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ABSTRACT

The perplexing subject of managing and motivating people in organizations to willingly give of their best – or HRD, to use jargon – is returning to the limelight for all sorts of reasons. The more serious media speak of the dearth of high-performance individuals, alongside the sharp rise in mid-career stagnation or, worse, unemployment.

The slump in the IT market, the reversal of the spiraling salaries of a few years ago, and the eternal issues of relating performance meaningfully to pay, with the excitement over economic value added as a tool for doing so, have all come to the force in managerial discussions of late. All these are clear signs of a changing role of the people management function in industry.

What have changed for us in recent times are two significant breakthrough developments: The first is the dawning realization more than ever before that managing “human resources: in practice is a line job and, therefore, can only be executed by the active involvement of a number of key frontline and senior managers.

The second aspects is a challenge to three traditional assumptions of top management i.e. that people, generally speaking, were plentifully available, easily replaceable and relatively inexpensive, compared to other critical sources of competitive advantage. In the past decade, things have changed for most corporate organizations along one or more of the three dimensions. Increasingly, it is also becoming clear that, where everything else is imitable or transferable, it is the quality of people that can make a big difference. And there is, thus, a paradoxical scarcity of really effective, talented people, amidst the apparent plenty of qualified job-seekers.

Keeping all this in view, a study has been taken up to examine and review the performance management system in organization emphasizing a specific managerial tool for corporate excellence, namely Balance Legal Scorecard and various perspectives involved in that tool.

OBJECTIVES

The objectives set out below prompted to undertake the study for presentation:
• To examine briefly at the strategic, macro, or country-level implications of performance management system in the context of globalization and need for Balance Scorecard.
• To examine ongoing performance management system prevailing in the organization.
• To study the Balance Scorecard Perspectives in the organization.
• To review at its managerial impact, mainly from the point of view of the CEO in the organized industrial sector, impact of BSC towards organizational efficiency and so forth.
• To offer concrete suggestions for the successful implementation of Balance Scorecard in the organization.

IMPORTANCE OF THE STUDY
Performance management system emphasizes the relationships between strategy formation, change management, and resource management. It provides answers to questions such as: what resources does the firm have and how can they create new resources, how current resources support organizational strategies perform and how can resources be used and re-used over time. Strategic resource management looks for value while trying to eliminate waste. Under a strategic resource management system, management accountants will be able to participate in resource-related direction setting, in the design and implementation of organizational change, and in the development of control systems and performance measurements.

The most critical step in the alignment process is tying performance measures to the strategic goals of the organization. It is suggested that the best way to do this is by using a balanced scorecard. General Motor’s European scorecard is an example to implement eight business units, twelve separate functions and twenty-five national sales companies in different countries.

The present study makes an attempt to analyse the effectiveness or otherwise of the performance measurement system prevailing in the organization with a specific tool Balance Scorecard meant for overall organizational efficiency. Therefore this study might stand in good stead to understand the background, conceptual framework of Balance Scorecard, various measures to be taken by the organization to enhance its efficiency.

METHODOLOGY
The data obtained for the present study is mainly based on secondary sources namely, published information from the journals of Finance, HR and magazines, periodicals (Business Line & Economic Times).

FULLPAPER

BALANCE SCORECARD –AN OVERVIEW

To face the increasingly competitive global economy today, companies are realizing that they must make major changes to the old traditional measures of financial performance which can no longer adequately assess the newly structured organizations that exist today. The “old individual based task-oriented management” concept must be replaced with a “team-based process-oriented” management concept. Eighty percent of large American companies want to change their performance measurement systems and the Balanced Scorecard can help them do this.

The Balanced Scorecard (introduced by Kaplan and Norton) is a set of financial and non-financial measures relating to a company’s critical success factors. It is an attempt to capture the essence of the organization’s critical value-creating activities. It has integrative components that reinforce one another in indicating what the current and future prospects of a company will be. Its purpose is to concentrate corporate focus on performance measurement innovation since traditional reporting systems aren’t able to measure performance in the new manufacturing environments and are not helpful in increasing market share and profits.

