Background
Worldclass Lighting has been operating in the electronics industry since 19th century and launched number of innovative and innovative carbon-filament lamps since its incorporation and its innovative approach to provide lighting solution made it the industry leader in the lighting industry. Worldclass has two divisions, namely industrial division and commercial division, where commercial division has the responsibility to take care the sales of the organization and was directly interacting with customers; meanwhile, the industrial division is responsible for the rest of the business management activities.
The performance was being measured purely on the financial measures and non-financial measures were not considered in evaluating business performance; therefore, in order to effectively measure the business performance at operational and organizational level, balance scorecard was introduced during the year 2002. The balance scorecard consisted of four prospects with measures that were evaluated against the Key Performance Indicators (KPIs). Worldclass adopted the balance scorecard at organizational level as well as departmental level because the organizational level scorecard was more focused on customer related measures; therefore, the organizational level scorecard was there for measuring the back-office department’s performance. However, the management was happy with the improvements that were achieved through the introduction of balanced scorecard but by the passage of time the balanced scorecard started to become a routine activity.
Many factors participated in the failure of this approach and the design of compensation scheme was one of the factors that was contributing towards its failure because 70% of employees’ bonus was based on the achievement of financial related measures and only 30% bonus were attached with the achievement of non-financial measures. Furthermore, some of the non-financial measures were difficult to quantify and measure; therefore, the measure that was not quantifiable was not included in the balanced scorecard and management was not aware of those non-quantifiable measures, which resulted in the reporting of incomplete information through the balanced scorecard. In addition to this, a crucial factor that contributed to the failure of the review process of balanced scorecard was the undue pressure on managers that they had to face in case of not meeting the budgets that they had to report through the scorecard; therefore, managers began to omit the information from scorecards regarding their non-compliance or not achieved targets in order to avoid the undue pressure for meeting the targets and reporting the achieved targets through scorecards. Therefore, the non-disclosure of non-compliance by the managers led to incomplete information being recorded in scorecards; hence, the performance was being measured inappropriately using that incomplete information.
Another cause for failure of balance scorecard model was that the management was found in avoiding the measures that were difficult to be measured and linked to specific key performance indicator and those difficult measures were not recorded into the balance scorecard that led to many important measures being omitted from the scorecard and the same were not being reviewed by the higher management and if, somehow, these measures were included into the scorecard because their reasonability and objectivity was always being reached through negotiation and bargaining among the management. Additionally, by the passage of time the more and more performance indicators were included into the scorecards, which made it difficult for the management to review all the indicators of the scorecard so the management could review only top 4% the indicators and in-depth review was not being conducted any more. Meanwhile, the frequency of performance review meetings were reduced to quarterly meetings that led to difficulties in identification of underperforming areas and even after they were identified, still it was difficult or they were not used to control the factors after laps of long period of time. Moreover, the long term objectives and indicators have not been selected as a part of the performance measurement that was causing the balanced scorecard to be ineffective.
Problem Statement
The management is concerned about the validity and reasonableness of business performance measurement technique, i.e. balanced scorecard, and it is in a dilemma of deciding whether to continue the balanced scorecard or to use an alternative approach for business performance measurement.
Analysis
The balanced scorecard is not only performance measurement model but it is a tool for long term planning and a system for the management of business operations. It converts an organization’s long term plans and objectives into measureable and sequential order that can be achieved during the day to day operational activities of a business and it also guides in the process of identification that what should be measured in order to effectively achieve the organizational objectives. (Group) Generally, balanced .......................
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