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USING A BALANCED SCORECARD IN THE IMPLEMENTATION OF

PERFORMANCE MANAGEMENT
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Contents
Executive Summary.........................................................................................................................3
Introduction..........................................................................................................................................4
Traditional Performance Measurement tools..................................................................................6
Liquidity Ratio..................................................................................................................................6
Profitability ratios.............................................................................................................................7
Solvency ratios................................................................................................................................8
Critique of traditional performance measurement tools by SBK in its operations......................9
Increasing competition...................................................................................................................9
The power of Technolgy................................................................................................................9
Changing external demands.......................................................................................................10
Changing Organizational roles and changing the nature of work...........................................10
Use of a Balanced scorecard to align strategic, Managerial, and operational requirements. 11
Financial Perspective...................................................................................................................12
Customer Perspective..................................................................................................................12
Innovation learning and development Perspective...................................................................13
Internal Business perspective.....................................................................................................13
Use of a Balanced scorecard in measuring performance in a hospitality industry...................14
Performance goals/objectives.....................................................................................................14
Performance Measures................................................................................................................15
Performance targets.....................................................................................................................16
Conclusion.........................................................................................................................................17
References........................................................................................................................................18
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Executive Summary

The project aims at discussing traditional performance measurement

techniques used in business sectors such as SBK and also discussing the limitations
of the tools to the business, especially in a current competitive business
environment. Traditional techniques include Return on Equity (ROE), Return on
Assets (ROA), Net Profits, Dividend Per Share (DPS), and Return on Investments

Business Scorecard(BSC) as a tool for measuring performance will be

critically analyzed as used by SBK in improving its strategic, managerial, and
operational requirements. A business scorecard is a tool used in management to
implement strategies by converting organizational visions and missions into goals
and tasks.

The project will discuss Balanced scorecard implementation in the Hospitality

industry. It will be analyzed in performance goals, performance objectives,
performance measures, performance targets, and BSC strategic map. The BSC will
be used to discuss in detail the measures to be taken to improve the performance in
the hospitality sector.
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Introduction
Performance measurements are the process of analyzing outcomes or the
results to determine the effectiveness and efficiency of the projects and programs
(Taouab & Issor, 2019) The performance measurement has evolved over the years
from traditional to modern. Traditional performance management is based on
financial aspects, and can only be implemented only through financing. For
management of the performance to be taken the financial position must be
determined, analyzed, and even predicted. The following ratios will be analyzed to
determine the current performance of the organization. They include liquidity ratios,
efficiency ratios, profitability ratios, solvency, and market prospects. These are tools
that are focused on the financial perspective of measuring performance. Those
techniques include profitability ratios, efficiency ratios, and financial ratios. Those
traditional performance management techniques are based on cost, financial, and
management accounting (Fisher, 2021). Since the emergence of the modern
methods of performance measurement the traditional techniques have been
considered backward.

The current business environment has overgrown rapidly with raising

competition from different firms, forcing the organization to adopt both financial and
non-financial techniques for the performance measurements (Papulov, et al., 2021).
Competition has made the management monitor the performance of the
organizations to make effective decisions. Since the end of the 20s Century, many
companies have decided to invest in their performance The current business
environment has overgrown rapidly with raising competition from different firms,
forcing the organization to adopt both financial and non-financial techniques for the
performance measurements (Papulov, et al., 2021). Competition has made the
management monitor the performance of the organizations to make effective
decisions. Since the end of the 20s Century, many companies have decided to
invest in their performance measurement systems to measure their results for better
future outcomes. In the 21s Century, organizations have changed the definition of
the performance measurement to the way the firm improves its competitiveness
through the utilization of the available resources to create efficiency and
effectiveness.
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The performance measurement in the current business environment is

characterized by using both financial and non-financial factors, performance is
vibrant, how current action act as a measure for future results, and performance
measurement should be able to quantify outcomes.

