Discuss about the Performance Measurement and Evaluation.
Business organizations nowadays are increasingly emphasizing on the use of efficient performance metric system for gaining an overview of their overall performance assisting them in development of the strategic initiatives. The use of performance measurement systems enables the managers in development of adequate growth strategies that helps in overcoming the overall costs and improving the efficiency of operations. Balance Scorecard (BSC) is one such effective and efficient system of performance measurement system used by business organizations nowadays to develop an insight into their overall performance and development of long-term growth strategies. In this context, the present report is developed on the opinion of a management consultant providing knowledge to the CEO of a firm client about the use of BSC in private companies. The firm is currently undergoing an evaluation of its budgeting system and thus CEO who has recently attended a seminar in BSC wants to assess whether this performance measurement tool is suitable to be used within the company (Brown, 2007). The firm client selected for the report purpose is Wesfarmers Pty Ltd, a supermarket giant in Australia.
The report covers a detailed description of nature of the selected company, description of BSC and its features, difference of BSC from traditional performance measurement systems and discussion relating to whether BSC is suitable to apply in the selected company.
Wesfarmers Limited is an Australian retail company involved in carrying out diverse business operations such as supermarkets, liquor, hotels and convenience store, home improvement and office supplies. The company carries out its retail operations actively across Australia and New Zealand having about 800 supermarkets and 900 liquor stores, 700 service stations and 88 hotels. The company aims to create value for its shareholders by promoting the continuing growth and development of its diverse operations. The company was established in the year 1914 and since then it has become one of the largest listed companies in Australia. It is regarded to provide employment to about 220,000 employees and also having a shareholder base of approximately 530,000. It aims to achieve this by satisfying the customer needs and expectations by providing them innovative product and services. Also, it aims to provide a safe working environment to the employees by rewarding their good performance and providing the opportunities for advancement. The company also places emphasis on responding effectively to changing attitudes and expectations of the communities and environment. It also emphasizes on acting with integrity and honesty in carrying out its business operations for ensuring its long-term growth and development (Wesfarmers: Our Businesses, 2018).
The Balance Scorecard (BSC) is a business framework used for strategic management and planning by business organizations. The scorecard examines the performance of an organization both on the basis of financial and non-financial perspective. It is regarded as a management system that helps in focusing long-term strategic goals for an organization. The development of strategic vision helps in assessing the overall performance of an organization by segregating it into specific criteria. The model was developed by Kaplan and Norton for translating the mission and vision of an organization into realistic actions. This is done by identifying the loopholes into an organization performance and developing consecutive strategies for achieving the target figures. The scorecard is an effective technique for communication and evaluation of the success achieved in realizing the mission and strategy of the organization with the use of financial and non-financial measures. It is regarded as a practical performance measurement metric for providing assistance to the executives about their strategic management planning process. It is an approach used for providing feedback to the organizations and helps in development of strategic actions into realizable performance objectives (Chavan, 2009).
Balance Scorecard refers to tactical planning tool and controlling system that has been used by public companies, private companies, government organizations and other entities all over the world. Balance Scorecard has a unique feature that helps the business activities to achieve the organization targets through increasing the internal and external communication, implementing control and measuring the performance. Balance Scorecard is completely based on the four major perspective that driven the business strategies of the company. The four main perspectives of the balance scorecard are financial perspective, customer perspective, internal or business process perspective and learning & growth perspective. The business strategies are divided into these four perspectives in order to find the measures to achieve them. The business strategies are based on these four perspectives as each of these perspective provide defined goal and objective that has been divided into multiple set of measures (Holloway, 2011). The detail discussion of four perspective of balance scorecard has been provided below.
The uses of financial data to frame the qualitative measures are being considered most important by Kaplan and Norton. It is important that financial information must be up to date in order to get succeed and to take effective decisions. In this regard managers are being responsible to provide the proper financial data and it must be provided on time so that business has an opportunity to get succeed. The financial information such as net income, return on various investments and other important financial measures helps the management to take effective decisions and to make certain changes that are required to increase the overall income reduce the cost applied in the business. Financial information that has been provided by the balance scorecard is not used by the business manager but it is also used by the investors or shareholders to make the decision regarding investment in company. The financial information of the business has been represented in creative way through use graphs, charts, pie charts and many other analytical tools (Pramudita, 2016).
