A balanced score card is a tool used by senior management to measure organizational progress in attainment of set goals and objectives (Smith 2007, p.166). This does not imply that other tools cannot be used to measure performance and therefore, management is at liberty to use other tolls even where balanced scorecard has been used.
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A balanced score card focuses on four areas namely financial, internal processes, customer as well as learning and growth (Schniederjans 2007 p.163). These are also known as the four legs of a balanced score card and without any of them, the whole system is incomplete. Financial perspective enables a firm measure where they want to be in terms of finances and the image that they create to the shareholders.
The firm main financial areas of concern are operating income and return on investment (Matthews, 2002, p.107). Customer perspective focuses on serving customers in a satisfactorily manner and the image that the firm portrays to the customers.
Internal business processes focus on how the firm can improve its internal processes and operations in order to achieve efficiency while learning and growth focus on how can the firm can improve on the skills and abilities of the employees.
This paper will discuss on how a balanced score card can help management in developing new organizational goals, how to integrate corporate vision and values with the four perspective of a balanced scorecard. In addition, the paper will also look at how the scorecard can be used to communicate organizational goals to employees and the role played by the compensation mechanism.
Development of New Goals for UNUM Corporation by Chairman and Chief Executive
The chairperson and chief executive of UNUM realized that their goals by then were not sufficient to achieve success in the organization. He therefore focused on achieving goals that are more meaningful by engaging balanced measures that would incorporate the interests of all the parties who had a stake in the organization.
He realized the importance of teamwork in achieving meaningful goals and therefore formed a team of thirteen senior managers who were to engage in the process of designing and implementing balanced goals and measures. A balanced scorecard was to be used and the four legs of a balanced score card were the focal point.
The chief executive therefore informed his team that he wanted them to develop a customer scorecard, a financial score card and an employee productivity score card. He then acknowledged the importance of education and knowledge and gave the team ample time to learn about the balanced score card since it was a new concept (Hannabarger, Buchman and Buchman, 2007, pg. 9).
James Orr therefore sought to develop new goals by use of a balance scorecard that has four different but closely integrated aspects and failure or negligence on one aspect might lead to business failure.
Relationship between Development of Corporate Vision, Corporate Value and Balanced Score Card
UNUM has a vision to achieve leadership in business. Integrated in the vision is the desire to serve the customers in a satisfactorily manner and have therefore incorporated in their values aspects that will make customer satisfaction a reality. They therefore intend to respect their customers and deliver what the clients want as well as what they promise to deliver.
To assess their efficiency in customer satisfaction, a scorecard has been designed to measure how customers appreciate the quality and performance of their product. Achieving goals need employee support and employees therefore should be equipped with necessary skills and knowledge as well as remuneration packages that match their skills and expertise.
In achieving business leadership, UNUM must make sure that employees are equipped with appropriate skills through adequate training and that they understand their roles properly. A scorecard has been developed in which employees’ opinions can be assessed to see how organizations vision is being met while still upholding the values. In its vision to achieve business leadership, the firm must achieve operational effectiveness.
In its values, it focused on the importance of proper, open, and clear communication that will allow free flow of operations and emphasized on improving and reengineering their processes. A balanced score card was developed to that would be used to measure growth in operating costs. The benchmark being that in the year 1998, the total operating costs should have declined by at least a third.
The shareholders are integral part of UNUM and achieving business leadership implies that the shareholders will be a part of the success and should enjoy and celebrate the success. The firm has therefore established values that focus on performance and setting individual goals that are in line with organizational goals.
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To ensure that the shareholders feel as part of the success, a balanced scorecard has been designed to measure shareholder value. The benchmark is to have the company as a top 125 in the Stand list.
How UNUM use the Balanced Scorecard to Communicate Its Corporate Goals to Employees throughout the Organization
The process of implementing a balanced score card requires that the organization communicates to employees constantly in a way they understand. To ensure this, UNUM started by defining what each score card vision meant. The UNUM people vision ‘we will have the mind of a customer and the pride of an owner’ explained the company’s expectations from the employees.
The scorecard established a measure that would be used to give feedback on employees’ perception. UNUM organized workshops to determine or the reasons why employees did not trust the managers and the results based on employees’ perception were communicated to the organization.
