Discuss About The Comparing Scorecard Traditional Performance.
The procedure of recognizing, determining, examining, understanding and communicating information for achieving goals of the organization is known as Management accounting (Arora, 2012). This accounting branch is also called as cost accounting. The major difference between financial accounting and managerial accounting is that information is focused towards supporting administrators in the organization in making decisions, whereas financial accounting is focused towards offering information to the partied outside the boundary of the organization (Adler, 2013). This report is focused towards providing the information of one of the information measurement system i.e. Balanced Scorecard which will be applied in the McDonald’s to identify whether it will be beneficial for the company or not. To do so report will talk about balanced scorecard and its features. The overview of McDonald’s will be given to know more about the company. Further, discussion of the difference between balanced scorecard and traditional performance measurement system will be conducted and in the end, whether balanced scorecard system is suitable for McDonald’s or not will be discussed.
McDonald’s is a fast food company of Australia which was established in 1940 by Maurice and Richard McDonald in California, United States. They started the business as a hamburger stand (McDonald’s, 2018). The first time the franchise of McDonald’s was in 1953 utilized by Golden Arches logo in Phoenix, Arizona. Ray Kroc who is a famous businessman joined the company in 1955, as an agent of the franchise and continued to buy the chain from the McDonald’s brother. The original headquarter of McDonald’s is in Illinois, however, transferred the worldwide headquarter to Chicago in 2018.
McDonald’s is said to be the largest chain of the restaurant by revenue in the world, by serving approx. 69 million consumers daily in about 100 countries with around 36,900 outlets as of 2016 (McDonald’s, 2015). Though McDonald’s is famous for its hamburgers, they also sell cheeseburgers, French fries, soft drinks, chicken products, desserts, breakfast items, wraps, and milkshakes. In order to deal with the changing taste of the customers and an adverse reaction due to the unhealthy food, the company has added more items in its menu i.e. fish, fruit, salads, and smoothies. The revenue of the McDonald’s Corporation is earned from royalties, franchising fees, and rent, along with sales in the restaurants of the company. As per the report of BCC of 2012, McDonald’s is the second-biggest private employer in the world after Wal-Mart of 1.9 million employees, and from this 1.5 work for the franchises (Myers, 2018).
In 1963, the McDonald’s public face was created with the establishment of a clown called Ronald McDonald, although the dual arch “m” which is the symbol in 1962 became the McDonald’s most lasting logo, long-lasting for lengthier than the big yellow arches that had once ruled the previous restaurant rooftops. The products and symbols of the company define the brand comprising The Egg McMuffin, Chicken Nuggets, Happy Meals, and the Big Mac. The restaurant chain sustained to grow internationally and domestically, spreading business in Canada in the year 1967, which resulted in touching the total of 10,000 restaurants in 1988 and functioning around 35,000 outlets in approx. 100 countries in the starting of the 21st century. In the 1990s, the evolution was so rapid that people started saying that in every five hours a new McDonald’s outlet is opened somewhere in the world. It efficiently became the famous restaurant for family, highlighting reasonable food, flavors, and fun that seemed to adults and children alike (McDonald’s, 2012).
A performance metric utilizes in strategic management to recognize and enhance different internal functions of the company and their resulting external consequences are known as Balanced Scorecard (Rohm, 2017). It is utilized to evaluate and offer feedback to the companies. Data collection is vital to provide quantitative outcomes, because the information which is collected is understood by the executives and managers, and used to take improved decisions for the company or organization (Johnson, 2018).
The Balanced Scorecard was established by Dr. Dravid Norton who is a theorist and by Dr. Robert Kaplan who is an accounting academic. This system is utilized to strengthen good behaviors in the company by dividing four distinct areas that should be examined. These four areas are also said as a leg of this system and involve business processes, learning and growth, finance, and customers. The balanced scorecard is utilized to achieve goals, capacities, creativities and objectives that result from four key business functions. Business can easily recognize factors hampering the performance of the company and plan strategic variations tracked by future scorecards. It can also be used to execute strategy mapping to look where the value is added to the company (Niven, 2010).
Information is gathered and evaluated from 4 business aspects. First is learning and growth they are evaluated by the examination of knowledge and training resources. This leg maintains how well data or information is taken and how efficiently staff members use the information to make it a competitive advantage in the industry.
Second is a business process it is analyzed through examination of how well goods are produced (50MINUTES, 2015). The operational administration is examined to identify any delays, gaps, blockages, scarcities or waste.
Third are customer perspectives these are gathered to measure the satisfaction of the customers with prices, availability, and quality of products or services. Consumers provide their feedback about whether their needs are fulfilled or not with the present products or services (Pramudita, 2016).
