows initially experienced have been dramatically reversed, and Mobil’s ROI leads all competitors”. In another example, the Property and Casualty Division of Cigna lost nearly $275 million. According to these authors, “a new strategy was developed where Cigna would be a "specialist," focusing on niches where it had comparative advantage”. This strategic initiative was implemented out to several business units within the organisation, with the BSC used as the core management process. Within two years, according to these authors, “Cigna had returned to profitability with their performance being sustained for four consecutive years”. At the end of 1998, Cigna sold Property and Casualty Division for a price of $3.45 billion, with Gerald Isom, President of Cigna Property and Casualty, attributing the BSC as an important part of their success story (Norton & Daum, 1999).
The BSC was introduced to Chase Manhattan Bank, previously known as Chemical Retail Bank, in 1993. Prior to the BSC introduction, according to Norton and Daum (1997, p.7), Chase Manhattan Bank “was still struggling to assimilate a recent merger, as well as attempting to introduce more integrated financial services and greater use of electronic banking to its customers”. Using the BSC, the strategic priorities were clearly defined, and the strategy and budget properly aligned, resulting in profitability increasing within three years by a factor of 20 (Norton and Daum, 1999).
Recent examples from the retail industry include Sears and Tesco. In the early 1990’s, Sears Roebuck and Company reported the “worst performance in its history”, with “the company’s net loss at $3.9 billion” (Rucci, Kim & Quinn, 1998, p.85). However, with the introduction of the BSC, “Sears reported a 4% increase in employee satisfaction and customer satisfaction”
within two year (Rucci et al., 1998, p.97). According to these authors, “the increase in customer satisfaction led to an estimated $200 million increase in revenue”, in addition to increasing Sears' “market capitalisation by almost $250 million”.
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Tesco, the largest retailer in the United Kingdom, currently uses a balanced scorecard approach which they refer to as the ‘Steering Wheel’ (Heskett, Sasser & Schlesinger, 1997). Sir Terry Leahy, CEO of Tesco, revealed that Tesco had implemented Kaplan's "Balanced Scorecard"
approach to management through Tesco's "Steering Wheel" system. According to these authors, while the ‘Steering Wheel’ is the core of Tesco’s business planning strategy, Tesco also uses its balanced scorecard to set objectives throughout the business i.e. the ‘Steering Wheel’ ensures that everyone’s objectives are linked to company strategy. Leahy believes that
“objectives across the five perspectives allow Tesco to be balanced in its approach to performance” (Marr, 2009, p.5). The success of the Balanced Scorecard approach is evident in
“Tesco’s reported sales of £59.4 billion in 2009 with a 15.1% growth in annual sales and a 5.5% growth in profits” (Marr, 2009, p.3).