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PERFORMANCE AND COMPETENCY MANAGEMENT

A PROJECT REPORT ON BALANCE SCORE CARD A STRATEGIC

MANAGMENT TOOL AT PHILIPS ELECTRONICS

SUBMITTED TO: SUBMITTED BY:

PROF. SHIKHA MISHRA HARLEEN KAUR (29)

PALLAVI SHARMA(30)

PRIYANKA SINGH (32)


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ABSTRACT

The contemporary competitive environment expects organisations, to acquire new

capabilities for competitive success. The ability of an organisation, to mobilize and exploit itsintangibles has become more decisive than investing in physical, tangible assets. Today's

business environment requires a better understanding, of customers and their needs,

streamlined internal business processes and highly skilled staff.

There has been growing criticism of financial measures in the performance measurement

system (PMS), as they are historic in nature and lack futuristic outlook. The new generation

Performance Measurement System "Balanced Scorecard" (BSC) looks beyond the traditional

financial measurement of performance and examines the organisation's operations from four

perspectives, i.e., financial, customer, internal business processes, and learning and growth

perspectives.

The present study is an attempt to examine the conceptual framework of Balanced Scorecard

and its implementation and experiences at global level and national level. The study

highlights that empirical research supports the effectiveness of the balance score card in

translating strategic objectives into relevant performance measures that derive performance

towards these objectives at Philips Electronics.


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INTRODUCTION

Kaplan and Norton (1992) developed an innovative multi-dimensional corporate performance

scorecard known as the Balanced Scorecard. It provides a framework for selecting multiple

key performance indicators that supplement traditional financial measures with operating

measures of customer satisfaction, internal business processes, and learning and growth

activities. It is a step towards linking short-term operational controls to the long-term

vision and strategy of the business. The focus is on the strategy and vision. It compels the

firm to align its performance measurement and controls with the customers internal business

processes and learning and growth perspectives and investigate their impact on the financial

indicators. The Balanced Scorecard protects the managers from information overload by

limiting the performance measures to only four perspectives, namely, customer, financial,

internal business, and learning and growth. It also safeguards from sub-optimization in the

decision-making process by forcing the managers to consider the four perspectives of

business performance to have a complete picture. The implementation of the Balanced

Scorecard is a process whereby the organizations strategy is translated into a set of key

performance indicators (Kaplan and Norton, 1996a). Slater, Olson and Reddy (1997) argued

that the Balanced Scorecard should be unbalanced based on the strategy followed by the

firm.

The Balanced Scorecard approach to performance management is an attempt to achieve

different kinds of balance between short and long run, between different perspectives of the

scorecard, between measuring change and the present position, and between market image

and internal focus. It is useful for both strategic and operational purposes. To implement it

successfully, it must enjoy widespread support from the company. The history of the

Balanced Scorecard is short with mixed experiences. On the one hand, while it is widely

accepted as a management tool, critics have challenged its basic assumption of cause and

effect relationship and the right choice of measures. In the Indian context, there have been

limited studies on the Balanced Scorecard.

Financial perspective stands for identifying financial objectives of an organisation. It is

always important for BSC as the financial objectives stand for the long-term goals of an

organisation. Customer perspective stands for identifying the customer and market segments

in which they are going to compete, as they are the basic pillars for gaining revenue

components of the company's financial objectives. It mainly focuses on gaining high

customer satisfaction and leveraging customer relationships.


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The balanced scorecard can be described as a carefully selected set of quantifiable measures

derived from an organisation's strategy. The measures selected for the scorecard represent a

tool for managers to use in communicating to employees and external stakeholders the

outcomes and performance drivers by which the organisation will achieve its vision, mission

and strategic objectives. The balanced scorecard tool can be viewed as a:

Measurement System

Strategic Management System

Communication Tool.

The balanced scorecard is management system that enables organisations to clarify their

vision, mission and strategy and to translate them into action. When it is implemented at all

levels of the organisation, it also becomes a tool for communicating and educating a large

number of managers about strategy and its implementation. Kaplan & Norton describe the

innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures tell the

story of past events, an adequate story for industrial age companies for which investments in

long-term capabilities and customer relationships were not critical for success. However,

these financial measures are inadequate for guiding and evaluating the journey that

information age companies must make to create future value through investment in

customers, suppliers, employees, processes, technology and innovation". The balanced

scorecard looks beyond the traditional financial measurement of performance and examines

the organisation's operations from four perspectives; financial, customer, internal business

processes, and learning and growth perspectives.

