Discuss about the Balance Score Card Analysis And Suitability.
Each and every company shall strive to maintain the system robust in order to achieve the objectives as defined by the company. In order to have such system, the company shall adopt a defined and the valuable technique which will help the company in integrating the efforts towards the attainment of the common objectives. The techniques or method so tried to be implemented shall be best and according to the needs and the requirements of the business of the company. Although there are many management accounting tools and the technique available with the companies operating in the particular industry but for the purpose of this report, the balance scorecard has been discussed in detail. For the furtherance of this report, the company that has been chosen is the manufacturing division of the Ford Motor Company. It is the company based in United States.
The report has started with the description and details of the company so as to have an understanding of the company. The description includes the name of the company, its nature of business and how the company is currently operating its functions. Then the technique of balance scorecard has been discussed in detail with its meaning and as to what are the main characteristics that it carries in each process. After mentioning the features, the technique of balance scorecard has been compared with the traditional system for the measurement of the performance of the company. In this the advantages of the balance scorecard has been given which is over the traditional system. Then the detailed discussion has been made regarding whether the balance score card so listed is suitable and applicable to the selected company.
With these discussion and analysis the report has been presented with the appropriate headings and subheadings and all the data for the purpose of this report has been collected from the reliable and the available sources.
For the furtherance of this report, the Ford motor company has been selected. The company has been carrying out its functions since the year of its incorporation which is nineteen hundred and three. The company has been into the business of manufacturing of the cars, trucks, SUV’s and the electric vehicles. The company does not only manufactures but also markets and sells the automobile goods. The company has their own division of financing and provides the finance to the customers as and when the demand arises and only on the purchase of the goods of the company. The company has operating across the globe and for the purpose of this report, the subsidiary of company located in Australia as Ford Motor Company Limited has been considered and accordingly the analysis has been made (Ford Company, 2017).
Balance Score Card
Before proceeding with the application and suitability of the balance score card to the company, it’s better to have more detailed discussion on the strategic objectives of the company. It is because only after knowing the company in detail, the applicability and suitability of the balance score card can be verified. Few are the strategic objectives of the company which will help in assessing the main purpose of this report.
- The first strategic objective of the company is to have the increased the fuel economy on the global basis. It can be done by the reduction in the rate of emission of the gases which are hazardous in nature. It has been mentioned that the company has been able to achieve the improvement of ten percent in the emission of carbon dioxide. This ten percent is regarded as the benchmark of the industry and is the best in the automobile industry.
- The second strategic objective of the company is to have the right or monopoly in the industry to manufacture the product which will be light weighed. The market share can be measured through the data that has been collected in the survey for the customers including the corporate who are using the goods of the company. Currently the company is producing lighter goods with one hundred and fifty to seven hundred pounds.
- The third strategic objective of the company is to have the number of customer base increased with the usage of their goods. It means the customers using their goods in the market shall be more and thereby having the high market share. The strategy that the company has adopted for the same is to conduct the marketing of the products through advertisements or door to door advertisements and through the way of business promotion events. Higher the customer base of the company higher will be their chances for survival in the future.
- The fourth objective of the company is to have the smooth and efficient working culture in the office. For this the company shall work to have the system where the corporate governance in good terms shall be there. This can be only achieved through the system of having the good office culture of the company. The culture is not related to the deployment of the individuals employed in the organisation rather it is concerned with the proper and effective working of the organization. The code of ethics as developed in the organization shall be followed by each and every employee employed in the organization. Not only this, the good working culture will then is developed by conducting the workshops so as to aware the employees about the working culture of the company. Thus, for developing the working culture the employees have to work within the limits as defined by the company policies rules and procedures.
- The last and the main strategic objective are to consider the need as well as the objectives of the stakeholders of the company. It is because it is the stakeholder only because of which the company runs consecutively for the future years and the company shall consider all the needs and the requirements of the stakeholders. The stakeholder includes the shareholders of the company, investors, potential investors, banks and the financial institutions, the government authorities and the employee of the company. The company has adopted the policy of full and timely disclosure to the stakeholder in order to avoid the ambiguity in any manner and in case any deviation comes into notice, then the same will rectified to the satisfaction of the stakeholders of the company.
