Phase 2: Qualitative Study
2.5 THE FOUR PERSPECTIVES OF THE BALANCED SCORECARD
The balanced scorecard “allows managers to look at their business from four important perspectives” i.e. the financial perspective, customer perspective, internal business perspective and innovation and learning perspective (Kaplan & Norton, 1992, p.72). In addition to providing managers with information from the four perspectives, “the balanced scorecard minimises information overload by limiting the number of measurements used, hence forcing managers to focus on the measures that are most critical” (Kaplan & Norton, 1992, p.72).
24 2.5.1 Financial Perspective
According to Kaplan and Norton (1992, p.77), a company’s financial performance measure is an indication of whether a “company’s strategy, implementation, and execution contribute to bottom-line improvement”. Kaplan and Norton (1992, p.77) suggested that a “company’s typical financial goals have to do with its profitability, growth and shareholder value”.
Jackson and Qu (2008, p.12) similarly suggested that the “financial perspectives related to the organisation's financial objectives, as they involved revenue and growth mix, cost management, profitability and finally, asset utilisation and investment strategy”. According to Ba-Abaad (2009, p.39), “the financial perspective examined whether the company’s implementation and execution of its strategy contributed to the bottom-line improvement of the company”. The financial perspective “represented the long-term strategic objectives of the organisation and thus it incorporates the tangible outcomes of the strategy in traditional financial terms” (Ba-Abaad, 2009, p.39-40).
Kaplan and Norton (1996b, p.56) described the three possible stages in the financial perspective as “rapid growth, sustain and harvest”. According to Kaplan and Norton (1996b, p.57),
“financial objectives and measures for the growth stage will stem from the development and growth of the organisation which will lead to increased sales volumes, acquisition of new customers and growth in revenues”. “The sustain stage”, on the other hand, will be characterised by “measures that evaluate the effectiveness of the organisation to manage its operations and costs, by calculating the return on investment and the return on capital employed” (Kaplan & Norton, 1996b, p.57). Finally, according to Kaplan and Norton (1996b, p.57), the “harvest stage will be based on cash flow analysis with measures such as payback periods and revenue volume”.
Some of the key performance indicators specific to the financial perspectives included “an organisation’s cash flow, return on investment, financial results, return on capital employed, and return on equity” (Ba-Abaad, 2009, p.40). Kaplan and Norton (1992) still suggested that financial information was important, however, they believed that there needs to be a ‘balance’
between the financial and non-financial perspectives.
25 2.5.2 Customer Perspective
According to Kaplan and Norton (1992, p.73), the BSC enforces “that managers translate their general mission statement on customer service into specific measures that reflect the factors that really matter to the customer”. The customer perspective defines “the value proposition that the organisation will apply in order to satisfy customers and thus generate more sales to the most desired” (Ba-Abaad, 2009, p.40). Ba-Abaad (2009, p.40) suggested that the “measures that are selected for the customer perspective should measure both the value that is delivered to the customer (value position) which may involve time, quality, performance and service and cost and the outcomes that come as a result of this value proposition (e.g., customer satisfaction, market share)”.
Kaplan and Norton (1992, p.73) believed that customer concerns tended to fall into four categories consisting of “time, quality, performance and service”. According to Kaplan and Norton (1992, p.73), for the “BSC to work, companies should articulate for time, quality, performance and service and then translate these goals into specific measures”. Kocakülâh and Austill (2007, p.85) suggested that the customer perspective “required management to select measures or metrics that defined who the target customers were and what qualities or values those customers looked for in a company”. Those measures, according Kocakülâh and Austill (2007, p.85), may include “customers answering questions as to how they perceive quality, price, customer service, innovation, and competitors”.
