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Communicating Strategy and Organizational Performance
An Empirical Study of The Effectiveness of The Balanced Scorecard
OutlineWhat is BSC?What is Strategy?Original ResearchLiterature ReviewResearch Proposal
a strategy map where strategic objectives are placed over four perspectives in order to clarify the strategy and the cause and effect relationships that exists among them.
strategic objectives which are smaller parts of the strategy interlinked by cause and effect relationships in the strategy map.
Balanced Scorecard is a method and a tool which includes:
The Balanced Scorecard
The method helps separate creation of strategy from strategy implementation, which can push power downwards while making the leaders' jobs easier.
It can also help detect correlation between activities.
The Balanced Scorecard
For example, the process objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business.
Actual Usage of the Balanced Scorecard
Clarify and update budgets Identify and align strategic initiatives Conduct periodic performance reviews to learn
about and improve strategy.
Kaplan and Norton found that companies are using the scorecard to:
A Comprehensive View of Business Performance
The scorecard drives implementation of strategy using perspectives which generally include:
What is a Strategy?BH Liddell Hart: “the art of distributing and
applying military means to fulfill the ends of policy”
George Steiner: “there is very little agreement as to the meaning of strategy in business world” (point out five definitions of strategy)
Henry Mintzberg: “People define strategy in different ways” (point out four definitions)
Michael Porter: “it means deliberately choosing a different set of activities to deliver a unique mix of value” Competitive strategy is about being different.
What is a Strategy?There is none. (Fred Nickols – 2010)Strategy is not planning. Strategy deals with competitive
situation in an uncontrolled environment. Planning deals with situations in a controlled environment. In essence, the job of the strategist is to understand and
cope with competition
Original Research
Original ResearchCommunicating and Controlling Strategy: A
US FORTUNE 500 CompanyMary A. Malina and Frank H Selto (April 2001)
This study investigate its research questions with qualitative, interview data obtained from individuals directly involved with the company's DBSC.
Reports evidence on the effectiveness of the BSC as a management control and strategy communication device.
Casual relationship between effective management control, strategic alignment and BSC
Original ResearchResearch Method: Sampling: feedback from two DBSC designers,
three managers who use DBSC to evaluate distributors, and nine of 31 distributors.
Data Collection: Archival data (policy documents and quarterly
DBSC scores)Semi-Structured interview format obtained via
telephone in mid-19998 questions with 100% response rate
Coding Interview Data: two extreme coding procedures areCompletely free coding unconstrained by prior
theoryStrict use of codes based on theoretical
constructs.
Original ResearchType of change introduced in the paper: 1.Narrow research questions to just two:
Whether BSC add value to companies?
If so, how does it contribute to organizational performance?
2. Use Survey plus interviews with structured questionnaire
A structured survey from an empirical study of Fabian De Geuser, Stella Mooraj, and daniel Oyan (2009)
3.Industry wide study instead of single company focused
Original ResearchResults & Findings: The BSC is an innovative strategy
communication and management control development
The BSC present significant opportunities to develop, communicate, and implement strategy.
Managers respond positively to BSC measures by reorganizing their resources and activities
Managers believes that improving the BSC performance is improving their business efficiency and profitability
Original ResearchResult and findings: Factors were found to negatively affect
perception of the BSC and cause conflict and tension between the company and its distributors
Measure are inaccurate of subjective
Communication of the BSC is one-way (top-down)
Benchmark are inappropriate but used for evaluation
Original ResearchResults and findings:
Distrusters on average have realized observable improvement in financial
performance
Literature Review
Literature Review1. Strategic alignment and middle-level managers’
motivation in a balanced scorecard settingA Research Paper By: Valerie Decoene & Werner Bruggeman
Ghent University, Ghent, Belgium 2006
Develop and illustrate a model of the relationship between strategic alignment, motivation and organizational performance in a balanced scorecard (BSC) context
BSC is a comprehensive system of strategically aligned performance measures.
A theory illustration case study is described to provide evidence for the theoretical model.
FINDINGS:Effective strategic alignment calls for the active involvement of
manufacturing executives in the BSC design and implementation process.
Effective strategic alignment empowers and motivates manufacturing executives.
A combination of effective strategic alignment and a BSC-based compensation plan has a positive effect on the extrinsic motivation of manufacturing executives.
2.The balanced scorecard: short term guest or long-term resident?
Can the balanced score-card overcome the defects inherent in traditional performance measures?
A Research Paper By: Jackie Brander Brown and Brenda McDonnell
Literature Review
Management need to decide which operations, processes, competences and skills their organizations must excel at if customer demands are to be met adequately.
If an organization is to be successful and remain successful, it must continually make improvements both: to its existing services and develop and introduce new ones. It is only by this continual improvement process/innovation it can grow by.
