- Explain the concepts of the Balanced Score Card
- Explain the use of incentives, evaluation and performance measurement
- Why might a balanced scorecard like the one in Table 13.2 of your textbook be more effective than simply using merit pay for a manager?
- How can the way an organization creates and carries out its incentive plan improve the effectiveness of that plan?
Concepts of the Balanced Score Card
The balanced scorecard, just like any other metrics applied in strategic management, is a performance metric used to improve and identify numerous internal operations of a business and the resulting external outcomes of the same actions (Khatoon & Farooq, 2014). Data collection is very vital for the metric to ensure that official quantitative results are achieved since the information is used during the decision-making process of an organization. The balanced scorecard uses four different perspectives to attain its objectives; financial, customer, internal-business-process, and the learning and growth perspectives.
The balanced scorecard uses the financial perspective to compare and analyse different companies. Financial performances are used to study the history of competitors thus providing useful information during the strategic planning of an organization. The customer perspective is used by management to identify market segments that the business is expected to compete and also the performance of the company in those segments (Khatoon & Farooq, 2014). The internal-business-process perspective is used to recognise the strengths within the critical internal operation where the organization must excel. Lastly, the learning and growth perspective is used by managers to focus on the capabilities of the employees.
Incentives, evaluation and performance measurement
Incentives, evaluation, and performance measurements are used for numerous purposes which ensure that the organization remains competitive. Incentives, for example, can be used by organisations to motivate their employees to improve their performances thus enhancing the quality of the products and services that are issued (Bhatt et al. 2015). On the other hand, performance measurement is used to evaluate employees’ performance thus determining the incentives that should be granted to the respective employee. Also, the same tools can be used to encourage employees to use the possible controllable risks to the advantage on behalf of the company. Evaluations can be used to measure the performance index of the employees and the organisations as well to ensure that the employees work towards improving the quality provided by the business.
The effectiveness of a balanced scorecard
The balanced scorecard is more effective in the managerial process compared to merit pay due to several advantages it possesses over merit pay. One of the reasons why the balanced scorecard is more effective is because it equips the manager with adequate management information that is used for designing performance indicators for strategic objectives (Khatoon & Farooq, 2014). The report ensures that the organization is only focused on important matters that affect their performance hence improving the quality of the management and decision-making process. Also, the companies that use the balanced scorecards are likely to align their strategic objectives with their organisational structure thus improving efficiency.
Additionally, the balanced scorecard also helps the organisations to focus their initiatives and projects with numerous strategic objectives which ensure that the projects deliver the best strategic goal. Also, the balanced scorecard is effective since it ensures that organisational processes such as analytics, risk management, and budgeting are aligned according to the strategic priorities which creates a strategically focused organization (Khatoon & Farooq, 2014). The other aspect of a balanced scorecard that is essential is that it aids in preparing dashboards and performance reports which help the organisations to execute their plans.
Improving the effectiveness of an incentive plan
According to studies that have been conducted about incentive plans, the procedures that organization follow when implementing their incentive plans play a significant role in determining the effectiveness of the plans (Schneider, 2017). For example, organisations that use the pay for performance system have standard features such as motivating their employees to put in extra efforts at work and also attracting quality employees. One of the ways through which the implementation process can improve the effectiveness of the plan is by resolving organisational problems. Businesses that adequately comply with the implementation of the incentive plans easily solve problems among the management and the employees thus creating a productive environment (Schneider, 2017).
One of the features of an effective incentive plan is communication. Organisations that have implemented appropriate communication channels are more likely to perform unlike those that have no communication channel successfully (Schneider, 2017). However, creating a suitable communication channel is also considered to be an essential part of incentive planning. Therefore, organisations that use proper channels have been proven to report effective incentives plans that have helped in the general performance. Also, companies that use incentive plans such as appropriate rewards and performance management have competitive incentive plans.
Bhatt, D. L., Drozda, J. P., Shahian, D. M., Chan, P. S., Fonarow, G. C., Heidenreich, P. A., … & Welke, K. F. (2015). ACC/AHA/STS statement on the future of registries and the performance measurement enterprise: a report of the American College of Cardiology/American Heart Association Task Force on Performance Measures and The Society of Thoracic Surgeons. Journal of the American College of Cardiology, 66(20), 2230-2245.
Khatoon, S., & Farooq, A. (2014). Balanced Scorecard to Measure Organizational Performance: A Case Based Study. The International Journal of Business & Management, 2(9), 106.
Schneider, P. J. (2017). Does an Incentive Plan Provide Wages or ERISA Benefits? It Can Be the Employer’s Choice. Journal of Financial Service Professionals, 71(5), 29-35.