Financial perspective stands for identifying financial objectives of an organisation. It is

always important for BSC as the financial objectives stand for the long-term goals of an

organisation.

Customer perspective stands for identifying the customer and market segments in which they

are going to compete, as they are the basic pillars for gaining revenue components of thecompany's financial objectives. It mainly focuses on gaining high customer satisfaction and

leveraging customer relationships.

Internal process perspective stands for identifying key business processes by which an

organization has to excel to meet the objectives of customers and shareholders. Learning and

innovation perspective stands for identifying ambitious objectives in the other three

perspectives to be achieved. It highlights the ability to change and brings improvements for

achieving sustainable business goals.


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The ModelAn Explanation

Hence, from the aforesaid model, it is clear that the following are to be done so as to utilize

the BSC as a strategic management tool:

1. The major objectives are to be set for each of the perspectives.2. Measures of performance are required to be identified under each of the objectives

which would help the organization to realize the goals set under each of the

perspectives. These would act as parameters to measure the progress towards the

objectives.

3. The next important step is the setting of specific targets around each of the identifiedkey areas which would act as a benchmark for performance appraisal. Hence, a

performance measurement system is build around these critical factors. Any deviation

in attaining the results should raise a red signal to the management which would

investigate the reasons for the deviation and rectify the same.

4. The appropriate strategies and the action plans that are to be taken in the variousactivities should be decided so that it is clear as to how the organization has decided

to pursue the pre-decided goals. Because of this reason, the BSC is often referred to as

a blueprint of the company strategies.

Hence, the above paragraphs show that all the four areas have been given equal importance in

measuring performance level. The measures and the objectives, however, depend upon the

type of business the organization is in. the financial indicators are complemented by the non-

financial ones. Since, objectives and goals are set for each of the critical success factors under

each of the heads; it brings about a focus on the strategic vision.

Thus, all activities would be directed towards achievement of the long term goals which have

been set by the top management. The identification of the KRAs helps an organization inn

moving towards the right strategic direction. This tool creates a link between objectives,

measures, measures, targets and initiatives. It is , therefore, absolutely clear that the BSC acts

as a focal point for the organizations efforts, designing and communicating priorities to the

managers, employees, investors and the customers.


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Major Perspectives of a BSC: Cause and Effect Relationship

The aim of the BSC is to direct, help manage and change in support of the longer term

strategy in order to manage performance. The scorecard reflects what the company and the

strategies are all about. It acts as a catalyst for bringing in the change element within the

organization. This tool is a comprehensive framework which considers the following

perspectives and tries to get answers to the following questions

i. Financial PerspectiveHow do we look at shareholders?ii. Customer Perspective- How should we appear to our customers?

iii. Internal Business processes PerspectiveWhat must we excel at?iv. Learning and Growth PerspectiveCan we continue to improve and create value?

i. The Financial PerspectiveKaplan and Norton do not disregard the traditional need for financial data. Timely and

accurate funding data will always be a priority, and managers will do whatever necessary to

provide it. In fact, often there is more than enough handling and processing of financial data.

With the implementation of a corporate database, it is hoped that more of the processing can

be centralized and automated. But the point is that the current emphasis on financials leads to

the unbalanced situation with regard to other perspectives. There is perhaps a need to include

additional financial related data, such as risk assessment and cost benefit data, in this

category.

ii. The Customer PerspectiveRecent management philosophy has shown an increasing realization of the importance of

customer focus and customer satisfaction in any business. These are leading indicators; if

customers are not satisfied, they will eventually find other suppliers that will meet their

needs. Poor performance from this perspective is thus a leading indicator of future decline,

even though the current financial picture may look good. In developing metrics for

satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of

processes for which we are providing a product or service to those customer groups.


