Question

Explain how, if at all, do you think management and employees can benefit from using balanced scorecards. Do you think compensation should be linked to balanced scorecards? What problems do you think the company might encounter in trying to implement a balanced scorecard?

- Embed at least one scholarly peer-reviewed reference to support your answer.

- Use APA style academic writing and menntion the resources.

Answer 1

Solution:-

A. Do you think management and employees can benefit from using balanced scorecards:-

Benefit to management:-

1. Better Strategic Planning

The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualised in a Strategy Map which helps managers to think about cause-and-effect relationships between the different strategic objectives. The process of creating a Strategy Map ensures that consensus is reached over a set of interrelated strategic objectives. It means that performance outcomes as well as key enablers or drivers of future performance are identified to create a complete picture of the strategy.

2. Better Management Information

The Balanced Scorecard approach helps organisations design key performance indicators for their various strategic objectives. This ensures that companies are measuring what actually matters. Research shows that companies with a BSC approach tend to report higher quality management information and better decision-making.

3. Improved Performance Reporting

The Balanced Scorecard can be used to guide the design of performance reports and dashboards. This ensures that the management reporting focuses on the most important strategic issues and helps companies monitor the execution of their plan.

4.   Better Process Alignment

Well implemented Balanced Scorecards also help to align organisational processes such as budgeting, risk management and analytics with the strategic priorities. This will help to create a truly strategy focused organisation.

Benefit to employees:-

1. It makes it easy to communicate your strategy:-

A strategy map is designed to clearly communicate a strategic plan. It is a clean, simple visual aid used to align every department or division for the purpose of achieving high-level business goals. When implemented correctly, it:

• Gives employees clear goals to keep in mind while working on measures.
• Helps employees identify key goals.
• Allows employees to better understand the strategic elements that need work.
• Enables employees to see how objectives affect one another.

2. It helps your employees see how their individual goals link to the organizational strategy:-

Using The Strategy-Focused Organization framework, the BSC allows individuals to align their goals across the organization. For example, an employee setting regular performance goals for an annual personal review can link their goals to those of their division or department (and from the division up through the entire organization). Thus, the BSC allows all of your employees to connect what they’re doing to the betterment of the team and the company as a whole.

B. Do you think compensation should be linked to balanced scorecards:-

At Reviewsnap, we’ve seen firsthand the benefits delivered by a pay-for-performance structure that closely ties compensation to the performance review process. However, this isn’t the right approach for every employer or every company culture.

Like most human capital challenges, tying compensation to performance reviews has its share of pros and cons. Here are a few of the most critical:

The Pros:

1.     It takes the “mystery” out of pay increases.—Employees often complain that raises and reviews are based on intangibles (how well their manager likes them, office politics, etc.) and not applied consistently. By tying reviews to compensation, performance clearly becomes the determining factor in compensation. The stronger the performance, the better the raise. But this approach demands that managers measure performance as accurately and objectively as possible, basing their reviews on concrete performance metrics and pre-communicated goals. If they don’t, it undermines the entire intent of pay for performance.

2.     It attracts top talent.—Research continues to show that top performers still cite pay as a main motivator. As Kerry Chou, Senior Practice Leader of Compensation at WorldatWork, noted during the company’s Total Rewards 2013 Conference and Exhibition, a recent WorldatWork survey revealed that better pay is the number one reason key people leave one employer for another.

3.     It can make administration easier.—With performance reviews tied directly to compensation, many employers find it improves the efficiency of integrating pay increase information into their payroll systems and generating follow-on reports. When compensation isn’t tied to the review process, HR or payroll staff members often have to take special steps to manually enter increases into the payroll system.

The Cons:

1.     Objective reviews aren’t easy to provide.—In order for pay for performance to work effectively, employees must be “rated” in some way but the rating must be objective and evenly applied. This simply doesn’t work for all company cultures. For these companies, pay for performance can actually be counter-productive and introduce an air of unhealthy competition among employees who need to collaborate. In short, if the review process is perceived to be unfair, highly valued qualities such as trust, cooperation and teamwork can go right out the window.

