Strategic Performance Measurement Systems (SPMS) and the Balanced Scorecard (BSC)

Discuss about the Strategic Performance Measurement Systems.

Certain major factors of Strategic Performance Measurement Systems (SPMS) and the Balanced Scorecard (BSC) are capable to translate strategy within action such as strategic alignment (Adams, Muir and Hoque 2014). This can determine the cause and effect association present within organization conducts and through extension of several company’s sub-units. Most importantly, certain distinct perspectives and activities with important KPIs are maintained all through the financial and the non-financial aspects. Considering the same, it is also revealed that balanced scorecard is an only aspect that affects organizational performance in case it is associated with the intrinsic and extrinsic incentives of managers (Akbar, Pilcher and Perrin 2015). In order to attain a sustainable and competitive environment it is vital for the companies to measure the ways in which multi-national companies. This offers these companies with a proper view of companies’ ability within the recent business markets. Along with the same, for attaining success within the dynamic surrounding it is vital for these organizations to get linked with Strategic Performance Measurement Systems (SPMS) within organizational strategy.

The objective of the paper is to analyze the issues associated with the implementation of Strategic Performance Measurement Systems (SPMS) that is balance scorecard in consideration to performance management analysis along with compensation within multi-national companies. Preparing a report in this subject will facilitate in evaluating different implications associated with strategic alignment, management performance analysis along with compensation within the multi-national companies.

The balanced scorecard system is a strategic planning and reporting technique that considers the company’s objectives and it is segmented among four equally vital perspectives such as financial, operational, consumer and people (Garengo and Sharma 2014). Objectives of the multi-national organizations are segmented into such perspectives that offer these companies with options to maintain clear implementation path. The balanced scorecard system also has strategy map in which the financial perspective stays at top and has certain objectives which contributes to the bottom line. Another consumer perspective supports such objectives that results in addressing consumer requirements that results in increased sales (Guenther, Endrikat and Guenther 2016). If the balanced scorecard is in place with managing performance, employees observe the ways in which job makes a difference to the multi-national organizations. The balanced scorecard portion includes of lagging and leading metrics that the organization or the departments they can be analyzed on to determine whether they are on the track. The balance scorecard performance measurement metrics lays a foundation for clear performance expectations along with the ambiguity elimination of ambiguity focused on employee priorities.

Objective of the paper

With a complete scorecard in place, the employees realize where to place their position and can easily determine the areas within which the balance scorecard can result in the success of the organizational strategy (Gutierrez et al. 2015). Employee performance evaluations along with status reports are highly centered on the findings of the balanced scorecard that offers employees structures and supervisors to focusing on coaching and evaluation. This also facilitates in developing employees structure for coaching and analysis that keeps all the employees informed. Relied on the analysis of the balance scorecard and strategy map, on Strategy facilitates these multinational companies regardless of the budget and size in developing their comprehensive plan within few weeks along with monitoring implementation all year long (Hartnell et al. 2016). In measuring the performance of the employees within the multinational organizations four perspectives of the balance scorecard is considered:

• The internal business perspective: Manages must require to know whether the multinational companies deals with consumer needs
• The consumers perspective: Managers require focusing on the important internal operations that facilitate them to deal with the needs of the consumers
• The financial perspective: Companies ability to innovate, learn and innovate is directly linked to its value as a company (Johnson 2015).
• The learning and innovation perspective: Considering this aspect, within the multinational organizations employees are trained in a way that such measures re basically centered on the market share and profit. For public sector, balance scorecard is employed in an organizational level.

Implementation of Balanced Scorecard is considered as a complex process as logical paths are expected to be followed in the same. Kalpan and Norton’s method of implementing the same reflects two features i.e. the top-down approach and group sessions of managers.

The top-down approach is considered as a lengthy process which includes measurement of performance starting from the mission and vision of the company in order to interpret the same into operation as per the BSC’s outlook (Hartnell et al. 2016).