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iii. The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allowthe managers to know how well their business is running, and whether its products and

services conform to customer requirements (the mission). These metrics have to be carefully

designed by those who know these processes most intimately; with our unique missions these

are not something that can be developed by outside consultants. In addition to the strategic

management process, two kinds of business processes may be identified:

Mission-oriented processes, and Support processes. Mission oriented processes are the

special functions of government offices, and many unique problems are encountered in these

processes. The support processes are more repetitive in nature and hence easier to measure

and benchmark using generic metrics.

iv. The Learning & Growth PerspectiveThis perspective includes employee training and corporate cultural attitudes related to both

individual and corporate self improvement. In a knowledge worker organization, people theonly repository of knowledge are the main resource. In the current climate of rapid

technological change, it is becoming necessary for knowledge workers to be in a continuous

learning mode. Government agencies often find themselves unable to hire new technical

workers, and at the same time there is a decline in training of existing employees. This is a

leading indicator of brain drain that must be reversed. Metrics can be put into place to guide

managers in focusing training funds where they can help the most. In any case, learning and

growth constitute the essential foundation for success of any knowledge-worker organization.

Kaplan and Norton emphasize that learning is more than training; it 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. It also includes

technological tools.


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OBJECTIVES OF THE STUDY

The objectives of the present study are to:

Identify the extent of usage of the Balance Scorecard by Phillips Electronics. Explore whether Phillips Electronics use all the four perspectives in Kalpan and

Nortons (1992) framework.

Capture the management motivations for implementation of the Balanced Scorecard. Identify the key performance indicators in different perspectives of Balance

Scorecard.

Evaluate the performance of Balance Scorecard as a management tool.


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RESEARCH METHODOLGY

STUDY AREA

The study was Philips Electronics

DATA COLLECTION METHOD

Secondary method of data collection has been used.


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LITERATURE REVIEW

BALANCE SCORE CARD IN INDIAN COMPANIES, MANOJ ANAND & BS

SAHAY (APRIL-JUNE 2005): This research paper talks about Silk (1998) found that 60per cent of the Fortune 1000 companies in the USA have had experience with the Balanced

Scorecard. Chenhall and Smith (1998) in their survey found 88 per cent adoption rate of the

Balanced

Scorecard in the Australian firms (n = 69) and observed moderate benefits from its use. In his

survey of 128 senior executives (response rate of 22.5%) of Finnish companies, Malmi(2000)

found that the Balanced Scorecard is extremely popular. It is being used in two different

waysone close to MBO and the other as a management information system. Olve, Roy and

Wetter (1999) presented the cases of ABB, Halifax, Skandia, Electrolux, British Airways,

Coca- Cola Beverages - Sweden, and SKF that used the Balanced Scorecard or any other

model similar to performance scorecard to illustrate the process of its introduction in an

organization. Most of these cases have begun with Scorecard in communicating with their

employees on the goals and mission of the company and, in turn, influencing this behaviour

and performance. The critics of the Balanced Scorecard approach argue that it is difficult to

achieve balance between the financial and non-financial measures and that the firms do not

adhere to this balancing act because of implementation problems.

The Balanced Scorecard approach to performance management is an attempt to achieve

different kinds of balance between short and long run, between different perspectives of the

scorecard, between measuring change and the present position, and between market image

and internal focus. It is useful for both strategic and operational purposes. To implement it

successfully, it must enjoy widespread support from the company. The history of the

Balanced Scorecard is short with mixed experiences. On the one hand, while it is widely

accepted as a management tool, critics have challenged its basic assumption of cause and

effect relationship and the right choice of measures. In the Indian context, there have been

limited studies on the Balanced Scorecard.


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USING BALANCE SCORE CARD AS A STRATEGIC MANAGEMENT SYSTEM,

ROBERT S .KAPLAN AND DAVID P. NORTON (JULY AUGUST ): The Balanced

Scorecard approach to performance management is an attempt to achieve different kinds of

balance between short and long run, between different perspectives of the scorecard, between

measuring change and the present position, and between market image and internal focus. It

is useful for both strategic and operational purposes. To implement it successfully, it must

enjoy widespread support from the company. The history of the Balanced Scorecard is short

with mixed experiences. On the one hand, while it is widely accepted as a management tool,

critics have challenged its basic assumption of cause and effect relationship and the right

choice of measures. In the Indian context, there have been limited studies on the Balanced

Scorecard.