The firm also uses a 360-degree appraisal system that is used to give feedback on how managers are in line with corporate behavior (UNUM corporation annual report, 1997. Employees are encouraged to think and act like owners by use of a goals stock option plan.
For example, in 1998, if the balanced score card goals were met, employees would be given a grant to purchase shares and incase the goals were not realized, the employees would miss the grant.
The employees are made aware of how the stock works and they are given financial information on quarterly basis in order to understand how the plans works through a guide known as ‘know your options’ (UNUM corporation annual report, 1997).
The annual bonus that are given by the firm achieving the annual goals also serve as a communication tool since employees work hard to meet the annual target goals in order to benefit from the bonus. In achieving, operational effectiveness, the firm uses statements such as ‘Bending over Backwards’ (UNUM corporation annual report, 1997).
Revisiting achievement and the way they were achieved is used to motivate employees to work and commit themselves to making things better by ensuring that resources are deployed effectively and the company performs better than competitors do. The chairperson has also developed some questions that are for use across the organization.
The questions focus on the firms’ goals in terms of overall goals, customer satisfaction, and people goal, operating effectiveness and shareholders value. The questions seek to understand how employees understand the firms’ goals, what they are doing to ensure their success and seek their opinion on what they think should be done or not done.
Role of Compensation Mechanisms in the Balanced Scorecard at UNUM Corporation
Compensation mechanisms act as motivation to the employees to work towards achieving organizational goals (Niven, 2006, p.213). The goal stock plan that gives employees a grant to purchase shares in the organization motivates workers to work as if the business is theirs.
They strive to achieve the best since they know that failure to achieve the goals that have been set will not be a loss to the organization alone but rather they will miss that golden chance of getting a grant to purchase the shares.
In pursuant with their goals of getting the stock plan option, employees are able to understand how the organization works in terms of generating revenue and eventually invest it to achieve company growth (UNUM corporation annual report, 1997).
In the long run, the company grows as a result of outstanding performance from the employees who work and take pride in it as if they were the owners and employees benefit from the compensation scheme.
UNUM does not focus on company and employee growth only; it takes into consideration the welfare of other stakeholders such as the shareholders. Shareholders are paid their dividends in good time and they are first made to understand how the company runs in terms of its operations. This gives other investors confidence to invest in the company and this enables the company to generate more capital when needed.
The company therefore has greater potential to expand since it is not limited by capital restrictions. It also serves to improve the company reputation and more customers and investors can believe in it giving it a better competitive edge over the competitors. The compensation mechanism therefore draws employee attention to focus on areas that are of great significance to the organization.
Balanced Scorecard as either a Diagnostic Control System or Interactive Control System at UNUM Corporation
prior to making a conclusion as to whether UNUM uses balanced score card as either a diagnostic control system or a interactive control system, a distinction between the two systems of control will be given for purposes of better understanding. According to Simmons as cited in (Kellen, 2003), a diagnostic control system is a system that assists organizations in monitoring and evaluating their present and past state.
Management set thresholds within which performance is acceptable, beyond the threshold, whether on the upper or lower side calls for management attention to diagnose the cause of deviations and attempt to rectify the situation.
This system enables a firm to keep in line with the set or target goals, as management is control through constant monitoring of progress. On the other hand, an interactive control system gives the firm additional control measures that makes the firm ready to handle strategic uncertainties in case hey strike.
Simmons as cited in (Kellen 2003) defined them as “the formal information systems that managers use to personally involve themselves in the decision activities of subordinates.” These control systems therefore create room for newer information and learning in the decision making process.
After understanding the difference in the way the control systems work, it can be said that UNUM Corporation uses integration of both control system. This can be justified by the fact that the firm measures performance against some predetermined targets.
For example, there are annual targets that are to be met and incase of deviation, management has to establish the cause of variation and design mechanisms to ensure that it will not happen in the future. This indicates use of diagnostic control system.
On the other hand, management tries to get new ideas and opinions from employees on how the can improve the process and their performance thus making employees’ part of the development. Such activities involve use of interactive systems where new ideas are welcome.
Balanced Scorecard for UNUM Corporation
Cause and Effect Relationship between the Four Perspectives of UNUM Corporation
UNUM people perspective serves as the learning and innovation perspective of the organization. It requires the employees to think like customers and act as owners and this challenge them to be very creative in everything they do in the organization. They look for additional information and newer ideas that will help other employees grow as the company grows.