Hence, this approach has been mainly associated with the large enterprises as the studies made by Hudson stated the issue of implementing the same on SMEs could be difficult. He mentioned that the identification of the critical success factor and the measuring the key performance of various perspective happens parallelly. Henceforth, a new approach has been proposed that was defined as “incremental”. The major strategic objective of the same was “name, act, use, learn” cycle, but this also came to a halt as it required an actual validation of the strategic vision.

It has been observed that in majority of the SMEs, the roles of various person overlap which creates informal management system and the ideals of entrepreneurs are not formally expressed. Therefore, the approach crashes with the cultural framework of the organization.

Hence, a circular approach has been implemented for such organization which includes four main steps which measures the operation of every individual on a regular basis. In this method, those under control are gauged. In the observation, it has been noted that lack of vision is grater in SMEs against that of large companies.

Balanced Scorecard System

The first step encompasses the performances that are being controlled, including individual dashboard as well as implicit management dashboard. While observing the controlled performances, the phenomena in which those are controlled is unveiled through implicit strategy map. The third step includes the identifying the critical phenomena through desired strategy map. Therefore, after designing the new performance measurement system as well as the management system, the key performance measures are taken up.

Strategic performance management systems are deemed to be focused in three perspectives that make them applicable within the multinational organizations for attaining high competitive advantages. These perspectives are explained under:

• They encompass the financial measures that gather the short term consequences of manager decisions concerned with the problems that include revenue growth, asset utilization along with cash flows (Valmohammadi and Roshanzamir 2015).
• The balanced scorecard has supplement financial measures with non-financial measures which signify operational achievements that are likely to drive the organizations financial performance.
• The balanced scorecard is designed to fulfill multiple purposes from simple cost determination to difficult value creation with an emphasis on implementation of the strategy (Valmohammadi and Roshanzamir 2015).

There are performance management systems that is attaining increased popularity in the multinational organizations is focused on relevant perspectives and characteristics related with suitable implementation of balanced scorecard approach within the organizations (Silvi, Bartolini, Raffoni and Visani 2015). The perspectives of the managers in multinational companies can be observed as attaining increased interest within the management accounting. The balanced scorecard measures that are employed by the multinational organizations are explained below:

• Financial perspectives: The financial perspective or measure deals with the concerns through which the multinational companies can generate economic growth in the shareholder value along with measuring the profitability aspect of the strategy (Silvi, Bartolini, Raffoni and Visani 2015).
• Consumer Perspective: Typical measures related with consumer value include the market share, consumer retention and acquisition along with profitability and satisfaction of consumers. Considering the same consumer perspective explains the value proposal that will have applied by the consumers in addressing their demands that can facilitate in generating more sales to highly desired consumer groups (Upadhaya, Munir and Blount 2014).
• Internal business process perspective: This perspective centres on all the related activities along with the needed major processes of the organization in order to attain success at offering the value anticipated by the consumers both productively and effectively (Upadhaya, Munir and Blount 2014). This perspective includes measures related to procedures of companies for developing and turns out to be popular.
• Learning and growth perspective: The measures related with this perspective is focused on introducing continuous improvement measures related with the product production, processes along with the consumer training (Silvi, Bartolini, Raffoni and Visani 2015). The major focus of such perspectives was laid on investing for the future like the new equipments along with research and development related with employee training. These measures also employ necessary employee skills along with implementing incentive databases for improvement of employee performances as well as organizational profit.

Several challenges are faced by the multinational organizations and the likely recommendations are offered to the companies in order to deal with such issues in implementation of suitable performance management systems (Taylor and Taylor 2014). These challenges along with related recommendations are explained under:

