Page 133 - Managing Change in Organizations

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Chapter 7 ■ Organizations in the twenty-first century: the value-added organization
The important point is to identify the necessary organizational components
including clusters and to identify how each contributes value added to its cus-
tomers (internal or external). This facilitates the development of balanced
scorecards.

Stage C: The ‘balanced scorecard’
This is a technique to measure business unit performance which can also be used
at departmental or ‘cluster’ level developed by Kaplan and Norton (1996). The
scorecard uses various perspectives to give a balanced picture of current perform-
ance and the drivers of future performance. Typically the four perspectives are
financial, customer, business processes and innovation. Many argue that man-
agers cannot operate with multiple measures and therefore argue priority for
aggregate financial measures (such as operating income, return on investments,
economic value added). These are widely used and provide a basis for unam-
biguous and objective goals.
The counter-view is that on the whole financial measures focus on past per-
formance, saying little about the drivers of future performance. Moreover,
experience with the technique shows that managers can make effective use of
the balanced scorecard as a performance management and improvement tool
so long as each is limited to around 20 measures. In practice the alternative is
to have financial measures plus a bewildering variety of other measures, often
not understood, not reported consistently and not widely or effectively dis-
seminated.
In addition, in a ‘value-added’ organization the balanced scorecard is a
means of making the organization more transparent. It enables the organiza-
tion to focus on how activities interconnect to provide customer service. It
shows the contribution each makes to the total. It provides a better basis for
cohesion and integration of activities. The balanced scorecard can be depicted
as in Figure 7.2.
The measures selected within each perspective need to be based on a particu-
lar view about the business:

1 What do customers value?
– response times
– accuracy
– implementable solutions
– price.
2 Business process: at what do we need to excel?
– order processing
– delivery to customer
– flexibility
– integrated service packages.
3 Innovation: how can the organization improve?
– transfer of best practice

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