In this way it is easy to interpret the financial information even by the non financial user. The properly presented financial information has an ability to provide an aggregate picture of business entity success. The financial tools applied to measure the financial performance has an ability to measure the past performance of the company but lack to provide any future financial position of the business entity. The main purpose of the business entity is to create wealth for the owners through increasing the sales output and decreasing the cost factor. The historical financial measures help the business managers to check how well they are performing to provide the wealth for the owners of the business. The most important financial information that is included in financial results includes measures through which future financial performance of the company can be predicted. The main purpose is to find out the future workload and requirement if resources. So it can be said that financial information is the most important perspective among all the four perspectives of the balance scorecard (Schmeisser, Clausen, Popp, Ennemann and Drewicke, 2011).
It is another most important perspective of balance scorecard as it provides information related to customer and market segment. The motive of this perspective is to provide manager with detailed information that helps to identify the customer and market segments in which business organization can compete. It also provides information related to the business performance in target segment in which it operates. So it can be said that this perspective includes several generic measures that give information on the successful outcomes of the well formulated business strategy. The core measures used to measure the customer perspectives are market share, customer acquisition, customer retention, customer satisfaction and customer profitability. All these measures help the manager with the required information on target market and needs of customers (Adler, 2013).
This perspective provides the information related to internal business performance that helps managers to make effective decisions on controlling and improving the performance of business. With the information provided in this perspective one can deliver the value propositions and also helps to attract and retain the customers. The key of excellence in every business is how managers control the internal process and produce reliable and consistent product services. The proper management of internal business process helps the managers to maintain the consistency in quality of product and services. There are various ways through which internal business process can be monitored and controlled to achieve the business targets (Pramudita, 2016).
In perspective is typically related with the staff training and development of the corporate culture. The main purpose of this perspective is to find out necessary technology development and employees training required for achieving the business objectives that are defined in other three perspectives. So it can be said that in this perspective objectives and needs for the employees, systems and organizational culture that helps to achieve the business performance and create long term growth are identified. The customer perspective is typically based on following areas:
Traditional performance measurement system is an old performance system that measures only the financial performance of the organization and does not lay emphasis on other category of business performance. As such, the traditional performance measurement systems only provide a quantitative assessment of the business performance. It does not help in gaining a qualitative measure of other performance indicators of the organization that are covered by the balance scorecard. The balance scorecard measures business performance on four main categories such as financial perspective, customer perspective, internal control perspective and learning & growth perspective. The quantitative performance assessed on the basis of financial measures mainly reflects the past performance as the financial data used is mainly of the past and current years. Therefore, it can lead to the occurrence of error in decision-making by the organization. The quantitative metrics used in traditional performance assessment method is not also largely effective in implementing the internal control within the workplace. This is largely because these methods do not provide an overview of the long-term performance of the organization. For example, cost reduction strategy implemented on the basis of financial metrics will only be helpful in improving the performance of an organization in the short-run (Pangarkar, and Kirkwood, 2012).
On the other hand, the balance scorecard will help in identification of the improvement required in other business aspects also such as employee’s performance, customer satisfaction and internal business processes. The identification of the significant problems such as loss of quality of business products and services, loss of expertise and customer base can have a long-term impact on the business performance. Therefore, identification of all these problems significantly will help the business managers to take accurate decisions promoting the long-term growth and performance of an organization (Pham-Gia, 2009).