• Vague Strategy: Certain strategies are observed to be of high level along with future looking with aspirations and ideals (Silvi, Bartolini, Raffoni and Visani 2015). Or maintaining an effective business structure there is an increased risk of diluting such capability for transformation is into an efficient balanced scorecard. The best recommendation in dealing with such condition, recommendations are provided to refine and revisit the strategy with the owners along with attaining clarified directions based on the business aspirations. For better performance management the employees must be aware of the statements of the desired multinational organizations along with state of their planning horizon (Upadhaya, Munir and Blount 2014).
• Lack of Common Vocabulary: It is deemed extremely common to have distinct definitions related with strategy aspects all through the multinational companies (Searcy 2016). The significance of the mission, vision, goals, and objectives along with other aspects requires to be communicated to the employees. Such aspects are also to be communicated to all the stakeholders all across the organization. Such recommendations are to be followed by the multinational companies all across the world for the reason that lack of common vocabulary might result in the risk of misalignment that can further get increased all across the company (Ralston, Blackhurst, Cantor and Crum 2015). The best recommendation to deal with such situation is to develop the destinations of such common vocabulary, publish it along with remaining participants regarding the definitions at the starting point of the planning meetings.
• Difficulty in initial implementation: There is an increased tendency to get confused with the technicalities and details related with the balanced scorecard (Rajnoha, Stefko, Merková and Dobrovic 2016). The strategic maps, themes along with cascading to individual level might result in loss of confusion regarding the initial approach. The best recommendation in such scenario is to phase the approach through starting with articulating balanced scorecard all through four perspectives in preparing the strategy map (Singh, Darwish and Poto?nik 2016). This can offer a sense of clarity for action plan that must be interacted all through the organization.
• Cascading to individual level acts as challenge: This challenge is faced regarding the engagement level of the employees within the multinational companies. This entails attaining their agreement along with commitment to set targets. In case that engagement is not attained the BSC in individual level will be nothing other than documentations exercise at the end of a reporting period (Pollanen, Abdel-Maksoud, Elbanna and Mahama 2017). Annoyer challenge is that the behavior will never get changed. The suitable recommendation for this to get involved in developing business scorecard objectives and targets and have them gets participated within setting targets.
• Getting lost in tracking mechanics: The lack of automation in order to record and rolling up leads to implementation that might consider derail the team within the mechanics of recording the targets and actual. This will be computed at the time the team attempts to developed formulas to roll up win an overall result by the department or objectives all through the four perspectives of balanced scorecard (Piotrowicz and Cuthbertson 2015). The best recommendation to deal with such challenges is to interact with the employees belonging to multinational organizations regarding the objectives of balanced scorecard implementation. In such scenario, the objective of these organizations will be to employ the balanced scorecard as a navigation compass for steering the organization that can result in high performing organizations.

Despite of having several useful implications in the performance management within multinational organizations, there are certain limitations of this performance measurement systems approach. This must be taken into consideration by these organizations so that they are able to conduct performance evaluation in consideration to compensation (Keong Choong 2014). The limitations of balance scorecard system are explained under:

• It might be an overwhelming structure it cannot be precisely copied from instances. It needs strong leadership in order to be highly successful. Balance scorecard cannot be implemented efficiently as new leadership is not convinced that this reformate measurement system is a viable option
• Time as well as financial cost investment: Balanced scorecard systems needs a huge investment and the multinational organizations are required to manage its systems in active manner and constantly that comes with financial costs and time (Klovien? and Speziale 2014). Moreover, all the employees need to understand the ways in which such system works which might result in increased training costs.
• Lack of external focus-Balanced scorecard might provide multinational organizations with wide internal focus and does not offer a clear view of overall picture. For such reason, as default the companies consider the consumers but they do not contribute to other major performance indicators that includes changes or competitors within the business environment (Perkins, Grey and Remmers 2014). This might result in putting a great emphasis on improved performance and lack of awareness regarding external factors which can impact the operations of the multinational companies.

Conclusion

The objective of the paper is to analyze the issues associated with the implementation of Strategic Performance Measurement Systems (SPMS) that is balance scorecard in consideration to performance analysis along with compensation within multi-national companies. It was gathered from the paper that the top-down approach is considered as a lengthy process which includes measurement of performance starting from the mission and vision of the company in order to interpret the same into operation as per the BSC’s outlook. Hence, this approach has been mainly associated with the large enterprises as the studies made by Hudson stated the issue of implementing the same on SMEs could be difficult. He mentioned that the identification of the critical success factor and the measuring the key performance of various perspectives happens parallelly. It is also concluded that Balanced scorecard systems needs a huge investment and the multinational organizations are required to manage its systems in active manner and constantly that comes with financial costs and time

Clear Performance Expectations through Balanced Scorecard Performance Measurement Metrics

References

Adams, C., Muir, S. and Hoque, Z., 2014. Measurement of sustainability performance in the public sector. Sustainability Accounting, Management and Policy Journal, 5(1), pp.46-67.