Thus, by having the detailed discussion on the objectives and the working of the company, the importance and the applicability and suitability thereon can be verified with the method known as Balance Score card.
Balance score card is the method which will be flowed through out the report. At first, the meaning of the balance score card will be discussed along with the features. Through the implementation of the Balance Scorecard, the company will have the better measurement systems.
Balance Score Card is the planning system that is being frequently used by many companies across the globe. Companies include not only the profit making organisations but also includes the not for profit making organisations. It provides both financial and non financial measures required to evaluate the performance of the company. Through these measures the management of the organisation have the view of performance of an organisation in the balanced manner. The balance score card has defined four perspectives through which the company’s overall performance can be viewed in the effective manner (CIMA, 2015). These four perspectives are – Financial, Customer, Internal Business Process and Learning and Growth. . Each of the perspective delivers different values to the company. Through this report the Ford Company has been chosen for which the overall objectives of the company will be explained and thereafter objectives of the Manufacturing unit of the organisation will be explained. Keeping in view the objectives so listed, the balance score card will be identified suitable only after analysing the features of it (Kaplan and Norton, 2014)
Financial perspective is basically embedded for meeting out the needs of the shareholders and other stakeholders like rate of return on capital employed, earning per share, etc. Customer perspective deals with the customer satisfaction and attraction. Internal business processes helps the company to measure the viability of the processes between the stage when the customer needs are identified and when the customer needs are satisfied. Last perspective deals with the measures to evaluate the long term growth of the company (Niven and Paul, 2012).
Having dealt with the meaning of the balance score card it is necessary to understand its features only then the comparison can be made with the traditional method measurement.
For the purpose of having the best system of the balance scorecard, following are the distinguished features of the balance score card that every company shall have:
- First feature of the balance scorecard is the financial evaluation. Everyone is interested in knowing this perspective because of its dealing with the profitability of the company and other measures such as return on assets, return on equity, net profit margin and etc. The financial perspective serves as the focus for the objectives and acts as the measure for the aim of the company and also acts as measures in the other score card objectives. This form of perspective reflects the concern for profit organisation stating that every action has cause and effect relationship which helps in measuring the financial performance of an organisation in short run and long run. While identifying the objectives and measures various matrices are considered which are appropriate for different units operating in an organisation. These matrices help in linking the financial objective of the unit to the strategy adopted by the organisation as a whole.
- Second feature is of the customer perspective. It deals with the customer satisfaction. It helps in understanding as to where the organization stands at from the view of the customer. This feature will not always be static like financial evaluation indicators rather it keeps on changing (Isoraite, 2014). This form of perspective measures the compatibility of the organisation to provide the goods and services of better quality, to assure the timely and effective delivery of the goods to the consumer, to provide the customer a desired level of service and overall satisfaction to the customer. The need and requirements of the customers shall be fulfilled in an effective manner as the organisation derives the value of their products and receives the profit only because of the customer satisfaction. Therefore, it is regarded as the basic and important form of perspective for the effective working of the organisation. (Kaplan and Norton, 2016)
- Third feature is of having the system of sound internal control processes. This form of perspective deals with the results of the business generated internally that leads to the success of the organisation not only financially but also by increasing the level of satisfaction provided to the customer. In order to achieve the organisation objectives and the expectation of the customers, the key business processes should be identified on which the organisation as a whole should work with full dedication. By placing the key business processes it is ensured that the drawbacks will be more than the satisfactory and also helps in achieving the expectation relating to the performance as well as customer satisfaction.
- Fourth and the last feature is of the learning and growth perspective which basically deals with the employees of the company. This form of perspective focus on the ability of the personnel working in the organisation, the information system installed in the organisation and its effectiveness and the change in the organisation in order to support the objectives of the organisation. Every process requires the manpower to accelerate the process in the right direction and on the right path. Processes will only succeed when the manpower who are adequately skilled and are motivated accordingly and are supplied with the proper, accurate and timely information are the real personnel who are driving the process. This process takes on increased importance in organisation as most of the organisations have undergone a drastic and radical change in every sphere. To meet the ever changing requirements in the business and to gain the competitive advantage over other organisations and to gain the expectation of the customer, personnel should be motivated to take the new responsibilities, acquire new skills, acquire innovative technology and adopt the change if any in organisation.
