In an economy with high levels of competitiveness like the current one, where the effects of globalization and rapid technological and cultural changes are experienced day by day, in some cases the results worsen without being very clear if it is due to structural or conjunctural problems. Faced with this situation, organizations are looking for solutions.
Strategy and use of the Balanced Scorecard can help us find these solutions.
Regardless of the different theories on the definition of strategy, the first thing to be clear about is what strategy is and what it is for. The strategy consists of making a deep analysis of both the organization and the environment to define an action plan that will lead us to improve our position over our competitors in the medium-long term. The strategy is to choose a path.
It is important to emphasize that the strategy should not be to "project" figures over "X" years, but it must be borne in mind that a strategy that does not lead to competitive advantages is a useless strategy. The strategy definition process is represented in Figure No. 1.
Figure 1. Strategy definition process
In the strategic management process described above, we found several weak points.
- There are big problems in the diagnoses made initially. Managers are sometimes "optimistic", so there is a tendency towards continuity plans and "radical" action plans are not necessary. That the strategy is defined at the senior management level and is not communicated to the entire organization. The strategy cannot be executed because there is no clearly a relationship between the strategic, tactical and operational level The definition of objectives without taking into account the cause-effect relationships of the organization That the strategy is static and is not reviewed with the agility that a changing environment like the current one requires. Failure to correctly manage the necessary culture associated with a project of this style, since the indicators and objectives not only have to be defined but also lived.
Each of these situations has a different line of solution. In the first and last case, a culture should be promoted in the organization open to constructive criticism and in which all people can contribute to the company's strategy and have their views valued.
To solve the rest of the weak points there is a tool called COMPREHENSIVE DASHBOARD.
The balanced scorecard
The Balanced Scorecard was created to definitively relate the strategy and its execution, using indicators and objectives. The benefits of implementing the Balanced Scorecard can be integrated into four concepts.
- Relate the strategy to its execution, defining objectives in the short, medium and long term Have a control tool that allows decision-making in an agile way Communicate the strategy at all levels of the organization, thus aligning people with strategies Have a clear vision of the cause-effect relationships of the strategy.
The Balanced Scorecard transforms the vision and strategy into objectives and indicators organized in different perspectives: financial, clients, internal processes, training and growth.
Perspectives of a Balanced Scorecard
Sometimes it is thought that a Balanced Scorecard is characterized by the four perspectives: financial, customer, internal processes and training and learning (See Figure No.2). And if these four perspectives are not there, then it is not a Balanced Scorecard.
Figure 2. Perspectives of the balanced scorecard
These perspectives are the most common, because they are applicable in a large number of companies to organize the business model and structure the indicators and information. But they are not a necessary condition to have a Balanced Scorecard.
Financial Perspective: To be successful from a financial point of view, how should our entrepreneurs see us?
The CMI retains the financial perspective, as the indicators are valuable in summarizing the easily measurable economic consequences of actions that have already been taken. Financial performance measures indicate whether a company's strategy, its implementation and execution, is contributing to the improvement to an acceptable minimum.
This perspective assesses the profitability of the strategy, focuses on operating profit and return on investment, is the result of reducing costs and increasing sales.
The results of the strategic decisions made in the other perspectives should be shown, while establishing several of the long-term goals and a large part of the. rules and premises of general procedures for the other perspectives.
Here are many of the traditional management control instruments in the form of financial indicators that are usually related to profitability, measured for example, by operating income, returns on capital employed, by economic value added, among other objectives. Financials can be sales growth or cash flow generation.
Customer Perspective: To Succeed With Our Vision: How Should Our Customers View Us?
Managers identify the customer and market segments in which the business unit will compete, and measures of the business unit's performance in those selected segments.
This perspective describes how value is created for customers, how this demand is satisfied, and why the customer agrees to pay for it. It also identifies the target market segments and measures the success of the company in this, to monitor its growth objectives.
The internal processes and development efforts of the company should be guided in this perspective. You could say that this part of the process is the center of the Balanced Scorecard, if the company cannot deliver the right products and services satisfying the needs of the customers, no income will be generated and the entity will wither to death.
