Hwang raw, design and planning of the balanced scorecard a case study rubber in taiwan

This approach assists in strategy planning, process management, and performance evaluation from four perspectives, including financial, customer, internal process, and learning and growt

IOS Press

Design and planning of the balanced

scorecard: A case study

Ming-Hon Hwanga,band Hsin Raub,∗

aDepartment of Information Management, Diwan College of Management, Taiwan

bDepartment of Industrial Engineering, Chung Yuan Christian University, Taiwan

Abstract In the industrial economy, evaluating company performance based on financial results was good enough However,

in the current globalized and highly competitive environment, maintaining long term competitiveness requires companies to engage in overall strategic planning and performance evaluation The balanced scorecard is a tool or method for balancing an organization’s performance and can react to situations where a company’s direction becomes disoriented This approach assists

in strategy planning, process management, and performance evaluation from four perspectives, including financial, customer, internal process, and learning and growth Good strategy planning provides companies with a correct management direction, correct process management ensures the efficient execution of plans, and correct performance evaluation illustrates the execution results This study mainly focuses on how a large rubber company in Taiwan utilizes the balanced scorecard in its organization As the technical perspective is important in the rubber keypad industry, besides the four above perspectives, this company has added the technical perspective By introducing this company and its progress in implementing the balanced scorecard, this study hopes

to provide other companies, especially rubber companies, with a planning direction and reference for the future implementation

of the balanced scorecard

Keywords: Balanced scorecard, competitive advantage, performance evaluation

Ming-Hon Hwang is a PhD candidate

at the Department of Industrial Engi-neering, Chung-Yuan Christian Univer-sity, and a senior lecturer at the Depart-ment of Information ManageDepart-ment, Di-wan College of Management, TaiDi-wan.

His research interests include supply chain management and strategy manage-ment.

Hsin Rau is a Professor of Industrial

Engineering Department at Chung-Yuan Christian University, Taiwan He re-ceived the PhD degree from UCLA His research interests include e-business and supply chain management He has pub-lished many papers in journals and con-ferences.

* Corresponding author E-mail: hsinrau@cycu.edu.tw

1 Introduction

In the past, companies used economies of scale

to produce abundantly standardized products, to ac-quire customers at the lowest possible price, and to succeed in the industry It was important to obtain

a simple method of assessing company financial per-formance However, given improvements in technol-ogy and global market transparency, global companies seem to be competing locally Customers thus have the ability to find products or services with the greatest customer value and purchase them as soon as possi-ble Customer value is the measurement of customers’ feelings towards a company, and comprises the prod-uct, service and other intangeables provided by the company Thus, to survive and compete against global competitors, companies have to make a total strategy plan and an operating process The balanced scorecard

is a tool or method for balancing organizational per-formance and can help managers by providing them with early warning and thus facilitating rapid response

to a bad company decision During the past ten years,

a belief has grown among academics and industry that companies are excessively reliant on financial

indi-0167-2533/07/$17.002007 – IOS Press and the authors All rights reserved

cators for performance evaluation, despite this form

of evaluation not helping their competitiveness Chow

et al [1] pointed out that 80% of large American

en-terprises wish to change traditional performance

eval-uation and measurement systems to improve their

ca-pacity for strategy execution Johnson and Kaplan [2]

noted that in many big companies, managers use short

term financial measurements as a basis for

decision-making, especially earnings per share and profit, to

review the effects of each project on those

measure-ments

However, investments which are helpful to long term

economic development, such as research development,

process improvement, and training, have been ignored

by managers who are focused on short term

finan-cial performance at the expense of long-term

com-petitiveness For example, Xerox was quite

success-ful in leasing copy machines, and their financial

re-ports indicated excellent performance However, the

company ignored customer complaints regarding their

products and dissatisfaction with pricing, issues which

were not reflected in the performance measurement,

and the company eventually faced a financial crisis

as a result of these issues Hoffecker and

Golden-berg [3] believed that short-sighted companies that

fo-cus on a single false performance dimension are at

risk of suffering from weak company strategy Kaplan

and Norton [4] believed traditional financial

perfor-mance measures were effective in the industrial age,

but had been discarded by companies seeking new

technologies Managers seek a balance between

finan-cial and other performance Christopher [5]