Cascading Strategy and Scorecards
The cascading strategy refers to the strategic alignment process. Fonvielle and Carr say that in order to be effective, this process must start with top management and cascade downward “unifying direction for units and functions, teams, and ultimately individuals”. The graphical representation shown below conveys the idea of balance scorecard.

Advantages of the Balanced Scorecard

• It puts strategy, structure, and vision at the center of management focus.
• Since it integrates traditional and nontraditional performance measures, it keeps management focused on the entire business process and helps ensure that actual current operating performance is in line with the long-term strategy and customer values.
• It maintains a balance between building long range competitive abilities and recognizing investors’ attention to financial reports.
• Financial measures are viewed in the larger context of the companies long range competitive strategies for creating future value through investment in customers, suppliers, employees, processes, technology, and innovation.
• It enhances the overall goals and objectives and a company
• It allows management attention to focus on managing results from the perspective of customers, internal business processes, and learning and growth.

Major Components of a Balanced Scorecard

A Balanced Scorecard must combine past financial measures with measures of the firm’s drivers of future performance. The specific objectives and measures come from the firm’s vision and strategy. The basic framework will include at least four major perspectives:

1) Financial perspective: Determines what kind of financial performance to provide to investors.

2) Customer perspective: Companies identify their customer and the market segments in which they want to compete and align their measures of customer values with their targeted market segments.

3) Internal business processes perspective: Improve the internal processes that will help reach the financial and customer perspectives. It may require defining a complete internal process value chain that identifies current and future customer needs and creating solutions for them.

4) Learning and growth perspective: Based on the previous three, the company must identify objectives and measures to drive continuous organizational learning and growth. These objectives should be the drivers of successful outcomes in the first three perspectives.

With these perspectives, managers are able to see how their business units are creating value for current and future customers and identify when internal capabilities need to be enhanced as well as improve future performance. The Balanced Scorecard communicates goals and rewards employees who enhance them. It also retains an interest in short-term performance, but at the same time, clearly reveals those drivers leading to long-term financial and competitive performance.

Fitting the Balanced Scorecard to the Organization

It is custom designed to its company with its focus on the integration of the entire business process. First, make a preliminary assessment of the overall business strategy. Identify business processes, goals and objectives and then rank the measures that will capture the organization’s progress toward those goals and objectives. In this paper this was done for four small companies whose sizes ranged from 110-1200 employees; an electronics firm, a food ingredients company, a commercial bank, and a Biotechnology firm.

Different Goals and Scorecards

In this study, the food ingredients company was most interested in the financial perspective, the biotechnology firm was most interested in the customer perspective, and the commercial bank created its own separate community perspective category which included things like supporting community activities and being good corporate citizens. This shows that managers are designing the goals and measures that fit their own unique needs and that the Balanced Scorecard can be effective in small companies as well as in large ones.

Management Processes In Balance scorecard:

The Balanced Scorecard will let managers introduce “four management processes that separately and in combination, contribute to linking long term strategic objectives with short term actions”.
• The first process translates the vision and strategy into operational terms for employees to understand. They are stated as an integrated set of objectives and measures that describe the long term drivers of success.
• The second process is communicating and linking. It ties the overall objectives and strategies to departments and individual objectives. This takes the place of evaluating departments using financial performance and individual incentives. By using this approach you make sure that all the levels of the organization are aware of the company’s long term strategy.
• The third process is business planning. Businesses can integrate their business and financial planning. The Balanced scorecard helps set goals that provide a basis for allocating resources and setting priorities. It also helps in eliminating some initiatives and selecting others that are more effective for moving the organization toward its long-term strategic objectives.
• The fourth process is feedback and learning. It helps facilitate learning and supplies strategic feedback. It can help organizations modify their strategies in response to changing circumstances.

