What is a Balance Scorecard? A Balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.
It was originated by Drs. Robert Kaplan Harvard Business School and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance (balance scorecard Institute, 2013).
This paper will analyze the Balance Scorecard at Phillip Electronics; it will discuss the rationale and issues surrounding the development and implementation of a Balance Scorecard. The paper will also discuss the advantages and disadvantage of Phillips Electronics Balance Scorecard (BSC).
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Philips Electronics has implemented a scorecard system to align company views, to focus employees on how they fit into the organization, and also to educate employees on what drives the business.
The company management uses the scorecard as a guide at quarterly business reviews worldwide to promote organizational learning and continuous improvement. Philips also created its balanced scorecard with the belief that understanding what drives present performance is the basis to determine future results. Philips uses the scorecard as a basis for employees to understand management’s strategic policies and vision for the future.
Philips created four critical success factors (CSFs) to align indicators that measure markets, operations and laboratories with business success. First is Competence which is consist of knowledge, technology, leadership, and teamwork. The second is the Processes which is the drivers for performance.
Third is Customers which value propositions. The fourth is Financial which includes value, growth, and productivity (Hudson, 2004).
Philips uses these CSFs as a short-term action with long-term strategy so that employees can link their actions to stated company goals. The Philips balanced scorecard has four card levels. The levels, in decreasing order, are the strategy review card, the operations review card, the business unit card, and the individual employee card.
To achieve successful results, scorecard goals in lower card levels must align with scorecard goals in upper card levels and be fewer and less complex than the overall organizational goals. In Philips Medical Systems North American (PMSNA), the balanced scorecard is being used to increase accountability for results.
The scorecard is compiled using an automatic data transferring system that transfers data from internal reporting systems to the scorecard. This system allows employees to quickly see results each month, reduces the compilation time, and eliminates possible human error. Employees are able to understand exactly what they need to do on a daily basis to impact results.
Chris Farr, former Philips Vice President of Quality and Regulatory at PMSNA, says that scorecard metrics must be shared and visible so employees can succeed. Farr says strength of the scorecard is that employees have analyzed what makes the business succeed and gained a greater understanding of the business enterprise (Hudson, 2004).
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Advantages of Balance Scorecard
A balanced scorecard provides a broad consideration of all business aspects, both financial and human. It takes into consideration how each part affects another, rather than just focusing on the performance of one aspect. Once a balanced scorecard system is in place, it allows for ongoing monitoring of goals and objectives (Price. 2013).
Philips has also seen that the scorecard promotes the sharing of best practices and creates a worldwide communication system where employees can share success practices, product fixes, project knowledge, interests, and pitfalls. This communication prevents employees from repeating fellow employees’ mistakes, saving time and money.
Philips has realized significant benefits due to implementing a worldwide scorecard system. Employees embrace and use the scorecard to improve results. Management uses the scorecard to communicate strategy and align employees with strategy. The scorecard is also used at all levels of the organization.
Philips has implemented a balanced scorecard and succeeded in focusing the company on a diverse set of business measures (Hudson, 2004).
Disadvantage of Balance Scorecard
Because the balanced scorecard looks at the affect on the whole, the performance and encouragement of the individual can be lost. The scorecard can be misrepresented and used as an employee monitoring tool rather than as a company performance tool. Finally, the large number of variables taken into consideration to form a viable scorecard can be cumbersome and result in a job unto itself (Price-Watson, 2013).
Some issues that Phillips Electronics faces were software for use in capturing and transferring data to a BSC in real time should be selected carefully and researched fully prior to implementing the balanced scorecard.
A balance scorecard must be reached to maintain visibility for employee access while maintaining confidentiality of company results that are sensitive and proprietary. In trying to determine employee-level performance indicators, the company learned that many critical success factors cannot be directly impacted by employees (Gumbus & Lyon, 2009).
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Conclusion
In conclusion, Philips has realized significant benefits by implementing a global balanced scorecard. By using the balanced scorecard Philips’ management communicates strategy and aligns employees with business strategy and at all levels of the organization.
Philips has implemented a balanced scorecard and succeeded in focusing the company on a diverse set of business measures. Dispute the some issues that the company faces with implementing the balance scorecard. The use of a balanced scorecard as a strategic tool represents an opportunity for an executive team to align their company to the strategic intent.
Reference Balance Scorecard Institute, (2013).
What is the Balanced Scorecard? http://www.balancedscorecard.org/ Gumbus, Andra & Lyon Bridget, (2009).
The Balanced Scorecard at Philips.
Electronicshttp://www.oocities.org/espanol/lionelpineda/bs/bs25.htm Hudson, Scott (2004).
Philips Electronics’ Balanced Scorecard. http://scm.ncsu.edu/scm-articles/article/philips-electronics-balanced-scorecard Price-Watson, Erin (2013).
Advantages & Disadvantages of a Balanced Scorecard. http://www.ehow.co.uk/facts_7631410_advantages-disadvantages-balanced-scorecard.html