The company has been adopting the budgeting method for the measurement of the performance of the company. Budgeting is the management tool under which the standards are set for each and every activity of the company and against which the performance of the company is judged. These standards are prepared in accordance with the past experiences of the company as well as in accordance with the judgment made by the management of the company if any. The budgeting has been regarded as the traditional performance measurement as it is the old indicator for measuring the performance. Although the balance scorecard is also an old method but due to its gaining importance in the last so many years it can be said that the method is new as compared to budgeting.
Under the method of budgeting, the company is required to prepare the materials budget, sales budget, purchase budget and cash budget and so on. These budgets help in minimising the cost of particular thing if the budget gets exceeds or if there is the scope of saving of the money of the company.
Budget usually plays very crucial part in the success of the business of the company. It persuades each and every manager of the company as well as the persons who have been charged with the corporate governance of the company to be ready for all the events that may happen in the near future. Master budget comprises of all the forms of budget and lays down the plan for all the activities of the company in total. All the budget which is required to be made for the specific purpose like purchase budget or sales budget forms the part of the master budget only. The main advantage of the preparation of budget is that the company can have an idea as to how the activity is required to be performed and what type of measures can be undertaken so as to bridge the gap between the actual results as well as the budgeted results. For instance if the company’s budgeted results or the desired results is that the production budget shall be at the minimum and the company will work accordingly in order to achieve the desired results. There is one important concept of zero based budgeting which is widely used by the companies across the world. It enables the company to consider the base year as zero and instead start the budgeting process at the fresh. Thus in this way the budgeting is the important factor for success of every business.
But if the same is compared with the balance score card then the budgeting is identified with the low level. It is because of the fact that the balance scorecard provides the four perspectives in which all the functioning of the company can be measured against the set standards and therefore, the balance scorecard shall be implemented in order to be more informative and detailed.
Yes, the balance score card is suitable for the company. It is not only suitable for the company but also convenient and more useful for the company. It is because of the following reasons:
- The balance score card has four perspectives which in itself carries the whole of the functions of the company and considers the same and from those perspectives gives the indicator of the performance of the company.
- It provides an inbuilt target system of achievement.
- Through the budget the internal control processes cannot be measured and sometimes through which the actual costs gets increased. But in the balance scorecard the company can measure the internal control processes in a very good and deep manner.
- As the company is the manufacturing company, all the four perspectives covers all the areas and as the company has many activities and large operations, balance score card will provide the best results.
Thus, in this way the balance score card is suitable for company.
Conclusion And Recommendation
Balance score card is in the current scenario a prevalent technique for the measurement of the performance of the company. For the purpose of this report, the data of Ford Manufacturing Company has been used. The features of the balance score card have been discussed in detail along with the comparison with the budgeting being the traditional method of performance measurement. In order to conclude the report, the balance score card has been explained in detail and it has been established that the balance scorecard is the best measure for the measurement of performance.
It is recommended for the company to implement the system of the balance scorecard system in place.
CIMA, (2015), “Effective performance management with the balance scorecard”
available from https://www. cimaglobal.com/ Documents/ImportedDocuments/ Tech_rept_Effective_Performance_Mgt_with_Balanced_Scd_July_2005.pdf accessed on 16-05-2018.
Ford Company, (2017), “Annual Report” available on https://corporate.ford .com/homepage.html accessed on 16-05-2018
Isoraite M., (2014), “The Balance Score Card Method and accounting: From Theory to Practice” available from https://www.mruni.eu/upload/iblock/d42/Isoraite.pdf accessed on 16-05-2018
Kaplan R. and Norton P, (2016), “The Balance Scorecard: Translating Strategy into Action”, Harvard Business School Press, 512(2), pp 42-52
Kaplan R. and Norton P, (2012), “The Balance Scorecard: Translating Strategy into Action”, Harvard Business School Press, 423 (4), pp 111-115
Niven, Paul. R, (2012), “Balance Scorecard Step by Step: Maximizing performance and maintaining results”, John Wiley & Sons, Inc., New York,
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