Balanced Scorecard - Wells Fargo (BUSI0027D).pdf

8/17/2019 Balanced Scorecard - Wells Fargo (BUSI0027D).pdf

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Managerial Accounting Project 1 BalancedScorecard

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Section 1 – Brief Description of the organization and its

Industry

The company we are looking into in this project is Wells Fargo Bank. Being the

fourth largest bank in the US by assets and the second largest bank by market

capitalization, Wells Fargo & Company is an American multinational

diversified financial services company with operations around the world.

Section 2 – Description of Balanced Scorecard

2.1 - Background Information

The balanced scorecard is a strategic planning and management system that

is used extensively in business and industry, government, and nonprofit

organizations worldwide to align and keep track of the execution of activities by

staff within their control and monitor the consequences arising from these

actions.

As a performance measurement framework that added strategic non-financial

performance measures to traditional financial metrics, Drs. Robert Kaplan

(Harvard Business School) and David Norton proposed the adoption of

balanced scorecard so as to give managers and executives a more 'balanced'

view when evaluating an organization’s operational performance.

2.2 –

Four Perspectives of Balanced Scorecard


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perspective allow the managers to know how well their business is running,

and more importantly, to assess which processes are critical for satisfying

customers and shareholders so that the company has to concentrate its efforts

to excel. For instance, if the company wants to observe an increase in design

efficiency, it can look into the engineering processes of various machineries.

The Learning & Growth Perspective

This perspective addresses the question of how the firm must learn, improve

and innovate to meet its objectives, including focusing efforts on employee

training and corporate cultural attitudes related to both individual and corporate

self-improvement. Other than this, the learning & growth perspective also

includes things like mentors and tutors within the organization, as well as that

ease of communication among workers that allows them to readily get help on

a problem when it is needed.

2.3 – Objectives, Measures, Targets, and Initiatives

Before looking into the four perspectives in Balanced Scorecard, it is indeed

crucial for a firm to define the four supplementary aspects, known as strategic

objectives, measures, targets, initiatives.

For strategic objectives, we refer to what strategy is to achieve in one


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particular perspective.

For measures, we refer to how progress for that particular perspective

objective will be measured.

For targets, we refer to target value sought for each measure.

For initiative, we refer to what will be done to facilitate the reaching of the

target.

2.4 – Case Study: Wells Fargo Bank

Since 1990s, Wells Fargo Bank has adopted Balanced Scorecard reduce

operating cost when serving each customer. We may use the three out of four

perspectives of Balanced Scorecard to see how well it is applied in practice to

evaluate ordinary business operations.

The first dimension is the financial Perspective. Since the objective is to

reduce cost per customer, Wells Fargo Bank thus focuses on measuring and

monitoring cost per transaction, cost per service call, call length, number of

service call.

The second dimension is the customer perspective. Wells Fargo Bank

believes that making traditional sales more convenient is also one of the ways

to effectively reduce cost per customer. So, the bank focuses on monitoring


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the transaction time as well as the percentage of transactions / services

performed online among all transactions and services.

And lastly, it is the Business Process Perspective. In order to effectively the

operating cost of serving customers, Wells Fargo Bank decides to automate

the call centre, and the bank works by measuring percentage of sales that are

automated among all services. Furthermore, the bank keeps monitoring the

number of customer representatives available from time to time to make sure

that their customers are well approached and taken care of in the whole selling

process.

Section 3 – Discussion of Advantages of Balanced Scorecard

By so far as we have discussed, we know that balanced scorecard is a means

of assessing overall business performance. From this, we may generalize four

major advantages of this practice.

1. Balance

Rather than focusing on a specific area of performance---usually

financial---business leaders learn to consider the full spectrum of business

performance. In addition to financial measures, they look at measures of

customer experience, employee development and retention and process


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efficiency. This prevents the problems that may arise when performance in one

area is improved simply by sacrificing another area, which renders the whole

company unsustainable as a result.