empha-sized that traditional performance evaluation cannot

help teams understand their operations and capacities,

or improve their performance These result measures

are mostly internal financial indicators, including

rev-enue, gross margin, cost and debts, and few of them

in-clude a cross-department index Maisel [6] mentioned

that traditional financial performance evaluations

can-not be associated with various strategies, creating

bar-riers to strategy execution, competitiveness

improve-ment, and profitability Hoffecker and Goldenberg [3]

thought that former performance evaluation methods

based on traditional accounting systems cannot

pro-vide information about customers and competitors, and

losing this important information means losing

aware-ness of market opportunities Zeleny [7] believes that

decision making occurs only when additional

dimen-sions, such as an estimated reliability, a judge’s

credi-bility, or the cost of erroneous judgments are brought

in Clearly, no one-dimensional or single-criterion

de-cision problem can ever exist Other than choosing the tool of measurement, there remains very little to be decided Atkinson et al [8] believed that performance evaluation trends involve improving current financial indicators and non-financial indicators (e.g., customer satisfaction, employee satisfaction, and product failure rate) Zee and Jong [9] observed that traditional eval-uations, like regular sales and sales revenues indicate past results rather than future prospects In terms of the analysis of stock holder value, future forecasts should

be based on the current status However, the problem is that the financial evaluation is the final result, and can

be obtained only after executing different activities In contrast, the balanced scorecard covers areas like cus-tomers, internal processes, team innovation, and devel-opment progress, and helps in methodically analyzing team activities and tracing the execution results, finally leading the company to financial success

Thus, this study focuses on company P, and de-scribes in detail how it integrates the balanced score-card into its strategy planning The remainder of this paper is organized as follows: Section 2 describes the content of the balance scorecard Section 3 then intro-duces the case (i.e., Company P) Section 4 explains the implementation of the balance scorecard for Com-pany P Conclusions are finally drawn in Section 5

2 Content of the balanced scorecard

2.1 Origin

The balanced scorecard concept dates back to 1988, when KPMG designed a performance evaluation sys-tem for APPLE Later, in 1990, the Nolan Norton In-stitute sponsored a research project entitled “evalua-tion of future organiza“evalua-tion performance”, led by Pro-fessor Robert Kaplan of Harvard University as a rep-resentative of academia and the CEO of Nolan Nor-ton David NorNor-ton as a representative of industry to evaluate the performance of 12 companies The project was completed in December of 1990 and published in the Harvard Business Review in 1992 Norton and Ka-plan mentioned the concept of the balanced scorecard, which applies an overall management system cover-ing four perspectives to help managers acquire com-plete information very quickly, and learn the status of their business The balanced scorecard is a total man-agement system for translating strategy into action, and its core value is achieving the company vision and strategy The key objective is to transform company

strategy into actions to improve competitiveness The

four perspectives include the traditional financial

indi-cators and add three non-financial operating indiindi-cators,

namely the customer perspective, the internal process

perspective, and the learning and growth perspective

These four perspectives transform an organization’s

vision and strategy into a new performance

evalua-tion system with objectives and measures It

consoli-dates individual, departmental, cross-departmental,

re-sources and projects of the company to achieve

com-mon objectives, and it associates company strategy,

vi-sion, and direction with a strategic performance

man-agement system In practice, many companies using

the balanced scorecard consider it to be an important

management process, being used for individual and

team objectives, the salary system, resource

alloca-tion, budget estimation and planning, as well as

strat-egy feedback and learning Consequently, the balanced

scorecard has been promptly developed as a strategic

management system

2.2 Definition

Niven [10] thinks that the balanced scorecard is

a strategic measurement tool carefully selected by

companies, that leaders use to express investment

achievements to employees and stakeholders, and to

motivate the achievement of objectives He also

be-lieves that the balanced scorecard incorporates

mea-surement systems, strategy management tools, and

communication tools Chow et al [1] pointed out

that the balanced scorecard associates traditional and

strategic performance evaluation, and helps a company

to achieve objectives such as long term strategy,

inno-vation, and customer values Kaplan and Norton [4]

mentioned in the Harvard Business Review that the

balanced scorecard is a strategic management tool for

the association of company strategy and key

perfor-mance indexes, seeking a balance between long term

and short term objectives, financial and non-financial

measurements, external and internal performance

per-spectives, lagging and leading indicators, as well as

subjective and objective perspectives

2.3 Advantages

Chow et al [1] believe that the advantage of the

bal-anced scorecard lies in helping companies to integrate

strategy, organization framework, and vision into

man-agement systems, to translate the long term strategy

and innovation of customer value into operational

ac-tivities, and to balance the competitiveness and short term fortunes of stockholders via the combination of traditional and modern indicators Martin [11] thinks that traditional performance indicators tend to measure financial and accounting aspects, impacting long term productivity and profits, whereas companies should fo-cus on synthetic indicators like fo-customer reactions, profits, quality, and flexible production selection The balanced scorecard provides measurements of those in-dicators Berman [12] stated that the balanced score-card enables companies to focus on necessary manage-ment and measuremanage-ment indicators Moreover, it also enables efficient communication of team objectives, and companies can understand how to achieve strategic success by using the balanced scorecard Berman [12] also believes that companies should include 25 to