Fourth, financial data like expenditures, income, and sales are utilized to known the financial performance of the company. These metrics can comprise amounts in the dollar, budget variances, financial ratios, or income targets. These four legs include the strategy and vision of the company and need active management to examine the gathered data. Thus, the balanced scorecard is mostly said as a tool of management, and not as a measurement tool (Giannopoulos and Holt, 2013).
Financial Evaluation – Financial evaluation is one of the traditional features of the balanced scorecard. No single management employees will be concerned about balanced scorecard if it does not involve this feature as it conducts with the profits, which are important for the goals of making shareholder value. If possible, this feature must be considered equal same as other features, however, other features are given more importance from this. This feature comprises measures like return on assets, profit margins, and return on equity.
Measuring perspective of customers – Measuring perception of the customer’s permits to understand the organization as it exists due to the customers and for the customers, without whom the company cannot survive. It is a not as much of an upfront feature as compared to financial evaluation as it does not possess the similar static performance pointers. Perception of the customers about a company is normally examined by surveys that confront customers whether they life company or not and whether they can link the company with value or not.
Classifying Internal Business Processes – To flourish, a company should know its main competencies. A balanced scorecard recognizes internal processes of the business. This comprises understanding which procedures are very important for an organization to get success and assessing how the firm performs. The goal of this feature is to evaluate the competence of the important operations of the company. Instances of processes comprise distribution, manufacturing, and marketing.
Learning and growth – Businesses should regularly growth or the risk becoming obsolete. Hence, learning and growth are involved in a balanced scorecard. This measures how a company is capable to create new processes and knowledge and how it is capable to interpret this into development and growth of the company (Clark, 2017).
Clarify the image of the company – Effective balanced scorecard help in defining the effect and cause clearly about different objectives to the employees and stakeholder. The explanation of the objective of the company and its target must be clearly explained to decrease the chances of conflicts in the future.
Flexibility – A balanced scorecard must be very flexible. It should not create rigid boundaries around the strategic objectives. In place of this, it permits the management to do required changes whenever possible (Biazzo and Garengo, 2012).
|
Perspectives |
Objectives |
Measures |
|
Financial Perspective |
Market survival Growth in Revenue Enhance structure of cost |
Cash Flow Sales Volume Actual Cost |
|
Customer Perspective |
Effective service to the customer Enhance the quality of the product Environment-Friendly |
Satisfaction of customer Increase in the number of customers Use of Plastic products |
|
Learning and Growth |
Enhance corporate culture Competencies Technology leadership |
Enable communication at every level Strategic Competencies Time to introduce next generation |
|
Internal Process Perspective |
Create exclusive products Reduction in employee turnover Enhancing brand image |
Industry leadership Survey of employee satisfaction Brand Recognition |
The traditional system of performance measurement trails only the company’s financial performance in terms of profit earned from vending to the capital required. The emphasis is solely on the financial measures depending on the reports of internal accounting like cash flows, return on assets, profitability, revenue, earnings per share, economic value added, etc. These measures are said to be the lag indicators as they reflect the ancient data and signify historical performance (Agarwal, 2018). Although these metrics of quantitative performance can regulate and enhance the organization’s internal performance, they can result in improper decision making in future. Whereas, balanced scorecard is a system of performance measurement that helps in overcoming the weaknesses of traditional system of performance measurement. It has more metrics of strategic non-financial performance as compared to traditional financial metrics, therefore, offering a stable or balanced view of the performance of the organization (Gia, 2009). Balanced scorecard highlights changes in the current competitive environment by considering the intangible assets that are now a key source of competitive advantage (Schmeisser and Clausen, 2011).
The traditional system of performance measurement fundamentally dependent on the financial metrics can inspire executives to take decisions that sacrifice long-term value formation for the advantage of short-term performance. For instance, cost reduction can upsurge profit in short-term, however simply at the loss of quality expense, customer base loss or loss of expertise which all have long-run influences (Pourmoradi and Niknafs, 2016). On the other hand, the balanced scorecard is an integrated system of strategic management that supports activities of the business to the organization strategy by involving measurement of performance with the strategic objectives of the company. It offers a framework to interpret the strategy of the organization into precise assessable objectives of the performance that can be measured (Yilmaz, 2013).