The performance measurement in the current business environment is

characterized by using both financial and non-financial factors, performance is
vibrant, how current action act as a measure for future results, and performance
measurement should be able to quantify outcomes. One method of the modern
performance measurement method going to be discussed is the balanced scorecard
(BSC). Robert Kaplan and David Norton developed a balanced scorecard in the
1990s, which is a technique used to measure both financial and non-financial factors
in an organization by giving clear targets and predictable results (Quesado, et al.,
2017). A balanced scorecard is characterized by financial, customer, innovation, and
internal perspectives.
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Traditional Performance Measurement tools

Traditional performance measurement tools are the financial indicators used
to measure performance in 20S century. Those financial indicators include financial
accounting, cost accounting, and management accounting. The management of the
organization believed that the performance can only be affected by the financial
factors alone. Traditional performance measurement technique was oriented toward
profitability. Management believed that all business activities must be profitable
(Fatihudin & Mochklas, 2018). Traditional performance measurement tools include
Dividend per share (DPS), Earning per share (EPS), Return on Investment (ROI),
and Return on Asset (ROA). The traditional performance measurement tools are
metrics used to measure the financial condition of the company. They include
liquidity, profitability, solvency, efficiency, and valuation (Stobierski, 2020) Financial
indicators are as discussed below:

Liquidity Ratio
They are indicators of the ability of any organization to pay its short-term
debts. If the firm can use its short-term assets to pay its short-term liabilities
(Madushanka & Mathyinparasan, 2018). Excess liquidity ensures that the firm earns
enough profits and inadequate liquidity means that the organization is struggling to
pay its debts hence fewer profits. Examples of the short-term assets used to
measure liquidity are cash and accounts receivables, and the example of the short-
term liabilities used to measure liquidity include overdrafts and accounts receivables.
The liquidity ratios are current ratios and quick ratios (Lalithchandr & Rajendhira,
2021) They are expressed in these formulas:

Current
Current Assets
Ratio: Current
liabilities
The accepted ratio in current ratios should be 2:1 which means that the current
assets should be double the current liabilities (Megaladevi, 2017).

Cash+Account receivables+Marketable
Quick securities
Ratio:
Current Liabilities
This ratio gives a true indicator of financial performance as compared to the current
ratio since it excludes assets such as inventory which are far related to liquidity.
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The cash ratio is stricter than all other liquidity ratios and it is the most preferred.

Cash Cash+Marketable securities

Ratio: Current Liabilities

Profitability ratios
These are financial performance tools used to measure the ability of the firm
to generate profits in comparison to company operating costs, balance sheet assets,
and capital (Laitinen, 2017). The higher the ratio the greater the profitability of the
company. Profitability is considered one of the vital techniques for measuring
performance since it requires analysis of both the balance sheet and the income
statement. Sales, purchases, assets, and capital are analyzed to determine
profitability (NGUYEN & NGUYEN, 2020) Profitability ratio formulas are analyzed as
follows:

Profit After Tax

ROE:
Net Worth
ROE is the Return on Equity and the net worth means surplus plus capital. Return on
equity measures the performance of the capital invested by the shareholders.

Net Profit
EPS:
Total number of shares outstanding
EPS is the earnings per share. It measures the performance of the shares invested
by the shareholders.

Dividends paid
DPS:
Total number of shares outstanding
DPS is the Dividend per share. It measures the performance of each share invested
and the reward to the shareholder. The higher the DPS the higher the profits earned
(Suratmi & Rahmawati, 2020).

Net Profit
ROA:
Total Assets
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ROA is the Return on assets. It measures the performance of assets invested, and
how much it contributes to the profitability of the company.

Solvency ratios
Solvency ratios are financial performance measurement tools that measure
the ability of a firm to pay its long-term liability (Agust & Hati, 2018). They are the
direct opposite of the liquidity ratios. They affect assets like inventory, equity, and
income. The ratios have been analyzed as shown:

Debt-to-Assets Debt
Ratio: Assets
Debt to asset means how assets of the firm are been financed by long-term debts.
For a viable business, the assets should be more than the debts.

Equity
Equity Ratio:
Assets
It shows how the capital is used to finance assets. The lower the ratio, the higher the
debt to the asset (Baraja & Yosya, 2019).