The Personal Scorecard

Personal scorecards are a way of translating the company’s scorecard into specific goals and measures for each individual. They will also not be identical since each individual fills a unique role in the organization and each individual has different skills, talents, and interests. To achieve the greatest success, these individual differences must be exploited and synergies must be created among the workers since a corporation runs best with coordination and cooperation and specialization among its members. Individual personal scorecards should be consistent with the company’s overall strategies, goals, and measures but must also be flexible to accommodate to the individual’s strengths and weaknesses.

One thing that still remains in question is whether or not a company’s compensation system should be linked to its Balanced Scorecard. Some companies have done so because they believe tying financial reward to performance is very motivating, but they must also realize that there are risks involved in doing this.

If the emphasis on individual achievement shifts to cooperation and teamwork, a company’s short term formula based incentive compensation system will also have to change. Since a longer term viewpoint is used in the balanced scorecard, incentive rewards may need to be set more subjectively. Longer term subjective evaluations are less likely to be distorted. Its role in the incentive compensation system is still to be discovered.

BALANCED SCORECARD PERSPECTIVES

In the light of theoretical background about performance measurement system, balance score card etc in the previous chapter of the present report, an attempt has been made to review the various perspectives of balance scorecard in this chapter. Further it is analysed, the potentials of balance scorecard perspective and profit effects.

There are four perspectives of the Scorecard, provides a balance between short term and long-term objectives, between desired outcomes and drivers for those outcomes, between objective and subjective performance measures.

Many measurement frameworks advocate a balanced range of measures. The Balanced Scorecard is prescriptive about this range, and about how one perspective defines the drivers for the next.
The Balanced Scorecard’s prescriptive approach to performance measurement requires performance measures defined in each of the non-financial perspectives to be linked to each other and to the financial measures, ensuring that the organization’s ultimate goal that of continuing to be successfully in existence, remains paramount.

The extent to which business results can be improved by decisions taken based on a Balanced Scorecard view of the organization is significant. Furthermore, these business results tend to be very sensitive to minor improvements in performance in key areas (such as the legal department). The following table illustrates the point:

Balanced Scorecard Perspective Potential Impact Typical Profit Impact (*)
Organization Decrease in legal costs 7%
Legal Department Reduction in wastage 2%
Innovation and Learning Improved efficiency and identify best practices 5%
TOTAL Increase in profit 14%

*Source: Based on historical lexTech,Inc. figures-secondarydata

Financial Perspective

It is observed that, the Balanced Scorecard encourages corporate units to identify their specific financial objectives as relates to the financial objectives of the entire organization. Thus, the legal department embraces the organizations financial strategy. As such, the financial objectives serve as the focus for the legal department’s objectives and measures of the other three perspectives.

Every measure should be part of a cause-and-effect relationship that culminates in improving long-term sustainable financial performance. The Balanced Scorecard is an illustration of the strategy, starting with the long-term financial objectives of the organization and then linking them to other initiatives such as the operational processes of the legal department and its investment in employees, systems and outside resources that combine to produce the desired economic performance.

Clearly it is important to get the ‘right’ measures. Although it is people, decisions and actions that change performance, measures set the goal, and the old adage “what gets measured gets managed” is still true today.

Leading organizations are now finding new financial measures, as well as the non-financial measures. Rather than simply considering the obvious financial measures of revenue, profit, share value or dividend cover, consideration is being given to a recently developed measure namely, Economic Value Added. This expresses the amount of value added by the efforts of each department (the legal department for company purposes) in the organization and how those efforts help the overall financial objectives of the organization. Alternatively it refers to the difference between percentage of return on investment and the percentage of cost of capital, multiplied by capital invested. That is to say, company should raise return on investment with out further capital investment.

The Organizational Perspective

It is held that one of the key drivers for an organizations success, except in a few rare cases, is organizational efficiency and cost effectiveness. As such, how an organization performs from a bottom line point of view is clearly a top priority for management.

With that in mind, all organizations have their marquee departments, the ones that deliver the maximum contribution to the specific type of financial measure that matters most to them. All organizations also have their average departments and the departments that cost those lots of money, but that they just can’t operate without (many times the legal department, which is seen as a drain on the bottom line). To maximize financial return, it is the operational efficiency and cost effectiveness of the ‘marquee’ department that should be addressed. Departmental measures that reflect the issues that really matter to the organization need to be developed. From these, the key objectives and measures for how the other departments (such as legal) should operate can be established.