The primary objective of Wesfarmers is to provide higher returns to shareholders through maintaining financial integrity and managing effectively its diverse business portfolio. The major focus of the Wesfarmers Group is to ensure that its daily operations are carried out in a sustainable manner for promoting its long-term growth and development. It has developed its unique framework for representing its core values and value-creating strategies that are mainly directed towards achieving satisfactory return for the shareholders as depicted below:
The core values of the Group are to act with integrity, promoting transparency, accountability and boldness within the organization. The core value of integrity means that the Group has to act as per the ethical standards in all its business activities. Also, it has to promote openness and honesty while reporting of its information and also remain accountable for its performance. The core value of boldness indicates that the Group should aim to create an interactive environment in which employees feel protected and carry out their job responsibilities without any fear. The core values of the Group have enabled it to develop its corporate value strategies that can be stated as follows:
The Group aims to achieve its strategy with the use of strategic planning framework developed for creating sustainable business practices to deliver value to the stakeholders. The Group aims to develop unique strategies for each of its division level in order to promote the growth of each of the individual businesses. As such, it can be reflected from the core values and corporate strategies of Wesfarmers that it is striving hard for marinating its sustainable performance. Therefore, it is becoming largely important for the Group to implement the use of appropriate managerial tools for keeping a continuous check of its overall performance. Balance Scorecard (BSC) will prove to be an effective method of assessing the overall performance of the business by the managers of Wesfarmers. This is because it provides an in-depth analysis of its financial and non-financial performance and providing a continuous assessment of whether it is carrying out its business activities as per its core values and strategies. It will help in developing a roadmap for realization of core value and strategies and thus ensuring is sustainable performance (Rae, 2010).
The implementation of a sustainability scorecard will help the Wesfarmers Group to implement its core values and strategies into action. It will present an examination of the sustainability factors on the basis of assessment of the financial, learning and growth, customer and business perspectives that are essential for the Group to achieve its long-term success. The analysis of the financial performance by Wesfarmers with the use of financial measures will help in depicting whether its financial outcomes are good or bad to drive its future growth and development. The identification of the financial risk will help in developing and implementation of the strategic actions for overcoming the risk and thus ensuring the sustainable performance of the Wesfarmers Group (Gligorea, 2014).
Wesfarmers conduct its business activities in a highly competitive and globalised retail sector and therefore need to place emphasis on the skills and competencies of its employees for realizing higher organizational outcomes. The adoption of BSC will enable the Group to measure the learning and growth perspective of the employees by regular review and monitoring of their skills and competencies. Human capital is often regarded as the most significant human capital assets driving the business performance in a sustainable manner. The continuous tracking of the employee performance will enable in identification of their problems that are hindering their growth and development. As such, it will provide an overall direction to the human resource department of the Group for developing the necessary action plan to improve the employee skills and competencies that are lacking in them and required for sustainable growth of the business (Kaplan and Norton, 2001).
The analysis of the business processes on a regular basis is essential for examining their impact on the social communities and environment. Wesfarmers core value has established its business processes to act in accordance with its core values and sustainable principles. The examination of the overall business processes in a timely manner with the use of BSC will help in identifying the business activities that can hinder its sustainable growth. For example, it will help in identification of the activities that are negatively impacting the social and environmental growth. The elimination of such activities will improve the operational efficiency by reduction in operational costs. Also, the business activities carried out in an ethical and sustainable manner will help in promoting goodwill of the Group among its stakeholders (Lillis, 2010).
Lastly, the customer perspective will help in identifying the needs and expectations of the customers and the business actions that must be undertaken for satisfying their varying demands. This will help in appropriately identifying the unwanted needs of the customer that should be met with the use of customer survey. Also, the issues and concerns of the customers regarding the varying products and services of the Group can be adequately resolved with the use of customer perspective measures of the balance scorecard (Perrini and Tencati. 2006).
Conclusion
The report concludes that balance scorecard is increasingly being used by the business organizations at present to meet the competitive pressure by keeping a continuous track of their performance. The scorecard is suitable to be applied by Wesfarmers Group for realization of its core values and strategies and thus ensuring its sustainability in the future direction. As such, Wesfarmers is recommended to implement the measures of sustainability in all the perspectives of the BSC for adequate realization of its strategic priorities and values.
References
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Pramudita, C.D. 2016. The Balanced Scorecard as Strategic Controlling Instrument. Introducing the Indicators-based BSC for Implementation of a Corporate Strategy from Four Different Perspectives. Anchor Academic Publishing.
Rae, K. 2010. A Balanced Scorecard Study of the Effects of Empowerment, Commitment and Human Resource Management on Environmental Performance. [Online]. Available at: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.924.6446&rep=rep1&type=pdf [Accessed on: 19 May 2018].
Schmeisser, W., Clausen, L., Popp. R., Ennemann, C. and Drewicke, O. 2011. Controlling and Berlin Balanced Scorecard Approach. Walter de Gruyter.
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