This helps the organization achieve efficiency and have improved performance as all employees work towards achieving common goals. The operating effectiveness perspective focuses on ensuring that the company’s resources are utilized in an effect and efficient manner.
If all resources in terms of labor and capital and other resources were to be utilized in the best way possible, then it implies that the firm would achieve its goals and even exceed them. This gives the firm an advantage since with lower costs it can be able to price its products better than the competitors can. The customer satisfaction perspective aims to ensure that the firm’s customers are satisfied.
To achieve customer satisfaction means that the firm must first understand the needs and wants of the customers. Then come up with a marketing mix that will meet these needs in a satisfactorily manner by ensuring the right quality and using the appropriate mechanism to deliver the products or service.
Once the firm does this, it is almost guaranteed of customer loyalty from all the satisfied customers ceteris paribus. The company will therefore continue to enjoy increased sales and have more customers as this will earn it good reputation.
The shareholders value focuses on creating a good image to the shareholders and maximizing their wealth. This can be achieved through being able to meet organizational objectives and especially in terms of returns and profitability.
The firm will then be able to pay attractive dividends to the shareholders and have prices appreciate and this would happen if the total return on investment and profitability were favorable (Matthews, 2002, p.107). This is an incentive to potential investors, who will have confidence in the company and invest in it thus attracting more capital.
How the Corporate Vision is reflected in the Goals and Performance Measures with Reference to the four Perspectives
The corporate vision of UNUM Corporation is to achieve business leadership and not just being market leaders but also being leaders or achieving success in everything that they undertake. The UNUM people perspective goals are have improvement every year in their scores against the benchmark survey. The benchmark survey acts as the measure for this perspective.
Having the desire to constantly improve is a progressive aspect that shows the desire to succeed. The firm does not just wait for the success to come but engages in continued monitoring to assess how well they are working towards their success. In the operating effectiveness, the firm has set a limit beyond which the costs should not exceed as the measure.
The firm has also set a time limit within which they want to achieve their goal of reducing costs by one third. This two aspects blend into the corporate vision well as the firm should be able to define what it calls success in each case. As for this case, the firm knows that success will be achieved if costs are reduced by one third by 1998.
The firm wishes to achieve success in customer satisfaction by ensuring that they deliver quality products to the customers. However, they will not just sit back and assume they have delivered quality but will rather seek opinions of the customers to know whether they are satisfied.
The firm also intends to achieve success in customer satisfaction by ensuring that they have more customers who prefer their product and feel that it is among the best. The firm is focused on having good share prices that will maximize shareholders wealth and be able to pay dividends to the shareholders.
A firm that is doing badly cannot afford to pay dividends and this means that the firm will have achieved success. The firm also wants to achieve leadership by being ranked among the top 125 companies listed on the standard & Poor’s 500.
Monitoring and evaluation of goals and set by the organization is a very important managerial function. Managers need to come with tools that fit well within the organization planned goals. UNUM Corporation decided to use a balanced score card to monitor continually the progress and achievement of the planned goals.
However, the management started by defining its corporate vision and values and was the able to design a scorecard that was to be used as a benchmark in evaluating how effectively the goals were being met.
The management was very focused in terms of time within which they expected to achieve these goals and this was very important since it helped employees to remain focused. The balanced score card was a success in various ways and the chief executive of UNUM corporation made the whole process to be successful as he was committed and supported it in the best way he could.
Involving the employees in the process made employees to commit to achieve success in the four perspectives of the balanced score as human beings want to be associated with success.
The compensation mechanism acted as an incentive to the employees and therefore they were able to focus on critical points or areas in the organization as they pursued their individual goals of getting rewards. Generally, it can be concluded that UNUM Corporation succeeded in using the balanced score card as a control measure.
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Schniederjans, J., Hamaker, J. and Schniederjans, A., 2004. Information technology investment: decision-making methodology. NJ, World Scientific.
Smith, R., 2007. Business process management and the balanced scorecard: using processes as strategic drivers. NJ, John Wiley and Sons.
UNUM Corporation Annual Report. 1997. Annual Report. (Attached Material).