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BALANCE SCORECARD AT PHILIPS ELECTONICS

FOR MANAGERIAL LEVEL

Following are the steps taken at Philips to implement the balance scorecard:

STEP ONE: of scorecard building process starts with an assessment of the organizations

mission and vision, challenges, enablers, and values.

PHILIPS VISION:Building on the success of our Vision 2010 strategy, our Vision 2015 strategic plan focuses

on growth and strengthening leadership in health and well-being. Our aim is to be a global

leader in health and well-being, becoming the preferred brand in the majority of our chosen

markets. We will achieve it by fuelling growth and bolstering our competitive position in key

markets, benefitting all the companys stakeholders in a sustainable way.
http://www.philips.com/sites/philipsglobal/about/company/missionandvisionvaluesandstrategy/vision2015.pagehttp://www.philips.com/sites/philipsglobal/about/company/missionandvisionvaluesandstrategy/vision2015.page


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PHILIPS MISSION:

"Improve the quality of peoples lives through the timely introduction of meaningful

innovations." This was Philips aim when the company was first founded in 1891, and it

remains true today. Throughout the generations, Philips has reinvented itself many times, but

its core promise remains intact.

STEP TWO: elements of the organizations strategy, including strategic results, strategic

themes, and Perspectives, are developed to focus attention on customer needs and the

organizations value proposition.

STRATEGY OF PHILIPS

The company follows differentiation strategy through innovation and creativity.

STEP 3: the strategic elements developed in Steps One and Two are decomposed into

strategic objectives, which are the basic building blocks of strategy and define organizations

strategic intent.

PHILIPS OBJECTIVES

Implement Accelerate! transformation Strengthen performance management and execution Address cost base, margin management and working capital Deliver on EcoVision sustainability commitments


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STEP FOUR: Performance Measures are developed for each of the enterprise wide strategic

objectives. Leading and lagging measures are identified, expected targets and thresholds are

established, and baseline and benchmarking data is developed.

PHILIPSS KEY PERFORMANCE AREAS

MANAGERENGINEERING

Job Title (Position) Manager

Department\Function Engineering

Reporting Manager (Title) General Manger- Engineering

Job Purpose To achieve the goal of unit by providing uninterrupted

and quality output of utility services. Maintain good

engineering practices for un-interrupted services.

Key Result Areas

1. Asset care of Utility Engineering.

2. Daily monitoring of Utilities and recording of their

consumption trend.

3. Preparation of MIS for Utility Engineering.

4. Preparation, Implementation, & Compliance of

Maintenance Schedules.

5. Inventory Management.

6. Implementation of New projects, any modification/alteration in utilities.

7. Identification & Implementation of System, Process

improvement initiatives.

8. Audit Compliances and readiness for Regulatory

inspection.

9. To conduct training sessions for colleagues, operators.

10. Coordination with Production regarding any issue

related with utilities.

11. Compliance to Safety at workplace.

12. To identify the area and implementation of Energyconservation projects.


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MANAGERQA

Job Title (Position) Manager

Department\Function Quality Assurance

Reporting Manager (Title) General Manger- Quality Assurance

Job Purpose To ensure cGMP (Current Good ManufacturingPractices). To ensure quality of finished product

manufactured and cost to release batches for distribution.

To evaluate and analyse the key performance indicators

of QMS( CAPA, changes, deviations etc)

Key Performance Areas 1. To ensure compliance to laid down standards of the

current Good Manufacturing Practices.

2. To ensure effective implementation of Quality

Management System.

3. To ensure effective working of In-process QualityAssurance activities.

4. To Review and approve SOPs, Specifications, Test

procedures. Plans/ Schedules & Calendars related to

different QMS activities.

5. To carry out self inspection and to propose corrective

and preventive actions for non- conformance found in

self- inspection.

6. To ensure Annual Product Review, infer and monitorthe corrective plans.

7. To ensure investigation of the market complaints,

propose corrective-preventive measures and respond to

the complainant accordingly.

8. To review the completed batch documents and release

the finished product.

9. To review & submit documents for regulatory filing

and their compliance.

Philips Electronics is a large multinational company which has used the balance scorecard to

streamline its complex process and structure. Through the balance scorecard the company

aimed at aligning its vision at all levels making employees aware of its strategy and vision

and educating them about the outcome drivers of the business success. It communicates the

role and relationship of the driver of success with vision and strategy.