2. Employee Focus

By incorporating balanced scorecard, business executives can gain

insights into the employee experience. Evaluating information about employee

satisfaction, such as assessments of the success of employee development

and succession planning efforts is crucial as this will ultimately affect employee

retention which in turn determines business productivity and profitability.

3. “Proactive” rather than “Reactive”

The balanced scorecard methodology helps leaders move from reactive

mode to proactive mode. A balanced scorecard does not only tell various

output or result metrics, but it also provides insight about ongoing performance

and drivers that influence results. So, managers can always be informed of the

performance levels of the operations in a timely manner.

Section 4 – Evaluation of the potential problems in practice

Of course, there are a number of problems that may turn up when

implementing Balanced Scorecard.


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1. High Initial Cost

Implementing a balanced scorecard system (or any new system) can cost a lot

of money in training time and additional dollars for any consultants that are

needed during the process. Add to this, the company may also incur cost of a

cost for the software, plus software license expenses, and testing and

installation of the software. All these costs may pose huge financial burden on

companies.

2. Updates and maintenance

There are many different elements that go into creating a balanced

scorecard. Once the scorecard is created, the nature of your business can

change over time, requiring you to change the scorecard. There are

software programs that can manage the scorecard upkeep, but choosing

the wrong one may affect a company's ability to evaluate employees.

Companies may have to put in the time to create and change the scorecard

from time to time.

3. Poor Linkage

Much often, companies may come across with situations where strategies and

goals are not linked to or say, have little relationship with performance drivers,


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measures, initiatives, and individual goals and incentives. So, the Balanced

Scorecard may fail to keep track of the execution of activities by staff within

their control and monitor the consequences arising from these actions.

Section 5 – Conclusions + Recommendations

To conclude, Balanced Scorecard can be used to determine whether the set

goals have been met by adding non-financial metrics to traditional financial

metrics to give a well-rounded view of the performance in an organization. Still,

there are some several recommendations that companies may adopt to apply

Balanced Scorecard to its fullest extent.

First of all, companies adopting Balanced Scorecard should ensure good

communications among employees so that enables everyone to contribute to

dynamic changes to meet customer requirements.

Management’s commitment is vital to the success in the implementation of

Balanced Scorecard as well. Senior executive should adopt

performance-based management principles with clear cause-effect

relationship so that employees can have a more comprehensive idea on how

business objectives can be achieved by various sets of strategies.


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Appendix

Figure 1 – Four Perspectives of Balanced Scorecard

(http://www.actionablestrategies.com/resources/Balanced+Scorecard.pdf)

http://www.actionablestrategies.com/resources/Balanced+Scorecard.pdfhttp://www.actionablestrategies.com/resources/Balanced+Scorecard.pdfhttp://www.actionablestrategies.com/resources/Balanced+Scorecard.pdf


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Figure 2 – Four Supplementary Aspects – Objectives, Measures, Targets,

Initiatives


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References

1. Actionable Strategies. (2009). The Balanced Scorecard Background

Discussion. Retrieved March 23, 2009, from

http://www.actionablestrategies.com/resources/Balanced+Scorecard.pdf

2. Kaplan R.S. & Norton D.P. (2004).Strategy Maps: Converting intangible

assets into tangible outcomes. Cambridge: Harvard Business School

Press.

3. Makhijani N. (2008). Creating a balanced scorecard for financial services.

The OTI thought Leadership Series, 1(4), 1-12

4. Niven, Paul R. (2006) "Balanced Scorecard. Step-by-step. Maximizing

Performance and Maintaining Results".

5. Norreklit H. (2000), The balance on the balanced scorecard - a critical

analysis ofsome of its assumptions, Management Accounting Research, 11,

pp. 65-88.
http://www.actionablestrategies.com/resources/Balanced+Scorecard.pdfhttp://www.actionablestrategies.com/resources/Balanced+Scorecard.pdfhttp://www.actionablestrategies.com/resources/Balanced+Scorecard.pdf

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