In this way an even more powerful link can be established between organizational focused objectives and improved financial performance.

Legal Perspective

It is pertinent to note that, delivering added organizational satisfaction can be achieved through the operational activities of the legal department. Through the Balanced Scorecard framework organizational focused measures can be supported by measures of the legal management processes that are most critical in meeting the organizations expectations. The objectives and measures for this perspective thus enable a focus on maintaining and improving the performance of those processes that deliver the objectives established as key to satisfying the organizations financial objectives, which in turn satisfy stakeholders.

With this approach, the Balanced Scorecard offers a vehicle to focus on a complete value chain of integrated business processes. It is this that represents one of the major opportunities for the benefits that the Balanced Scorecard can provide over traditional departmental performance measurement systems.

This top-down value-chain process can reveal entirely new areas, within the legal department’s business processes, where an organization can gain additional advantage.

The effect can be phenomenal; a reduction in process costs of 1% when combined with an identical reduction in wastage can typically deliver an increase in profits of over 15%.

Innovation and Learning Perspective

The adage ‘our people are our greatest asset’ has been honored more in breach than the observance in all too many organizations. It is an issue managers cannot afford to ignore, however. The operations of the organization are undertaken by the people within it. The ability, flexibility and motivation of staff are the foundation of most financial results, organizational objectives and departmental activities that are measured in the other quadrants of the scorecard.

Organizational expectations are always changing and legal departments are, as a consequence, required to make continuous improvement. This relies heavily on the department’s ability to innovate, learn and improve, which collectively delivers better results for the whole organization.

The idea that everything else eventually depends upon the staff of an organization could suggest that the ultimate single indicator of long-term sustainable success, if there were such a thing, would be the speed at which the organization can learn to do new things successfully. Used in this way, the Balanced Scorecard framework gives consideration to the importance of investing for the future. Not just in traditional areas of investment such as R&D, but also in the human infrastructure of the organization – creating a ‘learning organization’ – if ambitious long term financial success objectives are to be achieved.

In short, there is no doubt that the effective development of staff can have a direct impact on the bottom line and can also directly affect all of the increases in profit possible through operational improvements. Simply increasing staff efficiency by 1% can often have the effect of improving profitability by twice as much.

Linkage of the Balanced Scorecard to Strategy

The objective of any measurement system should be to motivate managers and staff to implement the organization’s strategy. By translating strategy into measures within the Balanced Scorecard, objectives and targets can be communicated to everyone. They can then focus on the critical drivers and align initiatives and actions to the meeting of strategic goals.

Significance of Scorecard to communicate the strategy:
• It describes the organizational vision to all departments
• It ensures that the meeting of performance targets contributes to achieving strategic objectives
• It focuses effort on the key objectives and measures

Impact of Scorecard that translates a strategy into action:
• By establishing cause-and-effect relationships between measures
• By creating a framework against which underpinning objectives and actions can be assessed, valued and prioritized
• By ensuring that cause-and-effect paths link through to on-going financial strength

An effective Scorecard enables an organization’s strategy to be inferred simply from the cause-and-effect links between measures. Outcome measures signal the ultimate objectives of the strategy and performance drivers indicate actions or initiatives that are required in order to create future value. Ultimately, the Scorecard retains a strong emphasis on outcomes and financial outcomes in particular.

Information Systems to Support the Balanced Scorecard

Information systems play an invaluable part in assisting managers to analyze beyond the summary level Balanced Scorecard measures. When an unexpected signal appears on the Balanced Scorecard, managers need access to underlying data to investigate the cause of any problem or to analyze trends and correlations.

If the information system is unresponsive, however, it can significantly impact the effectiveness of performance measurement.