Interest-Coverage EBIT
Ratio: Interest Expenses
EBIT is the earnings before interest and tax. It measures the ability of the company
to cover its long-term debts. A ratio above 1.5 is considered good (Suratmi &
Rahmawati, 2020).
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Critique of traditional performance measurement tools by SBK in its operations

The financial performance measurement tools have been criticized due to its
limitation hence the emergence of modern techniques such as balanced scorecard.
The traditional methods have been considered as backward since it covers financial
aspects only (Quesado, et al., 2017). The modern business environment is covered
by factors such as innovation perspective, customer perspectives, and other non-
financial perspectives. The critique includes:

Increasing competition
As in the case of SBK, the increasing competition especially from big
companies which have the best innovations and best customer service is pushing
the firm to adopt the use of a balanced scorecard. The competitors are focusing on
innovation and improving technology. The traditional method of measuring
performance has been criticized because they focus on financial factors hence with
growing customer demands, other factors are now affecting the performance.

In the modern environment, the main aspect is the production of quality

products, the satisfaction of customers, continuous innovation, new designs, and the
making of profits (Comanescu, et al., 2018). The traditional performance
measurement techniques focus on just making profits which is not enough in the
current competitive market. The factor that increases the competitive advantage
includes quality products that meet customers' requirements, better promotion, and
marketing strategies, and better product pricing (Comanescu, et al., 2018).

In summary, the traditional performance measures have been criticized

because they are rigid and fixed on financial factors. Hence the need for use of a
Balanced scorecard.

The power of Technolgy

Technology is been improved day by day, as well as competition from the innovators
(Mapoma , 2017). The firms which were focusing on financial aspects were fewer
disadvantages as compared to companies that are continually improving their
products. In the modern environment, the competitive advantage is determined by
technological advancement and not the profits as it were in the 20s century (Mutie,
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2018) Organizations that are lined up to technological innovation revel in competitive

advantage as compared to the companies which are focusing on their financial
profits.

Many firms in 20S century were focused on the analysis of financial and
management accounting statements as the only technique for measuring
performance. The emergence of the use of a balanced scorecard in the 2000s
changed the perspective and the management noticed it can focus on other aspects
and still make profits. Norton and Kaplan criticized the traditional methods and they
developed the balanced scorecard (Mutie, 2018).

Changing external demands

External demands include demand from the customers in need of quality products at
a lower price, a skilled workforce demanding high salaries, or high staff turnover
going to the competitor. The demand for quality products and services has pushed
firms to move from financial performance measurement techniques to techniques
such as balanced scorecards (Paulssen & Das Guru, 2020). The firms have started
to focus on the customer requirements and the product specifications.

Staff turnover rate has also moved management from focusing on the profits only
and started focusing on staff training, staff benefits, staff motivations, staff working
environments, and better remunerations (Cronquist, 2019). Those factors were not
considered in traditional performance measurement techniques, hence the
development of modern performance measurement techniques such as balanced
scorecard.

Changing Organizational roles and changing the nature of work

Organizational roles are changing every single day. Departments within the firms are
being created to cater to changing demands. The traditional performance
measurement system was limited since it was covering accounting and management
departments, but with the change in nature of work other departments and roles
have been created such as sales departments with a sales manager, Information
Technology departments with an information technology Manager and Human
resource department with Human Resource Manager.
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Use of a Balanced scorecard to align strategic, Managerial, and operational

requirements

A balanced scorecard was developed by Norton and Kaplan and it has been
used by many firms since the 1980s and actively used since the 2000s. The
balanced scorecard is a performance measurement technique used by the
organization to track the performance of the organization to achieve desired results
(Andrews, 2020). The balanced scorecard measures outcomes in four different
sectors which include: financial factors, employee factors, and customer and
operation factors (Wright, 2021) A balanced scorecard requires firms to set strategic
plans which will act as a guide to their performance and future desired outcome.

      Financial    
         
             
             
             
    Internal
Customer Balanced Scorecard
    Processes
             
             
             
      Learning and    
      growth    

A balanced scorecard has two major purposes which include performance

measurement and use in strategic planning. This project will emphasize a balanced
scorecard as a performance measurement technique. The balanced scorecard
instructs the organizations to set goals and also state the measures to determine the
performance.
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Financial Perspective
Financial perspective relates to all measures taken or are being planned to be
taken concerning finances such as cost-saving, profits, and adding new revenue
sources (Marr, 2018). It includes ratios such as liquidity, solvency, and profitability
which enables the evaluators to compare the performance of different sectors.