60 key performance indicators in the balanced score-card Additionally, Hanson [13] thinks that the main advantage of the balanced scorecard lies in helping all organization members to cooperate on develop-ing the future of the firm MacStravic [14] mentioned that the balanced scorecard possesses six advantages: (1) An Increase of firm insights in the understanding

of customers, (2) Readjustment of internal operations, (3) Stockholder satisfaction, (4) Customer acquisition, (5) Improving customer relationships, (6) Increasing customer loyalty Frigo and Kip [15] pointed out that Motorola has improved in three key areas after us-ing the balanced scorecard, includus-ing vision system-ization, quality improvement, and execution There-fore, the balanced scorecard is an important tool for providing focus in strategic management

3 Case study of Company P

Company P was established in 1972, and has ac-cumulated over 30 years of experience It has built

up an excellent technical team, which explains its leading position in producing conductive rubber key-pads, and having a global customer-base Products previously produced by Company P include mobile phone parts, computers, calculators, desk phones, re-mote controls, car rere-mote controls, translators, and fax machines (Fig 1)

Company P not only looks to reduce costs and share their profits with clients, but it also stresses product quality, which itself depends on a perfect quality con-trol system Therefore, machines must periodically be reformed, fleshware should be constantly improved re-gardless of market competition, and efforts must be

Fig 1 Products of Company P.

Fig 2 The organization of Company P.

made to continue stressing internal management,

im-prove work efficiency, reduce costs and provide

cus-tomers with feedback As a good corporate citizen,

Company P has important community responsibilities

Moreover, its core values include innovation, rapidity,

pragmatism, diligence and thrift, described as follows:

– Innovation: Aggressive, brave, understanding

in-ternal and exin-ternal changes, able to adapt to

changes, continuously looking for improvement

and creating new opportunities

– Rapidity: Agile, well-executed, efficiently

gain-ing a leadgain-ing position

– Pragmatism: Working effectively and honestly.

Not being edgy or hypocritical, and seeking to

ob-tain stable progress

– Diligence and thrifty: Being diligent and thrifty,

concentrating on the business, and making things

simple and clear

To realize the above values, Company P has designed

their organization as shown in Fig 2

The main goal of Company P is to make a profit To achieve this goal Company P extends secondary objec-tives from this principle Company P has adopted the slogan “20103100” to describe the direction in which they need to go in to achieve their target Company P hopes to bring their company to a new level during the 21st century and to rise to big challenges The slogan has the following meaning:

– 2010 stands for the Year 2010 (now is the Year

2006)

– 3100 stands for company expectations: (1) To

rank among the top three in terms of global mar-ket share, (2) To obtain 100 technical patents, (3) To make one billion NTD in sales revenues Company P will work with its current organiza-tion and resources, relying on business core val-ues, to achieve the above vision The vision is shown in Fig 3

Fig 3 Company P vision “20103100”.

4 Implementation of the balanced scorecard

4.1 Strategy planning and process

Rather than using traditional financial performance

indicators based on internal accounting systems, which

cannot provide important information about customers

and competitors, resulting in lost awareness of

mar-ket opportunities, Company P helps managers to get

complete information to understand the status of their

businesses, with the balanced scorecard providing the

basis of firm strategic planning Additionally, with the

11 steps of the balanced scorecard developed by Olve

et al [16] and the background information of four

per-spectives developed by Niven (Fig 4 [10]), Company P

creates the process of strategy planning (Fig 5)