The financial performance is dependent on the historical data was adequate for the purpose of decision making. But, the modern environment of business has shifted from bulk production dependent industrial time to knowledge-based time period. This change has brought a transformation from depending only on measuring tangible assets in the direction of valuing of intangible assets like human capital, customer relationship, and intellectual capital, etc. Therefore, in present competitive environment, single dependence on the financial measure is unsuitable because this measure does not evaluate intangible assets, does not highlight the competitive rivalry issues. Besides this, traditional performance measures are not related to the strategy of the organization. Strategies are linked with the organization’s long-run goals, the organization’s activity scope, the matching and allocation of organizational activities to its resources ability and needs of the business, and consideration of the stakeholders of the organization expectations and values. In another side, the objectives of the performance are evaluated by using the four perspectives which are interconnected, i.e., the financial perspective, learning and growth perspective, customer perspective, and business processes perspective.
Traditional performances systems concentrate on the short-run financial performance, ensuing in sever between the long-run strategy of the company and short-run actions. Organizations should evaluate performance in those methods that not just only imitate past optimistic performance, but also inspire positive results of the future. Present, the environment of business is considered by strong competitive rivalry and as an outcome businesses need to be adaptive and flexible in order to gain and tolerate a competitive advantage. The organization should outshine in other serious areas like service or product quality, customer relationships, organizational flexibility, relationships with employees, relationships with suppliers, knowledge of technology and processes, and innovation to continue in the present competitive environment.
The Balanced scorecard measures the performance of the company from its four legs or perspectives when metrics of performance are designed, analyzed and gathered relative to every four perspectives. The evaluation of four perspectives has an inter-dependent relationship among them. The perspective of learning and growth results in supplying high-quality internal processes of business as employees will have grown correct competencies (Striteska and Spickova, 2012). With effective internal processes of business law, the company will be capable to fulfill the needs of the customers and will increase customer loyalty and market share for prospect business. The higher satisfaction of the customer can result in enhancing the financial performance of the company. This reflects that the purpose in the four perspectives is linked. Hence, if a company can outshine in every perspective of the balanced scorecard, the company will have an improved long-run financial success.
Hence, it can be said that traditional performance measurement system which mainly concentrates on the measures of financial performance are not suitable in this changing environment. Whereas, balanced scorecard evaluates the performance of the company by balancing between non-financial and financial measures. Progress is evaluated with traditional financial measures, like loss and profit, with current non-financial measures like employee’s retention, customer satisfaction, intellectual capital, market share, and brand equity (Suvarna, 2012).
McDonald’s can introduce a balanced scorecard in order to support all its activities of the company. This framework of performance management will add measures of non-financial to traditional financial metrics and will provide leaders of the company a stable view of how things are going. By following non-financial measures, McDonald’s can confirm about evaluating relationships with customers, employees, and suppliers and its capability to preserve a sustainable business. Some of the points that will highlight the suitability of balanced scorecard for McDonald’s are:
Simplifies Strategic Goals – A balanced scorecard will support McDonald’s in creating strategies for the organization by determining the priorities of the company. Program operations, service delivery, and reporting production metrics support company in measuring how positively company is performing and areas that need to be considered for changes, depending on the mission and vision of the company. For instance, the satisfaction of the customer is the priority.
Communicates Vision and Mission – A balanced scorecard supports managers to communicate the same vision and mission in the company, at all the level. Prioritization and decision making became simpler because the balanced scorecard introduces standards for the application programs. For instance, if internal processes of business take longer time, then process improvement initiatives might take priority over another task, like need employees to finish the courses of training on enhancing presentations skills.
Refines Metrics and Measures – If McDonald’s will review balanced scorecard as a part of the process of strategic management may disclose what company is tracking the wrong things to truly direct the future plans of the company. For instance, if the reports of balanced scorecard will include just the training hours completed by the employees that might not show how much employees are ready to shift into roles of leadership.
Enables Performance Analysis – Performing correct things at the correct time with the correct people takes skills and experience. Creating a balanced scorecard support in guiding company in how employees are implementing their current plans. After that applying, a SWOT analysis can help in recognizing the strengths to increase business and the opportunities to explore. It may also help McDonald’s in identifying the weaknesses and threats. Introducing balanced scorecard in the company and aligning all the activities to it can result in the transformation of the business look (Duggan, 2018).
Conclusion
In the conclusion, it can be said that a Balanced Scorecard is a modern approach which helps businesses in tracking all their activities and take possible actions. McDonald’s is the biggest fast-food chain which involves various employees and activities in its business processes. In order to maintain all these activities, identifying objectives and taking proper measures is very important because the business environment and conditions are dynamic in nature. Therefore, McDonald’s should establish balanced scorecard approach in its business so that can consider four important perspectives such as Customer perspective, financial perspectives, learning, and growth perspective and business processes perspectives.
References
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