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Chilquinta Energia is one of the leading companies in the energy sector in Chile, and it ranks third in the distribution of electricity. Its performance in the energy sector hinges on good management team that has successfully implemented a Balanced Scorecard (BSC) system in the company.
In 2004, the management team implemented a successful BSC system and earned an award for the Chilquinta Energia for being the best project of the year. Prior to receiving the award, Chilquinta Energia had been battling with management issues, which had been slowing the progress of the company in the energy sector.
Given that Chile’s energy sector functions in a liberal market that allows fair competition of both local and foreign investors, Chilquinta Energia sought to position itself in the market by adopting and implementing the BSC system. The BSC system is a management system that provides effective translation of strategies into measurable actions.
The BSC system has four perspectives, viz. “financial, customer, internal business processes, and learning and growth” (Arroyo and Pozzebon 1). Therefore, in the implementation of a BSC system, the management team assessed the performance of three companies; that is, Chilquinta Energia, TecnoRed, and Energas and thus called the system a three-level BSC.
The chief financial officer asked Ms. Passuelo, a financial analyst, to prepare a monthly report showing the performance of Chilquinta Energia. Since there are many indicators to measure performance of a company, Ms. Passuelo formulated a BSC system for she knew that the best approach of selecting key performance indicators should be based on strategies that the company employs in management.
Hence, Ms. Passuelo asked the internal consultants to identify key performance indicators and invited external consultants during the implementation phase. The management team also integrated information system into the BSC system for effective implementation.
Key Learning Points
- Chilquinta Energia management received an award in 2004 for being the best management team of the year.
- Chilquinta Energia ranks third in the distribution of electricity in Chile and is a prominent company in Latin America.
- Chile’s energy sector operates in a liberal market where local and foreign investors compete on an equal platform.
- Decentralised and disintegrated information system slowed analysis and use of data in Chilquinta Energia.
- The BSC system must incorporate financial and nonfinancial parameters, and translate company’s strategy into measurable actions.
- Cause and effect relationship, financial, and performance drivers are three principles that the BSC system employs.
- External consultants provided managerial tools and key performance indicators that were not compatible with Chilquinta Energia’s strategic plan.
- Key performance indicators in the BSC system should have its basis on company’s strategic plan rather than on conventional models.
- Internal consultants identified key performance indicators and formulated the strategic plan because they understood the company well, while the external consultants took part in the implementation.
- BSC implementation team used top-down process starting with the managers followed by middle managers and eventually organisational members.
- The management team integrated information technology in the system to support and enhance implementation of the BSC system, which expanded business intelligence of Chilquinta Energia.
- Online analytical processing cubes provide the quickest way of analysing data for immediate decision-making.
- For a practicable solution, the management team assessed the process under three aspects, viz. technical analysis, cost analysis, and functionality analysis.
- In the implementation of the BSC system, the management team established cause-and-effect relationships by aligning strategic maps to operational objectives.
- Educating organisational members about BSC implementation creates a common understanding and encourages participation by all participants, thus enhancing concerted efforts.
Prior to the emergence of the BSC system, companies had been assessing their performance merely by examining their financial status. Therefore, I concur, “historically, measurement systems were financial, with an overemphasis on achieving and maintaining short term goals” (Arroyo, and Pozzebon 4).
The emergence of the BSC system led to the realisation that non-financial parameters are also central in determining the performance of a company. According to Zimmerman, managers focus only on the financial aspect of the company, which is quite narrow and biased in the assessment of company’s performance; therefore, companies should include a non-financial aspect in their assessment (10).
This argument implies that the BSC system provides a comprehensive view of assessing performance of companies unlike conventional systems that mainly focus on the financial aspects only. Although a company may show a significant performance in the financial aspects, it may have poor performance in non-financial aspects.
Moreover, the BSC system facilitates the assessment of performance among non-profit organisations. Therefore, managers should consider widening parameters that they use in assessing performance of their companies.
When Ms. Passuelo, a financial analyst, accepted the task of assessing the company’s performance, she knew that the concept of the BSC system does not apply well in all companies.
Hence, I agree with the statement; “Ms. Passuelo realised that such a concept could meet her needs, because the best criteria for selecting key performance indicators should be based on the company’s strategy and not necessarily on traditional thinking about industry standards” (Arroyo and Pozzebon 4).
Given that companies vary in terms of strategic plans, polices, objectives, and mission amongst other factors, the standard BSC system does not apply to all companies in the same manner. Hence, adjustment of the BSC system is necessary to suit the requirements of a company.
In this view, Zimmerman argues that managers normally make mistakes by simply using BSC key performance indicators because they are easily available in spite of the fact that they do not have any relationships with organisational attributes (10). The strategic plan of an organisation outlines goals and objectives that are central in identifying key performance indicators and formulation of a customised BSC system.