Fig-ure 5 shows that Company P first builds the company

vision, which is identified by the management team

and agreed on by the entire organization After defining

the vision, they must establish accurate objectives for

its achievement However, before setting objectives,

various factors should first be analyzed Company P

uses the inner factors analysis, competitors analysis,

and five forces analysis to analyze business operations

Furthermore, due to the professionalism of the

rub-ber industry, Company P has added the technical

per-spective to supplement the four perper-spectives of the

bal-anced scorecard as a direction for objective setting

Af-ter objectives are set, the action plans for achieving

them needs to be defined If there are no problems

dur-ing the planndur-ing of action plans, the plan execution

and performance evaluation step is next; however, if

there are problems in the objective setting when

defin-ing the action plan, then you have to get back to the

objective setting step to reset the objectives Once at the plan execution and performance evaluation step, if there is a problem executing the action plans or doing the performance evaluation, then you have to get back

to the action plan definition step to check the original action plan On the contrary, if there are no problems

at the plan execution and performance evaluation step, the objectives and action plan set by Company P are al-right, and Company P can successfully meet its target

4.2 Inner factors analysis

Company P has to perform the inner factors analysis

to understand its advantages and weaknesses in order

to set correct objectives Company P generates its ad-vantages and weaknesses with the inner factors analy-sis as follows:

Advantages:

– Respond to requests for low quantity and

diversi-fied products

– Strong resources and highly cooperative.

Weaknesses:

– Insufficient technical human resources.

– The appearance of the office building is not good – Insufficient research and development.

– Big factories have low intentions of placing

or-ders

– Insufficient technical staff causing reluctance to

invest

– Others have already applied Quality Assurance

Systems (e.g., Company A, Company B), and their technical information is stored and made available to the public

Fig 4 Background information of four perspectives [9].

Focusing on the weakness of the Company P, this

study proposes a solution as follows:

– Recruit highly educated new employees and train

them to increase their competence

– Redecorate the appearance and build a large

stan-dardized factory

– Train talented staff as R&D specialists, and

re-cruit external researchers

– Improve factory scope, technical staff, customer

service and satisfaction to increase the possibility

of receiving orders from big factories

– Employee training Sufficient technical staff can

solve the resource problem in company

invest-ment

– Company P also has a Quality Assurance System

which is filed and made available to the public

4.3 Competitors analysis

The competitors of Company P are Company A,

Company B, and Company C Their advantages and

weaknesses compared with Company P are as follows: (1) Company A

Their main products are PC film, P + R, Rub-ber, Soft IC, and films in plastic keypads The advantages of Company A are:

– Sufficient resources for technical and market

development

– Publically listed company, with sufficient

fi-nancial support

– Sufficient capital, with plans for equipment

performance improvement and employee training, indicating generally bright prospects The comparisons between Company P and Company A are listed in Table 1

(2) Company B The products of Company B consist of metal rubber coated keypads, double printing keypads,

EL lamps, plastic metal domes, plastic films, and mobile phone covers The advantages of Company B are:

Fig 5 Process of strategy planning for Company P.

Table 1 Comparison between Company P and Company A

3 Financial support, having plans for equipment performance improvement and Insufficient Good

employee training, bright prospects

– Sufficient employees, especially in

engineer-ing and R&D

– Publically listed company, with full capital

support

– Stable structure, with irreplaceable

advan-tages in terms of resources

– Excellent appearance of the office building,

equipment, and technical staff, with

consis-tent orders from big factories

– Efficient factory management and decision

process

The comparisons between Company P and

Company B are listed in Table 2

(3) Company C

Company C has transformed itself into an

elec-tronics company, and their main products are

rubber, P + R, bonding, lasers and PC films

The comparison between Company P and

Com-pany C are listed in Table 3

4.4 Five forces analysis

Considering current resources, organization, team scope, competitive analysis, the admission of Taiwan

to the WTO, competition and threats from the rapid growth of China enterprises, and the current inter-national economic situation, this subsection conducts

a five forces analysis for Company P This five forces analysis should help to clarify the future direction for Company P and help it identify a correct strategy, reduce risks, and achieve maximum profits, creating

a win-win situation Hopefully, Company P can enter

a new phase in the 21st century and continue to grow The five forces analysis devised by Porter [17] de-termines industry profitability or attractiveness based

on five competitive forces: threats from potential en-tries, threats from substitutors, price negotiation power

of the buyer, price negotiation power of the supplier, and industry competitors This analytical perspective

Table 2 Comparison between Company P and Company B

1 Number of employees, especially in engineering and R&D Insufficient Good

2 Stock listed company, capital supports new projects within budget Not listed Good

3 Stable structure, irreplaceable advantages in resource Fair structure and resources Good

4 Excellent appearance, equipments and technic, consistent orders from big factories Insufficient Good

Fig 6 Strategic map for Company P.