2.     If the process isn’t clear, it can be confusing to employees.—Under pay for performance, a manager needs to be crystal clear in communicating precisely what is driving compensation. Is it goals, for example, or competencies? Let’s say a company’s review process is based primarily on competencies but this isn’t clearly understood by an employee. She works hard all year to achieve specific performance goals and exceed targets. When she receives a lower-than-expected raise (because her communication with key team members has been consistently poor, for instance), it’s no wonder that she’ll go away disappointed, demotivated and confused. Bottom line, employees need to know how exactly they’ll be judged and what will drive their dollars.

3.     Compensation can overshadow the importance of reviews.—When a salary discussion comes on the heels of a performance review, it can be difficult for the employee to focus on the feedback he’s been given. Helpful critiques (both positive and negative) and guidance are eclipsed by the amount or lack of pay increase. Some employers overcome this by separating the review and the compensation discussion by several months. Others hold compensation discussions just once annually, while they hold several performance reviews throughout the year. If multiple performance reviews are held, employees must understand that compensation changes are based on the entireyear’s worth of reviews—not just the most recent one.

At the end of the day, each employer must decide the compensation and performance review strategies that best fit its culture. Whatever your final choices are, remember they’ll form how your employees feel about working for you—and how dedicated they’ll be to giving you their best efforts day after day.

C. What problems do you think the company might encounter in trying to implement a balanced scorecard:-

Top 5 problems in implementing balanced scorecard in company:-

1. Vague Strategy: Some strategies tend to be high-level, future looking with ideals and aspirations. While valid to fuel the soul of the organization, they run the risk of diluting the ability for translation into an effective Balanced Scorecard. The best remedy for these situations is to revisit and refine the strategy with the owners and get clearer direction on the aspirations of the business. Some of the key components required for an effective translation include financial targets over the medium and long-terms, markets and customer segments, aspirations for brand perception, and customer value. These should be statements of the desired organization’s end state for the planning horizon (5 or 10 years).
2. Absence of a Common Vocabulary: It’s common to have different definitions for strategy elements across the organization. The meaning of Vision, Mission, Objectives, Goals, Tactics, Initiatives, and other elements has to be communicated and agreed upon by stakeholders across the enterprise. Without the common vocabulary the risks of misalignment across the enterprise are amplified. The best remedy for this situation is to create the definitions of this common vocabulary, publish it, and remind participants of those definitions at the start of planning meetings.
3. Complicating the initial implementation: There is a high tendency to get lost in the details and technicalities of the Balanced Scorecard. The Strategic themes, Strategy Maps, and Cascading to individual level could cause a lot of confusion around the initial approach. The best remedy is to phase the approach by starting with articulating the BSC across the four perspectives by developing the Strategy Map (Objectives with cause and effect relationships). This provides a sense of clarity for the action plan and can be communicated across the organization. Later phases can introduce more sophistication with Themes and cascading down to the organization.
4. Cascading to individual level is a challenge: Cascading to Individual level requires engaging the hearts and minds of your workforce. This entails getting their agreement and commitment to set targets. If that engagement is not achieved the Individual Level BSC becomes nothing more than a documentations exercise at the end of each reporting period. The behavior of your workforce will not change. The best remedy for this is to engage the team in formulating the Balanced Scorecard (objectives & targets) and have them participate in setting targets.
5. Getting lost in the mechanics of tracking: The absence of automation to record and roll-up results early in the implementation can severely derail your team into the mechanics of recording actuals vs. targets. This will be compounded when the team tries to build sophisticated formulas to roll-up to an overall result by objective or department across the four perspectives. The best remedy for this is to remind your team during the initial implementation that the spirit is to use the Balanced Scorecard as a navigation compass to steer the ship and not to get 100% accurate and weighted results.