Employees reward refers to means and ways through which an individual or an organization uses to give its employees and other stakeholders more motivation through measuring their performances and rewarding them in accordance to the results they did yield. Kaplan and Norton (1992) carried out a research based on performance of business using financial measures and operational measures. The financial measures include factor elements such as return on investments, while the operational measures sampled elements like customers relations, time factors, product development cycles and employees retentions (Hyde, 1998). They developed the strategies in a manner as to ensure that managers appreciate them in a balanced way. Balanced score cards are a tool designed including financial measures that facilitate understanding of the results of certain actions taken (Baiman, 1995). In their Business Journal article, Kaplan and Norton quoted that the balanced score card resembles the financial and operational activities on customers’ manners and fulfillment in their desires, innovativeness and technological improvements, instructiveness and lastly improved financial performance activities. The operational activities highlighted were identified as the future measures of the financial and profitable improvement.
The Four Balance Score Card Perspectives
The balanced score card has been identified as the main framework for managers to use in linking various types of measurements together; among them the key four business perspectives – customers perspective, internal business perspectives, financial/shareholders perspective and lastly innovation and educative perspectives (Goold, 1993). Out of these the balance score card helps managers to answer key questions among them: how do customers see us? What must we excel at as an organization? How do we improve and create value (innovational and technological advancement)? And lastly, how can we serve our shareholders? Secondly, the managers develop special goals to achieve out of the perspectives. Thirdly, this perspective helps managers to develop a vision and help them in cultivating the visions among the employees hence facilitating their understanding of the organizational goals (Mackenzie, 1998). Moreover, it enables managers in balancing various concerns of various stakeholders in the organizations so as to improve and hasten the attainment of their goals and missions. Paul Mcunn (1972) states that a good balanced score card should perform against the essential activities of the business, and the momentum is the balancing element between the ancient financial matters and the operating financial matters of the business.
Kaplan and Norton ask managers to emphasize performance in the four above mentioned perspectives. They argue that the perspectives are very vital to all kinds of the business regardless of their structures, performance or size. More perspectives are also welcomed meaning these four are not the one emphasized, for example, a mining company can decide to add on its health perspectives to meet all environmental issues in the organization. This depicts that organizations with special needs are free to add more perspectives in their goals.
According to Kaplan and Norton, viewing the business from the customer oriented perspective point of view means the managers should ask themselves, how do the customers view us? They assumed that many businesses in the 1990s viewed the customers’ relation and service delivery as the most important achievement that an organization can get. It helps them to explore adequately the four main areas of the customers concern; time cost quality and performance. They recommend that the managers should establish a goal in each of the areas of concern before making out specific measures out of it. The manager realizes those certain customers’ satisfactions such as the sales increments can be measured within the periphery of the firms. But, others such as internet service provision depend on the customers’ desires, hence measurable externally. To incorporate this information in the balance score card, managers are expected to collect this information from outside sectors of the organization either through customer questionnaires or interviews. Collecting information from these sectors is a tire some process hence it forces managers to handle their firms from the customers’ perspective side of it.
The second perspective involves the internal/built-in perspective which is highly related to the customer satisfaction perspective. It is suggested that well-oriented customer performance is highly obtained from thoughts, practices and actions taken by managers within an organization. Managers are to think deeply on these internal perceptions that help to satisfy the customers’ needs. Approaching the organization from the built-in angles involves asking; what must be done to excel in customers satisfactions? They recommend that the managers should focus keenly on internal processes that affect customers’ satisfactions such as production, time, and quality and employees competence. Utilizing these processes, the manager can develop instrumental goals that can guide them and the employees achieve customers’ satisfactions. Moreover, the skills of the employees improve meaning lower level employees understand well the organization’s mission and vision.
In incorporating innovation and the learning perspective in their balance score card, Kaplan and Norton show that every organization must be ready to make continual improvement in order to succeed in their highly competitive markets. A company’s ability to innovate improves in performance and lies within its values. The company must exercise competence in creating new commodities, manufacture high valued assets for their customers and promote the efficiencies that earn a credit in market penetration and increase sales margins and revenues. In essence, watching a business from the technological and the learning perspective, ; how do we create and improve value? Managers should create own goals and out of them synthesize specific attainable measures, out of which the employees are trained to understand-such as increasing sale volumes from the new products made.
Kaplan and Norton developed the balance score card when the financial measures and operational measures were under critics from the management experts. They claimed that the long term financial measures should not be highly valued by the managers. The managers were advised to focus on the operational measures only and leave the rest. They argued that the financial measures were based on the past actions of the business and hence should be ignored. In 1992, they wrote that periodic financial statements reminded executive and managers that improved quality, productivity and response in time and new products can successfully into improved sales volume, large market share and reduced operating expenses.
The last perspective of the balanced score is the financial perspective which is embedded on answering the question; how can we serve and look our shareholders? Key factor issues are that business should focus on growth, profitability and shareholders value. The main measures associated with these factors are return on asset and earning per share. Most managers view these measures as misleading when incorporated in the balance score card but, in a real sense, they can provide valuable information to the manager which can help in improving profitability. According to Kaplan and Norton in the Harvard Review Magazine (1992), managers are currently making large operation activity actions, but fail to make follow up actions leading them to making some employees redundant.