This study covered the hotel management industry across UK.
FINDINGS: It appears to be a very definite need to be clear about the business
unit for which the score-card is being developed.Effective establishment of strategies, common goals, critical
success factors and performance measurements are main means to achieve growth
The establishment/ development of effective performance measures appropriate to the employee morale and staff development, should be identified as being especially vital to the hotel sector.
3. BSQ strategic formulation Framework A hybrid of balanced scorecard, SWOT analysis and
quality function deploymentBy: Y.K. Ip and L.C. Koo
Asia International Open University (Macau), Hong Kong, China (2004)
Literature Review
The combination of balanced scorecard (BSC), SWOT analysis and quality function deployment (QFD) provides a pragmatic approach for managerial and consultant practitioners to build a strategic framework
The strength of QFD originally linked up direct customer requirements with production design
A non-profit-making association, (HKQMA) is used as a case study to demonstrate how to build an organizational strategic plan..
FINDINGS:Using traditional focus groups is an effective strategy to produce
data and insights for future strategies, decisions and action plan.The higher the performance gap, the higher the need for an
organization to improve in the difference between importance score and performance score
Identifying the critical to quality (CTQ) factors takes precedence over all quality-management processes
4. Balancing dilemmas of the balanced scorecardA Research Paper By: Ulf Johanson, Matti Skoog, Andreas Backlund and Roland
AlmqvistSchool of Business, Ma¨ lardalen University, Sweden`2006
Literature Review
Debate various critical issues in the implementation and use of the balanced scorecard (BSC) as a management control tool
The paper contributes to the BSC debate by collecting insights from empirical findings, as well as exploring various theoretical aspects.
It is motivated by an overall high rate of implementation failure in various practical settings..
FINDINGS:No organization can attain complete balance in the
management control process.Transforming a management control model is a matter of long-
term, sustainable evolutionThe features of connectivity, regularity and stability have a
potential to assist more comprehensively in allocating attention to, and control of, the organization in relation to the defined management control (scorecard) agenda.
The paper concludes that there is a need for further debate and research on these dilemmas.
5. Balanced scorecards for strategic and sustainable continuous improvement capability
A Research Paper By: Mandar Dabhilkar and Lars BengtssonDepartment of Industrial Engineering and Management, University of Gavle,
Sweden.2004
Literature Review
Illustrates how strategic continuous improvement (CI) capabilities were developed in three Swedish manufacturing companies that have implemented the Balanced Scorecard (BSC).
BSC is a multidimensional approach to performance measurement and management control that is linked specifically to organizational strategy.
A multiple case study was conducted at three engineering industry companies in Sweden that manufacture heat transfers.
FINDINGS:Certain mechanisms in the management control system, as well as
the presence of an advanced work organization, may help in sustaining the strategic CI capability.
In order to sustain this strategic CI capability over the years and thus obtain commitment, there seems to be a need for an advanced work organization
In order to sustain the developed strategic CI capability, organizations have to devolve autonomy and empower individuals to manage their own processes.
6. Third-generation balanced scorecard: evolution of an effective strategic control tool
A Research Paper By: Gavin Lawrie and Ian Cobbold2GC Active Management, Maidenhead, UK 2004
Literature Review
Describes changes to the definition of the framework that have occurred since the start of BSC, recognizing within these changes three distinct generations of balanced scorecard design.
It relates these developments to literature concerning strategic management within organizations, observing that the changes made have improved the utility of the balanced scorecard as a strategic management tool.
It shows the linkages between BSC and strategy in the three BSC generations.
FINDINGS:More modern ideas about BSD design processes and structure are
indeed “better” than the original device described by Kaplan and Norton.
Modern BSC designs are more likely to have a beneficial consequence for the organizations adopting the tool.
While more recent BSC designs are substantial improvements on original ideas, there is still room for improvement.
7. Linking strategy into operational managementA survey of BSC implementation in Finnish energy
sectorA Research Paper By: Harri Haapasalo, Kari Ingalsuo and Timo Lenkkeri
Department of Industrial Engineering and Management,University of Oulu, Finland 2006
Literature Review
Find means of connecting strategic management and operative performance measurement.
Level of use and utilization of BSC, the influence of specific features, the most used metrics and features of successful implementation of it in the energy sector.
Facilitates in depth discussion the company’s vision, strategy and critical success factors and translate them into specific measures and objectives in action.
FINDINGS:Maintaining a vision and a strategy has not been very prevalent
in Finnish electricity/energy companies.Benchmarking on other industries, where BSC has been in use,
leads to better results faster in the energy sector In the construction phase of the BSC, the process of searching
for the metrics is more important than finding them.