SBK could use the financial perspective to have a strategic plan of how they
are going to spend funds and compare the performance within the departments. It
could use the financial perspective to determine the financial stability of the company
and also determine the financial profitability. A balanced scorecard will enable SBK
to analyze and summarize the financial information from past activities and compare
it with the current outcome as it was planned in strategic plans (Iyibildiren &
Karasioglu, 2018). The financial perspective answers the question, how do we look
to shareholders?. The main aim of the financial perspective is to determine goals
and measures to create shareholders' value. Below is an example of how the
balanced scorecard under the financial perspective works.

Goals Measures
To survive Maintain cash flow, promote the business, adopt cheap cost of
competition production
To succeed Hire more salespeople to promote and sell products to increase
sales volume
To Prosper Issue shares to the public and pay dividends

Customer Perspective
This perspective answers the question how do customers see us? The
balanced scorecard on customers' perspectives sets goals that will ensure that they
get more customers, maintain their current customers, and ensure that the
customers are satisfied. The goal of customer satisfaction can be met through
several measures such as setting up a contact center to promote faster and more
efficient customer service, establishing a customer support system, taking customer
feedback with the seriousness it deserves and ensuring faster service to reduce
waiting time (Khadka & Maharjan, 2017).
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Another goal from the customer perspective is offering quality products to the
customers. Customers will be attracted to quality and cheap products and that
should be a goal for every firm as well as SBK. The measure to ensure quality
products include ensuring the supplier of raw materials supplies quality products,
strict production supervision and hiring quality assurance personnel, and setting
quality management systems (Kelderman, 2021) The table below shows how a
balanced scorecard captures the customer perspective goals and measures.

Goals   Measures
Customer
satisfaction Faster sorting of customer queries and shortening waiting time
Quality products   Setting quality management system
Innovation learning and development Perspective
The innovation perspective answers the question if the firm should continue
improving and creating new values. Innovation is the process of creating and
developing new ideas, products, and services (Malagueno & Valeiras, 2018). The
goals of innovation learning and development perspective include advancement
opportunities and improving innovation culture. The measures of the perspective
include employees' training for learning goals and employees' innovation culture
score. This perspective is focused on employees' learning, training, and advances
and how that learning will improve the performance of the organization (Zhu, 2020).
The table below shows how a balanced scorecard is used to measure performance
in a modern business environment.

Goals   Measures
Improve innovation culture Employee culture score
Advancement opportunities Employee training

SBK should recognize their employees and make them feel important to the
company. Through training employees to improve their performance and to give the
company a competitive advantage by having qualified employees.

Internal Business perspective

The internal business perspective answers the question of what can an
organization do. This requires the management to monitor its internal operation and
ascertain if they align with the plans (Tarver, 2022). This perspective is concerned
with internal aspects such as employees. The social management internal processes
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are an element of this perspective that deals with the safety and health of the
employees. Employees being a crucial part of the organization they should be taken
care of since they ensure services and products are of good quality, customers are
satisfied and sales output is high.

This perspective also recognizes customers as internal members of business

processes. When dealing with customers, quality, cost, and time are very crucial for
customer satisfaction (TUAN, 2020). To achieve customer satisfaction, measures
must be set in order, to achieve customer value.

Goals   Measures
Research and Development
efficiency The time involved in research development
New product introduction   product quality and rate of acceptance

Use of a Balanced scorecard in measuring performance in a hospitality industry

This report will discuss the balanced scorecard in the hospitality industry such
as hotels. The report will be divided into four categories which are perspectives,
goals/objectives, performance measures, and performance targets. The hospitality
industry has recently been faced with competition from upcoming hotels, online food
shops, and food delivery vendors who offer free deliveries (Mutuku, 2018) Due to the
competition, the hospitality industry needs to start using modern methods of
measuring performance such as balanced scorecard (BSC). The hospitality industry
is an exceptional business sector because the products are a mix of different food
varieties. For an efficient and effective balanced scorecard, it must have goals,
objectives, and measures.

This report will be subdivided into four parts as discussed:

Performance goals/objectives
Those are objectives that are expected to be achieved within a set time. In the
hospitality industry, the main objective is to serve customers by offering quality
products to create customer satisfaction and also make profits. The objectives will be
discussed as per the four balanced scorecard perspectives.