In this perspective it is necessary first of all:
- Determine how to increase and ensure customer loyalty Get to know all aspects of the purchasing process that customers follow Develop an exact idea of what the product or service means to them In the case of an industrial customer, determine if the process is an essential element to create added value for its own clients, or if it is not very important Discover the importance that the client places on price compared to other values such as quality, functionality, delivery times, image, relationships, among others.
Second: adopt basic strategies in relation to customers and markets and move towards other perspectives.
Among the most frequently used indicators are: customer satisfaction, customer retention, new customer acquisition, customer profitability, market share. It should also include indicators of the added value that the company brings to customers.
Internal Process Perspective : To Satisfy Entrepreneurs and Customers: What Internal Business Processes Should We Be Excellent At?
This perspective focuses on internal operations that improve both the customer perspective by creating value for it, and the financial perspective by increasing wealth for the company, this perspective comprises three main sub-processes.
- Innovation process Operations process Post-sale service
Executives identify critical internal processes in which the organization must excel.
These processes allow the business unit:
- Deliver value propositions that will attract and retain customers in selected market segments Meeting entrepreneurs' expectations of excellent financial returns.
What are the processes that generate the right forms of value for customers and also meet the expectations of managers?
First you have to identify the processes of the company with a general level.
The definition of the Value Chain is useful for this purpose. It describes all the processes of a company, from the analysis of customer needs to the delivery of the product or service. These processes are analyzed in detail, with the purpose of separating all those that do not create value for the customer, neither directly nor indirectly.
Training and growth perspective : To be successful with our vision: how will we support our ability to learn and grow?
This perspective identifies the capabilities in which the organization has to excel in order to achieve superior internal processes that create value for customers and entrepreneurs. It insists on three capacities.
- Worker capacity, measured with their level of education and skill, survey on their satisfaction, staff turnover, / proportion of workers who join the company each year / and their productivity. Information system capacities, measured according to the percentage of Frontline workers with INTERNET access to customer information and percentage of the company's process with real-time feedback. Motivation and granting of authority, measured by the number of suggestions put into practice.
The training and growth perspective has to do with the infrastructure that the company must build to create long-term growth and improvement.
It is unlikely that companies will be able to achieve their long-term goals, using current capabilities and technologies. In this perspective, the company must consider not only what it has to do to maintain and develop the necessary know-how to understand and satisfy customer needs, but also how it can support the necessary efficiency and productivity of the processes in which these moments are creating value for them.
The Balanced Scorecard allows managers to monitor and adjust the implementation of their strategies, and if necessary, make fundamental changes in the strategy itself. The Balanced Scorecard should be based on a series of cause-effect relationships, derived from the strategy, including estimates of response times and magnitudes of the links between the Balanced Scorecard measurements.
At a time like the present, it is good for a deep review of the organization's strategy with a critical eye and to use a Balanced Scorecard to get it to work, starting from a vision shared by the entire organization and promoted by the leaders of it.
CONCLUSIONS
To solve the weak points that exist in the company in the strategic management process, a tool called the COMPREHENSIVE CONTROL PANEL can be used, and the implementation of the benefits that can be obtained with its use can be integrated into four concepts.
- Relate the strategy to its execution by defining objectives in the short, medium and long term Have a control tool that allows decision-making in an agile way Communicate the strategy at all levels of the organization Have a clear vision of relationships Cause-Effect of the strategy.
BIBLIOGRAPHY
AECA. 2002 "Indicators for business management". Management Accounting Principles, document No.17. Madrid. 2nd. Edition.
Amat Oriol. "Management Control, a Management Perspective" Editorial. Management 2000 Barcelona.
Gimeno JA «The scorecard as an information system for business management». Double match. Pages 36-46.
Horngren-F and D- «Cost Accounting. A Managerial Approach ». Tenth Edition 2002
Kaplan RS and Norton. DP-1997. "Balanced Scorecard". Management 2000 Editions. Barcelona.
Kaplan RS and Norton DP-2001- «How to use the Balanced Scorecard to implement and manage your strategy». Management 2000 Editions. Barcelona.
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