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Educating organisational members on the essence of the BSC system is important in enhancing the implementation of the system in a company. Therefore, I agree with Arroyo and Pozzebon, “by communicating the strategy and by linking it to personal goals, the scorecard creates a shared understanding and commitment among all organisational participants” (9).
After organisational members understand the strategic plan, goals, and objectives, they will be in a position to give their contribution to the company. Since the BSC system involves the conversion of strategies into measurable actions, there is a need to coordinate disparate people and varied activities to achieve a common objective.
Pateman states, “Coordinating these disparate elements requires a performance management process that links strategy to operations and demands that all parts of the organisation work in concert to deliver performance” (11). The Chilquinta Energia management educated its employees and welcomed their contribution in the implementation of the BSC system to meet the company’s strategic plan, goals, and objectives.
The implementation of the BSC system is a dynamic process that requires companies to keep on updating the key performance indicators, as well as strategic plans.
In this view, I agree with the observation that within a few months after implementing the BSC system, “the team realised that, in fact, the BSC project represented a continuous learning process, and that further time and effort would be needed before the implementation could be considered truly successful” (Arroyo and Pozzebon 1).
As organisations grow and strategic plans change, the BSC system should keep abreast with any new development that occurs in an organisation. Bourne argues that updating organisation systems is an issue that many managers are experiencing as “many organisations develop a scorecard, but it is rare to see organisations investing in the capability to review and update the system on a regular basis” (69).
Hence, successful implementation of the BSC system requires constant updating according to organisational changes and developments.
Since successful performance of a company depends on management leadership, strategic plan, and innovativeness of a scorecard, the external consultants have no significant role in the implementation process of the BSC system.
Therefore, I disagree with the statement; “external consultants would be brought into the process later on, during the implementation phase, where their experience in implementing of the BSC system in the market would improve chances of finishing the project on time and within the stipulated budget” (Arroyo and Pozzebon 5).
The case study of Duke University Health System indicates that, managers provide dynamic and effective leadership in the formulating, implementing, and updating the BSC system. In the case study, it is evident that the managers have not relied on external consultants because they have been formulating scorecards and implementing them on their own.
The uniqueness of Duke University Health System is that the director supervises a system that has generated over 300 scorecards with 10,000 data points that require constant update (Briggs 28). The management team employed a rapid development approach in creating a single reporting and BSC within a period of three months.
The short period shows that the management is effective in mobilising organisational members. Moreover, the management has incorporated scorecards at an individual level to enhance performance of staff members at Duke University Health System.
The title of the article is “Implementing a three-level balanced scorecard system at Chilquinta Energia”. The title suits the article because the content is about the implementation of the BSC system in Chilquinta Energia.
Successful implementation of the BSC system in Chilquinta Energia has earned the management an award, as the BCS project became the best project in the year 2004. Hence, the article outlines the process that the management of Chilquinta Energia used during the implementation of the BSC system.
Moreover, the three-level aspect means that the implementation of the BSC system occurred in three companies. The three companies that implemented the BSC system include Chilquinta Energia, TecnoRed, and Energas. The successful implementation of the BSC system in the three companies led to the use of the phrase “three-level” in the title.
The literature review of the article is very relevant because it contextualises the problems surrounding the BSC system and its implementation in various organisations. Like other sources, the article shows that formulation and implementation of the BSC system requires customisation to suit organisational strategies and objectives.
Moreover, the article provides the background of the Chilquinta Energas in terms of performance, financial status, territory of operation, and market environment surrounding the company.
This information indicates that Chilquinta Energas is operating in a competitive environment where both local and internal investors interact. By earning an award in 2004 for being the best company to implement the BSC system successfully in spite of the competitive environment, it indicates that the management of Chilquinta Energas is competent in the formulation and implementation of the BSC system.
Therefore, literature review offers enough background information that contextualises the study and supports the reason for examining Chilquinta Energas, as the best company to implement the BSC system successfully.
In the methodology aspect, the article examines a case study of BSC system implementation in Chilquinta Energia. Given that the management of Chilquinta Energas successfully implemented the BSC system, the article examines how the management formulated and implemented the system.
Hence, the methodology that the article used is the examination of the case study with a view of describing the process of BSC implementation. Examination of each step that the management employed provides an insight of the BSC implementation.
Fundamentally, the article describes problems that Chilquinta Energas has experienced and explains how the implementation of the BSC system provided solutions to these problems.
Sequential description of the implementation process of the BSC system at Chilquinta Energas is central in understanding the assessment of organisational performance. Therefore, the methodology used in the article is invaluable in examining a case study of a management program.