Philips identified the following four critical success factors:


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Competenceknowledge, technology, leadership and team workKPIs: Organizational development and IT support

Processesdrivers for performanceKPIs: Operational excellence

Customersvalue propositionsKPIs: Customer delight and employee satisfaction

Financialvalue and growthKPIs: Profitable revenue growth


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.

The top level scorecard criteria were determined first in order to drive the lower level

scorecard criteria. The relationship between customer satisfaction and product sales was

converted into CSFs to measure performance. In order to do that, the financial CSFs and

customer CSFs were identified first, and then was followed by the process CSFs.

Secondly, a performance management system was set up to measure progress against the

corporate vision and strategy. This system created link between short-term actions with long-

term strategy that can make employees understand their day to day activities and thence

achieve the company's strategic targets.

There are three-tier balanced scorecards at Phillips, consist of strategic review card, operation

review card, and employee card review card

As a result, Phillips has realised significant benefit from implementing a worldwide scorecard

system. Balanced scorecard has taken management team through a process, with creating

awareness about the business environment, competitor behaviour, the market, technology and

product road maps. Hence, Management has used the scorecard to communicate strategy andalign employees with strategy at all level of the organization. Employees have embraced and

use the scorecard to share success practise as well as to improve their performance.

Significantly, at Phillips, balanced scorecard has been used as a useful instrument to evaluate

actual performance against the targets and to link individual reward and company-wide

performance.


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CRITICAL ANALYSIS OF BALANCED SCORECARD

Advantages of BSC

1) The Balanced Scorecard tool is being used by several organizations throughout theworld because of certain advantages it has been able to deliver as below:

2) It translates vision and strategy into action3) It defines the strategic linkages to integrate performance across organizations4) It communicates the objectives and measures to a business unit5) It aligns the strategic initiatives in order to attain the long term goals6) It aligns everyone within an organization so that all employees understand how they

support the strategy

7) It provides a basis for compensation for performance8) The scorecard provides a feedback to the senior management if the strategy is

working

9) Focusing the whole organization on the few key things needed to createbreakthrough performance.

10) Helps to integrate various corporate programs such as: quality, reengineering, andcustomer service initiatives.

11) Breaking down strategic measures towards lower levels, so that unit managers,operators, and employees can see whats required at their level to achieve excellent

overall performance.

Disadvantages of Balanced Scorecard

1) It is not easy to implement this tool because it involves a lot of subjectivity.2) The tool is much more complex compared to the other tools.3) The measures that need to be taken are contingent upon the kind of environment,

industry and the business the organization is in.

4) A lot of refinement is still required to be done so that it becomes understandable toevery stakeholder associated with the organization.


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LEARNINGS

The scorecard system includes a strategy map, to show how value is created formembers (customers), strategic objectives to describe what needs to be accomplished to

produce value.

What performance measures will be used to measure progress against targets, and whatstrategic initiatives have been identified to make strategy actionable and operational.

Developing a balanced scorecard is a journey, not a project. The real value of a scorecardsystem comes from the continuous self-inquiry and in-depth process of discovery and

analysis that is at the heart of the process.

Companies are using balance scorecard to: Clarify and update strategy Communicate strategy throughout the company Align unit and individual goals with the strategy Link the strategic objectives to long term targets Conduct periodic performance reviews To learn about and improve strategy


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REFERENCES

zUsing the balance score card as a strategic management system By Robert S. Kaplan and

David P. Norton 2007 Harvard Business Review.

Using the Balanced Scorecard to Align Your Organization By Howard Rohm President and

CEO, the Balanced Scorecard Institute. January 2008

Balanced Scorecard Implementations Global and Indian Experiences By Manjit Singh and

Sanjeev Kumar 2007.

Kaplan, R.; and Nortan, D. (1993), "Putting the Balanced Scorecard to Work", Harvard

Business Review, SeptemberOctober.

Gumbus, A; and Lyons, B. (2002), "The Balanced Scorecard at Philips Electronics", Strategic

Finance, November issue.

www.balancedscorecard.org
http://www.balanced/http://www.balanced/http://www.balanced/

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