According to Niven (2006, p.17), the customer perspective should consist of three important questions, namely “who are our customers, what do our customers demand or want from us, and what is our value proposition in serving them”. Niven (2006) suggested that that while this may sound easy to understand, most companies still have a holistic approach to customers even though they have a target customer market. According to Kaplan and Norton (1996b, p.60-61), the emphasis on customers should take care of “customer satisfaction, customer loyalty, customer retention and customer acquisition”. Sharma (2009, p.10) suggested that when an organisation shows a poor performance in the customer perspective, that could be “a leading indicator of future decline, even if the current financial picture looks good”.
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Some of the key performance indicators specific to the customer perspective “include delivery performance to customers, quality performance to customers, customer satisfaction rate, customer loyalty and customer retention” (Ba-Abaad, 2009, p.41). According to Banker, Chang and Pizzini (2004, p.3), customer measures “are intended to measure the company’s performance from the customers’ perspective”.
2.5.3 Internal business processes
Kaplan and Norton (1992, p.74-75) suggested that the “internal business processes stem from the business processes that have the greatest impact on customer satisfaction”. According to Kaplan and Norton (1992), these include cycle time, quality, employee skills and productivity.
Similarly, Jackson and Qu (2008, p.112) suggested that the internal business process perspective “relates to internal processes that are essential and critical to achieving customer objectives”, while Kocakülâh and Austill (2007, p.85) also suggested that the “internal process perspective requires management to consider the firm’s operations or processes that affect or are essential to achieving the strategic objectives with regard to satisfying the customer’s desires for each of those qualities or values important to the customer”.
According to Ba-Abaad (2009, p.40), “the internal process perspective is concerned with the processes that create and deliver the customer value proposition”. Ba-Abaad (2009, p.40) suggested that the “internal business process focuses on all the activities and key processes required in order for the company to excel at providing the value expected by the customers, both productively and efficiently”. According to this author, these could “include both short- term and long-term objectives as well as incorporating innovative process development in order to stimulate improvement”. According to Niven (2006, p.18), to ensure customer satisfaction, organisation must “must identify entirely new internal processes rather than focussing their efforts on the incremental improvement of existing activities”.
The key performance indicators specific to the internal business processes include “a number of activities, opportunity success rate, accident ratios and overall equipment effectiveness” (Ba- Abaad, 2009, p.41). Banker et al. (2004, p.3) suggested that internal business process measures are “employed to identify core competencies, recognise strengths and shortcomings, and to
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make improvements”. Banker et al. (2004, p.3) believed that, “since the path to any business changes with time, a company’s ability to innovate new products and processes is critical in achieving success”.
2.5.4 Learning and Growth
According to Kocakülâh and Austill (2007, p.86), the learning and growth perspective relates to “employee skills and information systems that drive improvements and successes with respect to the other perspectives”. Typically, according to Kocakülâh and Austill (2007), the goal in this perspective is to hire the best and brightest employees, train them, and keep them satisfied and productive.
Ba-Abaad (2009, p.40) believed that the “innovation and learning perspective was the foundation of any strategy and focused on the intangible assets of an organisation”. According to this author, the “innovation and learning perspective was concerned with human capital, systems and the organisation capital of the enterprise”.
Sharma (2009, p.9) describes the learning and growth perspective as “including all employee training and corporate cultural attitudes related to both individual and corporate self- improvement”. Sharma (2009, p.9-10) suggested that “in a knowledge-worker organisation people are the only repository of knowledge and in the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode”.
Niven (2006, p.18) believes that the current climate of rapid technological change has necessitated the “need for knowledge workers to be in a continuous learning mode”. According to Niven (2006, p.18), “measurement techniques can be developed to guide managers in focusing training funds where they can help the most”.
Some of the key performance indicators specific to the learning and growth perspective include
“investment rate, illness rate, internal promotions, employee turnover and gender ratios” (Ba- Abaad, 2009, p.41). According to Banker et al. (2004), the learning and growth perspective focuses on measure related to factors that facilitate continuous improvement. Other measures
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include “lost time accidents, productivity, training hours, certifications, leadership development, and job satisfaction” (Kocakülâh & Austill, 2007, p.86).
2.6 INTERRELATIONS BETWEEN THE FOUR PERSPECTIVES OF THE