Creation of a well-oriented score card for measuring the organization’s performance begins with a company developing own goals and missions. According to Tower Perins (1996), it is essential for the top management level staffs to consult all line managers, employees and other stakeholders to know clearly where they want the company to be the next three or possibly six years. The second stage is to develop fundamental and specific objectives linking the visionaries’ goals. Such goals act as benchmarks for progressive attainment of the vision. They should be developed in a manner that they do not portray to achieve a given department’s goal but for the whole company. Remember, it is quite vital to start with the four main perspectives before the manager adds other forms of perspectives. At this level the top management should involve the line managers, employees, customers and shareholders to take their views and to incorporate them in the balance score card. This promotes their confidence and eliminates unrealistic goals that can bar full attainment of the vision.
The specific objectives should help the manager in drawing out specific measures that the employees will follow in their day to day activities. Rick Anderson (1990), a performance researcher in BP chemical limited, told Van de Vliet that most the measures currently being used are new, and they have been made in different silos, boxes and in complex related environment hence should be applied differently. The measures in the balance score card should be broken down by the managers to ensure every customer is accustomed to them well (Feltham, 1994). For incentives and compensations, it is quite essential for the mangers to consider attaching weights to them and award the employees in accordance to their abilities of attaining the measures.
Once the balance score is in places managers are advised to set ways and means of collecting data about the performance internally and externally from the customer to identify the areas of weakness and strengths. It also helps them to know areas that demand improvement. Moreover, risks and threats to the vision are identified in advance and eliminated before they become obstacles. In most cases, most mangers find it time consuming and very expensive in carrying out research and analyzing the data because it involves the use of computer programming, which takes some time and the results are quite complex (Feltham, G.& Xie, J., 1994). To add on that, it is very essential after the analysis to supply the employees with the information and give them the way for to digest it before coming to an agreement of what to choose and leave. Managers deserve to know that the balance score card is not set in stone. Some areas may be requiring changes while others demand some items eliminated hence it is upon them to make rational decisions over the measures (Eccles, 1991). Lastly, the managers may find that they can tie the balance score card in other areas such as compensations, successions, budgets and employees development.
Numerous organizations worldwide have been lured by the utilization of balance score card since its inception in 1992. Most of them have found its work effective and had them achieve resounding results in their performance in subsequent years. However, others have found it hard; with some of them finding it fail in their performance by 71 percent. Most of the failures were attracted by the power and simplicity of the balance score card but eventually they find it hard due to the costs and time consuming constraints. Lewy (1991) admits that balance score card can be an effective tool for any company to get its overall objective only if they understand what they are to do, the purpose of the score card and its implications. They should understand that they must allocate adequate resources to the process otherwise the balance score card will definitely fail to be implemented.
Lex du Mee and Lewy in 1998, KPMG Management staffs, conducted a research on various organizations in Europe who had used balance score card, and they came up with the ten key rules of the balance score card. First, they recommend that for any effective implementation of the balance score card, organization must adequately have good implementation sponsors and one of the best qualified line managers. Secondly, they recommend that the balance score card must be the top priority of the organization if the implementation is to be fruitful (Deloitte, 1994). Thirdly, the organizations strategic goals must have been set in advance and adequately revised on by the managers and the other stakeholders. This will eliminate misunderstanding completely, poor resource allocation and thus they will be there to receive outcomes. Otherwise, failure to do so may lead to the process eventually fail or yield poor results. Hyde (1998)
To add on that, it is quite important for managers to test the measure of the balance score card in some of the specified areas of the organization to know which one deserves changes and improvement before involving the entire company. Lastly, the employees should be subjected to a training in order to prepare them with enough skills and to prepare them psychologically for outcomes that are occurring opposite to their expectations (Bommer, 1995). Lex de Mee warns managers against using balance score card as a tool for them in gaining extra top-down control. This means that the organizations goals will not be achieved, and still this will contribute to the balance score card failure. Employees are likely going to become resistant to the matter, and this will create a conflict that will eventually make the implementation difficult (Banker, 1989). Managers must devote adequate resources to the introductory phase and have the whole process adequately monitored so as to avoid incomplete or half-baked results.
Balance score card has various impacts on both individuals and organizations on various matters. First, employees and managers have been subjected to criticisms that they are failures, and thus the organization may collapse on their hands, immediately the balance score card strategies fails to work. Secondly, misunderstanding and conflicts may also arise whenever the managers decide to use the score card as a benchmark for gaining top-down control power Gay (1998). In addition to that, it can contribute to demoralization of the employees and hence poor performance. However, where the balance score card had been properly implemented, employees take pride of being rated the best on the side of quality-customer service delivery.
Lastly, the balance score card has positively impacted on the performance of the organization by promoting achievement of some of the quality-customer delivery services, thus making it record improved profit margins and sales (Baker, 1994). As a result, employees feel motivated and hence work harder. However, use of balance score card as a tool for enhancing performance has been linked with high use of expensive resources and high time consumption.