Such an information system must incorporate the following features:
• At-a-glance exception alerting
• Rapid access to summarized data
• Drill down to successive levels of detail
• Easy to follow dependency paths to identify the causes of performance
Reporting initiative, objective and process information
• Reporting of impacts of underlying objectives upon Scorecard measures
• Reporting of the impacts of objectives upon each other
• Graphical creation and modification of objectives, measures and relationships
• Support for dynamic re-planning for change
• Integration with other office tools
• Inclusion of rich text information
• Graphical trending and tabular representation of data
• End user configuration and analysis options
• Integration with existing organizational data sources – with support of additional direct entry of values and annotations
• Be backed by expert consultancy for strategy and training
• Implement services without the need of additional staff or technology.
• Enable corporate legal managers to put into every day use the best practice recommendations that in the past may have seemed impossible to achieve, with minimal additional overhead, time or other resources.
• Maximize the benefits to be attained from existing performance measurement and management.

SUMMARY OF FINDINGS, SUGGESTIONS & CONCLUSION
As examined in detail, the need and significance of legal balancing scorecard for corporate excellence, in the preceding chapters of the present report, an attempt has been made to summarise the perspectives used or to be adopted in the balance score card for effective implementation in order to enhance the bottom-line of the company and to maximize the value of the company. Following are the major Findings of the study.

The Balanced Scorecard, with a comprehensive information system to support it, provides a means to make a real difference throughout the legal department, and organization as a whole, from individual team member satisfaction right through to significant improvements in the bottom line.

From the above passages of the report, an attempt was made by the researcher to suggest steps to implement Balance Scorecard in any organization.

1) A strategic planning retreat with all levels of management reaches a consensus on the overall vision, strategic goals, and objectives of the company and identifies the critical perspectives.
2) A strategic planning committee formulates objectives for each perspective.
3) With the balanced scorecard as a communication tool, committee seeks comments and acceptance from all members.
4) Revise balanced scorecard.
5) Communicate the revised version to everyone and then each individual creates their own personal balanced scorecard to supplement the overall goals and objectives described.
6) Strategic planning committee reviews individual balanced scorecards and revises those as well as the company’s.
7) Management formulates a five-year strategic plan for the overall organization based on the balanced scorecard. The first year plan is expanded into the annual operating plan for the next year.
Review individual and company progress quarterly and identify areas that need attention.
9) Based on personal balanced scorecards, the company evaluates each member’s performance for the past year and makes recommendations relating to retention, promotion, salary increases or other rewards.
10) Strategic planning committee revises the company’s balanced scorecard and the five-year strategic plan based on external and internal scanning of the current condition and changes in the economic environment.

CONCLUSION:

The balanced score card is a new idea that will help restructure firms and help them make it through difficult and changing times. It allows management to focus on those goals and objectives and the measures that will help reach those goals and objective to meet the needs of the 21st century. The best thing about it is that scorecards are unique to the company and will specifically fit the needs of the company, subunit, or individual.

To meet the challenges ahead, legal departments need to develop a perspective on the role of the legal function in both qualitative and quantitative business terms. They may use a Balanced Scorecard of metrics that integrates the law department’s short-term actions with long-term organizational objectives. Six Sigma, process review and benchmarking systems are specifically designed to support the implementation and ongoing evolution of a Balanced Scorecard measurement system, alone or integrated with other performance management approaches and initiatives.
BIBLIOGRAPHY

1. Birkett, W.P. 1995. Management Accounting and Knowledge Management. Management Accounting (November): 44-48.

2. Chow, C. W., K. M. Haddad, and J. E. Williamson. 1997. Applying the balanced scorecard to small companies. Management Accounting (August): 21-27.

3. Clinton, B. D. and H. Ko-cheng. 1997. JIT and the Balanced Scorecard: Linking manufacturing control to management control. Management Accounting (September): 18-24.

4. Epstein, M. J. and J. Manzoni. 1997. The balanced scorecard and tableau de bord: Translating strategy into action. Management Accounting (August): 28-36.

5. Forsythe, R., J. A. Bunch and E. J. Burton. 1999. Implementing ABC and the balanced scorecard at a publishing company. Management Accounting Quarterly (Fall): 10-18

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