PERFORMANCE AND COMPETENCY MANAGEMENT

A PROJECT REPORT ON BALANCE SCORE CARD A STRATEGIC MANAGMENT TOOL AT PHILIPS ELECTRONICS

SUBMITTED TO: PROF. SHIKHA MISHRA

SUBMITTED BY: HARLEEN KAUR (29) PALLAVI SHARMA(30) PRIYANKA SINGH (32)

ABSTRACT

The contemporary competitive environment expects organisations, to acquire new capabilities for competitive success. The ability of an organisation, to mobilize and exploit its intangibles 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.

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.

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 the company'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.

The Model An 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 identified key 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 various activities 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 nonfinancial 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.

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. ii. iii. iv. Financial Perspective How do we look at shareholders? Customer Perspective- How should we appear to our customers? Internal Business processes Perspective What must we excel at? Learning and Growth Perspective Can we continue to improve and create value?

i.

The Financial Perspective

Kaplan 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 Perspective

Recent 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.

iii.

The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the 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 Perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self improvement. In a knowledge worker organization, people the only 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.

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.

RESEARCH METHODOLGY

STUDY AREA The study was Philips Electronics

DATA COLLECTION METHOD Secondary method of data collection has been used.

LITERATURE REVIEW

BALANCE SCORE CARD IN INDIAN COMPANIES, MANOJ ANAND & BS SAHAY (APRIL-JUNE 2005): This research paper talks about Silk (1998) found that 60 per 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.

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.

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.

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

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 MANAGER ENGINEERING Job Title (Position) Department\Function Reporting Manager (Title) Job Purpose Manager Engineering General Manger- Engineering To achieve the goal of unit by providing uninterrupted and quality output of utility services. Maintain good engineering practices for un-interrupted services. 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 Energy conservation projects.

Key Result Areas

MANAGER QA Job Title (Position) Department\Function Reporting Manager (Title) Job Purpose Manager Quality Assurance General Manger- Quality Assurance To ensure cGMP (Current Good Manufacturing Practices). 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) 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 Quality Assurance 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 monitor the 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.

Key Performance Areas

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:

Competence knowledge, technology, leadership and team work KPIs: Organizational development and IT support

Processes drivers for performance KPIs: Operational excellence

Customers value propositions KPIs: Customer delight and employee satisfaction

Financial value and growth KPIs: Profitable revenue growth

. 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 longterm 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 and align 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.

CRITICAL ANALYSIS OF BALANCED SCORECARD

Advantages of BSC 1) The Balanced Scorecard tool is being used by several organizations throughout the world because of certain advantages it has been able to deliver as below: 2) 3) 4) 5) 6) It translates vision and strategy into action It defines the strategic linkages to integrate performance across organizations It communicates the objectives and measures to a business unit It aligns the strategic initiatives in order to attain the long term goals It aligns everyone within an organization so that all employees understand how they support the strategy 7) 8) It provides a basis for compensation for performance 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 create breakthrough performance. 10) Helps to integrate various corporate programs such as: quality, reengineering, and customer 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) 2) 3) It is not easy to implement this tool because it involves a lot of subjectivity. The tool is much more complex compared to the other tools. 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 to every stakeholder associated with the organization.

CONCLUSION
Developing a balanced scorecard is a journey, not a project. The real value of a scorecard system comes from the continuous self-inquiry and in-depth process of discovery and analysis that is at the heart of the process. The above discussion leads us to conclude that the BSC is both a performance measurement and management system that enables the organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business process and external outcomes in order to continuously improve strategic performance and results. It captures both the financial and non-financial aspects of a company's strategy and discusses cause and effect relationship that drives business success. The Scorecard can be used at different levels throughout the total organization in a subunit or even at the individual employee level as a "personal scorecard". It is a proven tool of measuring and achieving company's strategic performance. The BSC fills the gap that exists in most management systems the lack of a systematic process to implement and obtain feedback about the organisation's strategy. The organisation can become aligned and focused by using the BSC to implement the long-term strategy. This way Balanced Scorecard has become a true-performance measurement system in today's highly globalised and competitive environment. So, there are "exciting opportunities" in India at present for promoting the concept and practice of the Balanced Scorecard to enable the companies to align their operations totally to their business strategy.

LEARNINGS

The scorecard system includes a strategy map, to show how value is created for members (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 what strategic 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 scorecard system 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

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, September October.

Gumbus, A; and Lyons, B. (2002), "The Balanced Scorecard at Philips Electronics", Strategic Finance, November issue. www.balanced scorecard.org