Akbar, R., Pilcher, R.A. and Perrin, B., 2015. Implementing performance measurement systems: Indonesian local government under pressure. Qualitative Research in Accounting & Management, 12(1), pp.3-33.

Garengo, P. and Sharma, M.K., 2014. Performance measurement system contingency factors: a cross analysis of Italian and Indian SMEs. Production Planning & Control, 25(3), pp.220-240.

Guenther, E., Endrikat, J. and Guenther, T.W., 2016. Environmental management control systems: a conceptualization and a review of the empirical evidence. Journal of cleaner production, 136, pp.147-171.

Gutierrez, D.M., Scavarda, L.F., Fiorencio, L. and Martins, R.A., 2015. Evolution of the performance measurement system in the Logistics Department of a broadcasting company: An action research. International Journal of Production Economics, 160, pp.1-12.

Hartnell, C.A., Kinicki, A.J., Lambert, L.S., Fugate, M. and Doyle Corner, P., 2016. Do similarities or differences between CEO leadership and organizational culture have a more positive effect on firm performance? A test of competing predictions. Journal of Applied Psychology, 101(6), p.846.

Johnson, M.P., 2015. Sustainability management and small and medium?sized enterprises: Managers’ awareness and implementation of innovative tools. Corporate Social Responsibility and Environmental Management, 22(5), pp.271-285.

Keong Choong, K., 2014. The fundamentals of performance measurement systems: A systematic approach to theory and a research agenda. International Journal of Productivity and Performance Management, 63(7), pp.879-922.

Klovien?, L. and Speziale, M.T., 2014. Sustainability reporting as a challenge for performance measurement: literature review. Economics and Business, 26, pp.44-53.

Perkins, M., Grey, A. and Remmers, H., 2014. What do we really mean by “Balanced Scorecard”?. International Journal of Productivity and Performance Management, 63(2), pp.148-169.

Piotrowicz, W. and Cuthbertson, R., 2015. Performance measurement and metrics in supply chains: an exploratory study. International Journal of Productivity and Performance Management, 64(8), pp.1068-1091.

Pollanen, R., Abdel-Maksoud, A., Elbanna, S. and Mahama, H., 2017. Relationships between strategic performance measures, strategic decision-making, and organizational performance: empirical evidence from Canadian public organizations. Public Management Review, 19(5), pp.725-746.

Rajnoha, R., Stefko, R., Merková, M. and Dobrovic, J., 2016. Business intelligence as a key information and knowledge tool for strategic business performance management. E+ M Ekonomie a Management, (1), p.183.

Ralston, P.M., Blackhurst, J., Cantor, D.E. and Crum, M.R., 2015. A structure–conduct–performance perspective of how strategic supply chain integration affects firm performance. Journal of Supply Chain Management, 51(2), pp.47-64.

Searcy, C., 2016. Measuring enterprise sustainability. Business Strategy and the Environment, 25(2), pp.120-133.

Silvi, R., Bartolini, M., Raffoni, A. and Visani, F., 2015. The practice of strategic performance measurement systems: Models, drivers and information effectiveness. International Journal of Productivity and Performance Management, 64(2), pp.194-227.

Singh, S., Darwish, T.K. and Poto?nik, K., 2016. Measuring organizational performance: A case for subjective measures. British Journal of Management, 27(1), pp.214-224.

Taylor, A. and Taylor, M., 2014. Factors influencing effective implementation of performance measurement systems in small and medium-sized enterprises and large firms: a perspective from Contingency Theory. International Journal of Production Research, 52(3), pp.847-866.

Upadhaya, B., Munir, R. and Blount, Y., 2014. Association between performance measurement systems and organisational effectiveness. International Journal of Operations & Production Management, 34(7), pp.853-875.

Valmohammadi, C. and Roshanzamir, S., 2015. The guidelines of improvement: Relations among organizational culture, TQM and performance. International Journal of Production Economics, 164, pp.167-178.