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Organizations today face challenges in understanding and coping with the uncertainty of today’s market. Companies are constantly searching to implement the most appropriate measurement system. These measurements are used to track the ongoing performance of organizations. The balanced scorecard developed by Robert Kaplan and David Norton, is a “carefully selected set of quantifiable measures derived from an organization’s strategy” (Blackboard Academic Suite 2007). This approach transforms the company’s mission and strategy into performance measures that provide a guideline for measurement. The evolution of the balanced scorecard has proven in meeting many challenges faced by the modern organization (Blackboard Academic Suite 2007). Integrating this approach for the software company will have many advantages; however the system does contain some disadvantages.
The balanced scorecard can be successful in any modern organization as it calls for accountability and sustainability[FONT='Calibri','sans-serif'][vm1] [/FONT] which are major issues in society today. The scorecard maintains the financial measures while combining non-financial measures, to achieve a balanced approach. [FONT='Calibri','sans-serif'][vm2] [/FONT]The benefits of integrating this system can be seen in long-term financial improvements, employee and customer satisfaction levels. Companies are facing many barriers such as vision, people, resource, and management barriers. This approach can be beneficial to the software company as it has proven to overcome these challenges with proper execution. The scorecard measures performance by four perspectives: financial, customer, learning and growth, and internal process. By understanding these four components we can begin to see the specific advantages this system can provide the software company.
The financial perspective would measure the financial health of the software company. This quadrant, “serves as the focus for the objectives and measures in all the other scorecard perspectives” (Kaplan 1996). The software company can start with the long-term financial objectives and then look at the financial processes of how to achieve those goals. Traditional measures are kept part of the performance measure as there [FONT='Calibri','sans-serif'][vm3] [/FONT]indications are still important. This section is important for the software company as it captures the performance in areas such as return on investment, budgeting, cash flow, productivity, etc. However, this quadrant can not measure the performance exclusively. Non-tangible measures need to be explored in the other quadrants.
The internal process perspective examines the internal processes that create value for the customer while reaching the companies financial goals. The software company can look at investing in developing the software technology to increase the value for customers, or even developing a better process to ship to customers faster. This quadrant examines the processes that are relevant to the software company, and looks at eliminating or improving the ones that do not work for the company. While improving the current processes is beneficial, “long-term financial success may require an organization to create entirely new products and services that will meet the emerging needs of current and future customers” (Kaplan 1996). Long-term achievement must integrate processes that are unique to sustain the competitive edge.
The customer perspective is an important component of the balanced scorecard as it identifies and measures the customer and target markets. The software company needs to focus on one of three strategies: operational effectiveness, product superiority or customer intimacy. The operational excellence looks at offering the lowest cost, product leadership is creating the best product, and the customer intimacy is providing a customized solution for the customer. This quadrant measures, “customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments” (Kaplan 1996). The software company must examine these measures to ensure their customers refer them and come back for more software solutions.
[FONT='Times New Roman','serif'] The software company will be able to improve their internal organization with the learning and growth quadrant. This is the area that examines employee satisfaction, resources, and human capital these areas can enable the other perspectives to succeed. The software company can benefit by spending time and resources on intangible assets such as the knowledge workers. It is aimed at creating long-term improvements in the organization. The scorecard has the ability to detect any gaps in the system, and “[/FONT][FONT='Times New Roman','serif']businesses will have to invest in reskilling employees, enhancing information technology and systems” (Kaplan 1996). [/FONT][FONT='Times New Roman','serif']Constantly monitoring this area will ensure that the employees will have the right skills, and resources to execute the right product to sustain a competitive edge. [/FONT]
The software company can use these measures to analyze the total performance of the company. If they choose to forgo the scorecard approach they may risk neglecting the intangible assets such as knowledge workers. Financial measures are great at indicating what has occurred, however it will not be able to predict what will occur in the future. Therefore, implementation of the balanced scorecard will provide a balance perspective of the company. The four measurements have been chosen as they interrelate with each other and define what needs to be achieved and how it will be measured. Thus, it will enhance the customer and partner relationships. [FONT='Calibri','sans-serif'][vm4] [/FONT]The balanced scorecard focuses on the company’s mission and strategies and prepares them for future obstacles.
[FONT='Times New Roman','serif'] There are numerous benefits of the scorecard card; however there are some limitations that need to be addressed. The software company must be willing to spend time and money on implementing the system. Further, there are also costs associated with maintaining the measurements. This process is not a quick solution it takes time to achieve the results the company wants to create. In addition, it also requires a commitment from the entire organization to achieve the final goals. A lack of commitment will result in a waste of time to implement the system. Moreover, managers may get frustrated in implementing this new approach as they may not see results right away. This new approach may also effect[/FONT][vm5][FONT='Times New Roman','serif'] employees as they will need to get reskilled or change the way there working habits. Further, it could be quite overwhelming if there are too many measurements and setting too many goals. The company can loose sight with too many little aspects and reduce the effectiveness by improper allocation of time and resources. [/FONT][vm6][FONT='Times New Roman','serif']It should be noted that the company will be taking a large risk at implementing this system, and it may not work, even with the right execution this could be detrimental to the company. [/FONT][vm7][FONT='Times New Roman','serif']These are some of the disadvantages that the software company should take into factor in their decision of whether to implement the balanced scorecard or not. [/FONT]
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