8- BALANCED SCORECARD: A rising trend in strategic performance measurement
A Research Paper By: Khim Ling Sim and Hian Chye KohWestern New England College, 2001
Literature Review
Traditional performance measurement systems have been criticized as being too narrowly focused on financial figures and functional level performance such
This study investigates whether there are any linkages between business success and the use of strategically linked performance measures
Long-term survival of a business is dependent upon meeting market needs through long-term value creation process.
Information collected from 83 electronics companies located within the USA
FINDINGS:BSC can be used as a tool for monitoring the long-term value creation
process.Employee satisfaction is a good measure for the innovation and
learning perspective.Shorter product development time is often the end results of
increased employee training and the use of innovative techniques.
9. Strategic management of electronic commerce:
an adaptation of the balanced scorecardA Research Paper By: Helen Hasan and Hendrika (Rita) Tibbits
Australia, 2000
Literature Review
BSC is built on the premise that measurement is a prerequisite to strategic management.
Electronic commerce is rapidly becoming concerned with the many different ways organizations do business and is therefore an area of strategic concern to organizations.
A case study of the implementation of the balanced scorecard in a public utility is analyzed and how the adaptation of BSC can be retained as a strategic choice.
FINDINGS:From the internal operations view, e-commerce affects not only
business processes but also business structures.BSC provides a means of identifying links between strategic
objectives and concrete measurements throughout an organization.
E-commerce is introducing fundamental changes to traditional business models in many businesses so that the adaptation of the BSC will help in coping with change to achieve excellence in strategy deployment.
Literature Review10. A constant growth model of the firm: empirical analysis of the balanced scorecard
A Conceptual Paper By: Erkki K. LaitinenDepartment of Accounting and Business Finance,
University of Vaasa, Finland 2006
Presents a microeconomic model to analyze theoretically BSC, to develop a simplified model version and to apply it empirically.
The model assumes exponential production and demand functions with constant scale factors and elasticity's.
It is estimated for Nokia’s time-series 1993-2002 and partly for 35 Compustat firms.
FINDINGS: It gives novel empirical evidence on parameter estimation and
strategic behavior in BSC framework. In growth strategy, price discounts may lead to declining
profitability, while productivity is increasing. This results in peculiar causal relationships in strategic mapping of BSC.
Most firms show decreasing returns to scale that are found also in a cross sectional analysis.
Research Proposal
Research ProposalStrategy Communicating and
Organizational Performance- BSC (Revised): Saudi Oil & Gas Service Providers
Research questions :Whether the BSC adds value in strategy
communicating, andIf so, how does it contribute to organizational
performance.
Research ProposalIndustry & Sample (Revised)
Oil, Gas Industry Large Firms (1000+ employees)Local companies and Foreign corporations based in
SaudiThe BSC is a long term oriented and a continuous
processOil & Gas Industry regarded as long-term, well managed
companies, and have sufficient resources to assign BSC responsibilities to key staff that championing its continued development and implementation.
Oil & Gas represent the main source of income in Saudi
Research ProposalHypotheses (combined from the two original
researches)
1.The BSC is an effective strategy communicating tool
2.The development of the BSC is positively associated with the organizational performance of the firm
3.The higher the support of top management to the development of BSC, the better the organizational performance
4.The better the translation of the strategy through BSC , the better the organizational performance
5.The more the BSC encourages strategic input from all levels of the org, the better the org performance
Research ProposalDesign (qualitative research) (Revised)
Who? Designers of BSC, Managers involved, and Executives of Oil & Gas firms operating in Saudi.
What? Information about BSC effects in strategy communication and organizational Performance.
When? Before and after implementation of the BSC
Where? Saudi Oil and Gas IndustryWhy? To generalized or limit the result of the
original researchs (BSC is an effective tool in strategy communication and organizational performance.
Research ProposalData Types and Sources
Secondary data: Companies participated in BSC conference in Bahrain
and Dubai or those registered in www.bscol.com
Primary data: Interview with consultation firms Interview with BSC champions. (Revised) Employee questionnaire. (Revised)
Research ProposalQuestionnaire and Interview (Revised)
Interview questionnaire from the original research
Survey questionnaire from the recent research (Does the BSC add value? Empirical Evidence of its Effect on organizational performance by Fabian De Geuser and Stella Moraj, and Daniel Oyon in 2009)
Note: Validity and Reliability tests need to be done!
The SurveyA primary data collection toolComprised 68 closed questionsFollowing the Foster and Swenson (1997)
approach, using multi-item proxies Scale:
0 (failure)1 (little success)2 (average success)3 (High success)4 (Extremely success)
Foster's Methodology is basically a sequence of steps to partitioning computation/data into pieces (tasks), determining communication between these pieces (tasks), grouping the pieces (tasks) that have intense communication to one another, then finally mapping these groups into several processors we have.
Foster's Methodology:
PartitioningCommunicationAgglomerationMapping
Foster's Methodology:
Thank You