The financial perspective aims at creating value for shareholders or the

owners. In the hospitality industry, the financial performance measurement goals
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include lowering costs, increasing profits, and increasing the total amount of sales.
Lowering costs will affect the daily cash operation expenses such cost of deliveries.
Increasing profits will affect total sales, total purchases, and lowering costs.
Increasing revenue means the total number of sales will increase.

From the customer perspective, the performance goals will include boosting
customer satisfaction, customer retention, and growth, and improving customer trust.
Customer satisfaction requires the provision of quality products and cheap products
which are worth the price.

The internal processes perspective is the strategy the organization carries to

ensure effective operation internally. The goals to be carried out are improving the
process of manufacturing, reduction of daily food spoilage, and lessening customer
waiting time.

Learning and growth perspective. These are activities that relate to the growth
of employees within the organization. The performance goals include the inspiration
of the employees, objectives to reduce staff turnover, and creating new ideas or
menus.

Performance Measures
They are strategies used to determine whether the goals or objectives have
produced the right output. It also tracks if the goal set is on the right track. From a
financial perspective, the measures include total sales returns, net earnings, and
operating expenses. From a customer perspective, the performance measures
include an online customer questionnaire on satisfaction, customer rewards such as
free meals and gift vouchers, and the number of customers who came back. The
internal process measures include reduced manufacturing hours, the number of
plates wasted per day, and time from the kitchen to the serving area. The learning
and growth perspective measures include a staff satisfaction questionnaire, best
employees of the month rewards, and encouraging the creation of new menus by
staff.

Performance targets
Target is the percentage level of the performance expected in business
objectives and measures. In the hospitality industry, total sales return is expected to
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increase by 10%, net earnings by 8%, and lowering operating expenses by 6%.
Customer satisfaction to increase by 88%, customer retention by 91%, and
improving customer trust by 90%.Improving the process of manufacturing by 50%,
reduction of food spoilage by 80%, and lessening customer waiting time by 95%.
Motivating employees by 60%, reducing staff turnover by 50%, and encouraging
innovation by 70%.

Perspective Performance goals Measures Targets

Lowering by
Lowering costs   Operating Expenses   6%  
Increase by
Financial
Increasing profits   Net Earnings   8%  
Increase by
Increasing sales output   Total sales return   10%  
   
Increase by
Boost customer satisfaction   Online Questionnaires   88%  
Increase by
Customer
Customer retention   Customer count   91%  
Increase by
Improving customer trust   Customer rewards   90%  
   
Improving the process of Reduced manufacturing Improve by
manufacturing   hours   50%  
Internal Reduce by
Reduction of food spoilage   Number of plates   80%  
Time from the kitchen to
reduction of wait time   customer   reduce by 95%  
   
Staff satisfaction Improve by
Employees motivation   questionnaire   60%  
Learning and Reduce by
Innovation Reduce staff turnover   Best employee rewards   60%  
Encourage by
New ideas   Creation new menus   70%  
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Conclusion
Performance measurement is an evolving activity since the traditional
performance measurement techniques started in the industrial era and 1980s the
balanced scorecard was developed by Kaplan and Norton. In summary, the
performance measurement techniques will keep evolving since the competition,
technology and innovation will keep on growing.

The traditional performance measurement techniques had a lot of limitations

since the organization had few departments and employees too. The financial
techniques only focused on financial accounting cost accounting and management
accounting. It was only focused on the creation of shareholders' value hence
neglecting the customer perspective, innovation perspective, and internal processes
perspective. The approach was backward. The emergence of stiff competition
exposed the limitation of the traditional performance measurement techniques. Many
organizations have adopted the use of a balanced scorecard.

The balanced scorecard is an effective and efficient technique for measuring

performance since it covers customer, financial, internal processes, and learning
perspectives. The balanced scorecard ensures goals and objectives are set to
promote customer satisfaction. The customer needs are met by ensuring quality
products and cheap products. The employee needs such as motivation, recognition,
and the turnover rate is well catered to in the balanced scorecard technique.
Innovation, learning, and growth are also encouraged when using the balanced
scorecard techniques. The internal improvement within the organization is also
covered by the measure set to determine the performance.

The benefit of a balanced scorecard is that it enables businesses to have detailed

reports in one file. It also gives the management a quick and easy way to measure
the performance. It enables companies to be efficient in their internal controls.
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