helps clarify the industry characteristics, which

influ-ence competitiveness and profitability in the industry

From a strategic point of view, enterprises face

compe-tition from competitive forces.This study uses the five

forces of Porter for Company P The synthetic analysis

is shown in Table 4

4.5 Strategic map

Following the inner factors analysis, competitors

analysis, and five forces analysis for Company P,

fu-ture objectives and action plans can be defined, and

Table 3 Comparison between Company P and Company C

1 Technical staff Insufficient Enough

the balanced scorecard can be used to evaluate per-formance The balanced scorecard includes financial, customer, internal process, technical, and learning and growth perspectives Figure 6 shows the strategic map for Company P for the year 2010

Table 4 Synthetic analysis Price negotiation power Substitute products Substitute level Entry difficulty

Whom Level Product Substitute Product Level Category Level Examples

Material supplier Middle Touch screen Mobile phone High Rough Low Remote control, toy, telephone

Customer Weak PC film General Low Extra work High Mobile phone, PDA

Table 5

2006 annual objectives for Company P Perspective No Strategy Measurement KPI performance indicator Status (/year) Target (/year) Financial 1 Increase sales sales (new product) Annual growth 25% 50%

Customer 2 Increase customer Customer loyalty Continuous order rate – 99%

satisfaction Customer satisfaction Customer Customer – – 99% <6/month

satisfaction complaint Internal 3 Reasonable cost Production cycle Delivery rate 90% 95%

4 Reinforcement of productivity Increase personal productivity 2.4 million 40%

New product development Success rate 50% 100%

techniques Productivity Personal productivity 3750p 2% (3825p)

management Problem finding and solving Problems found Solving rate 5/month 90% 10/month 90% Learning 8 Building company Employee satisfaction Quit rate 5% 2%

and growth culture

9 Multi-functional Competence development Achievement rate 70% 90%

4.6 Annual objective for the year 2006 for

Company P

With the strategic map for Company P, we have

a rough understanding of the direction in which we are

working, and can start setting objectives for 2006 To

stimulate discussion between decision makers and all

related staff, the 2006 annual objectives are listed in

Table 5

4.7 Action plans

After completing the 2006 annual objective setting,

Company P can work on the action plans with their

strategy performance indicators, as shown in Table 6

5 Conclusion

Company P has carried a debt of one hundred mil-lion NTD since June 1989, but achieved earnings of tens of millions of NTD for 2005 Company P has experienced numerous difficulties and transitions, but currently the scope of the company is growing, the number of employees is increasing, and products are becoming increasingly complicated The former “one governor” policy does not suit the current rapidly changing market Therefore, Company P must start

a new process starting with objective setting, strate-gic plans, action plans, project execution, and evalua-tion, to avoid any losses caused by personal negligence

or error The process can also improve decision

mak-Table 6 Action plans of Company P Perspectives Strategy Indicator Action plan Schedule/Month Owner Plan

1 2 3 4 5 6 7 8 9 10 11 12 execution Finance Increase Double Quantity increase −−−−−→ −−−−−→ −−−→ Sales –

Quantity increase −−−−−−−−−−−−−−−−−−−−−−−−→

of mature products 100%

Customer Improve Continuous order Improve −−−−−−−−−−−−−−−−−−−−−−−−→ Sales/R&D –

customer over 95% service quality

satisfaction (customer loyalty) Reduce failure rate −−−−−−−−−−−−−−−−−−−−−−−−→ QC/Product

line Accurate delivery −−−−−−−−−−−−−−−−−−−−−−−−→ Production

Management/

Product line Internal Reasonable Cost down Low cost material −−−−−−−−−−−−−−−−−−−−−−−−→ Sales/RD –

cost 15% Reduce failure rate −−−−−−−−−−−−−−−−−−−−−−−−→ QC/Production

Shorten −−−−−−−−−−−−−−−−−−−−−−−−→ Engineering/

Technical R&D 20 pcs/ Staff optimization −−−−−−−−−−−−→ Management/ –

Purchase patent −−−−−→ −−−−−→ R&D techniques

Learning Multifunctional Basic employees Building annual −−→ −−→ −−−→ Management –

Engineers evaluation system −−−−−→ −−−→ departments

50 hrs

20 hrs

36 hrs

ing By introducing the steps and data of the balanced

scorecard of Company P, this study expects to provide

other enterprises, especially the rubber industry, with

an important reference for use in their future

imple-mentation of the balanced scorecard

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