The article clearly presents the findings using both descriptions and presentations. The article describes what happens in each step of formulation and implementation of the BSC system.
Given that the BSC system is complex, the article describes the steps that the management took from formulation to implementation of the BSC system. From the description, one can see the complexity of formulation and implementation of the BSC system that suit the company’s strategic plan and objectives.
Moreover, the article uses presentations in illustrating factors and forces that led to successful implementation of the BSC system. For instance, the first presentation shows geographical position of the three companies, viz. Chilquinta Energas, TechnoRed, and Energas.
The second presentation shows how information systems link the three companies. Other presentations display the structure of the BSC system showing how members of the management team interact.
The section of references indicates that the article uses secondary sources to obtain part of the information in the study. Within the body, the article utilises appropriate in-text citation by attributing borrowed information to the respective sources. Moreover, the article uses footnotes to cite ideas and concepts obtained from different sources.
The article also provides well-outlined references using a specific style of referencing coupled with arranging the references alphabetically. The references consist of five sources, viz. an online source, two journals, and two books. All these sources are credible and reliable.
Cultural environment influences the application of the BSC system in the assessment of organisational performance. The UAE national culture hinders the application of the BSC system in the assessment of performance because it has a culture characterised by the caste system. The caste system entails the stratification of people into various economic and social classes.
The caste system classifies people according to their family background and prestigious positions in the society. People who belong to a higher caste cannot interact with people of a lower caste in the workplace. Therefore, the existence of social and economic classes in the work place hinders free interaction of employees in an organisation, thus preventing learning and growth, which is a perspective of the BSC system.
The application of the BSC system requires a cultural environment where people interact freely while exchanging information that is necessary for learning and growth. Hence, in view of the UAE national culture, which encourages the caste system, it is hard for employees and/or managers to interact at the same level because they belong to different social and economic classes.
Another factor that may hinder the application of the BSC system in the assessment of performance in companies is the Sharia law. Given that the perspective of business process involves assessment of business activities aimed at achieving organisational objectives, presence of additional law like Sharia law could influence a company’s activities.
Sharia law is an Islamic law that defines many activities that Muslims carry out in their lives. Since most people in the UAE are Muslims, they have to comply with the Sharia law in the way they perform their activities or interact in the work place.
Usually, Sharia law is applicable in resolution of economic issues that occur among Muslims. Thus, Sharia law contributes to the national culture of the UAE and has considerable influence on organisational culture, which ultimately determines a company’s performance.
Additionally, gendered roles also hinder the application of the BSC system in assessment of companies under UEA culture. In UAE, division of labour takes gender orientation. While men are dominant in most workplaces, women are quite few because culture does not allow women to work in far places away from their homes or perform jobs that men dominate.
If women are to work in an organisation, the culture dictates that they should have minimal interaction with men in the workplace. Hence, gendered roles affect the formation of organisational culture because women do not make a significant contribution towards the same.
This aspect means that one cannot compare organisational performance of companies that have dominant employees as men with the ones that have relatively balanced gender. Thus, gendered roles in UAE hinder effective application of the BSC system in assessment of company’s performance.
The BSC system is a management tool that measures performance of an organisation comprehensively using a combination of perspectives and key performance indicators. In the case study, the management team of Chilquinta Energia formulated a BSC system that suits the company and implemented it successfully.
Successful implementation of the BSC system earned the company an award for having the best management team in the year 2004. Since the BSC system is a flexible and versatile tool, different managers can formulate unique BSC systems that fit their organisations.
The ability of the management team to formulate a BSC system that fits an organisation by aligning it to company’s strategic plan, goals, mission, and objectives determines the extent of implementation. Moreover, management leadership is another factor that influences formulation and implementation of the BSC system.
Poor management leadership often results into poor strategic plan and impractical objectives, which translate into ineffective formulation and implementation of the BSC system. Therefore, successful assessment of a company’s performance depends on the design of the BSC system in terms of key performance indicators and implementation process of the system.
Arroyo, Paulina, and Marlei Pozzebon. “Implementing a three-level balanced scorecard System at Chilquinta Energia.” The International Journal of Case Studies in Management 8.2 (2010): 1-21. Print.
Bourne, Mike. “Performance measurement: learning from the past and projecting the Future.” Measuring Business Excellence 12.4 (2008): 67-72. Print.
Briggs, Linda. “BI case study: Balanced scorecard system keeps the university health System in the pink. Business Intelligence Journal 15.4 (2010): 28-30. Print.
Pateman, Andrew. “Linking strategy to operations: Six stages to execution.” Business Performance Management 3.1 (2008): 11-16. Print.
Zimmerman, Joel. “Using a balanced scorecard in a non-profit organisation.” Non-profit World 27.3 (2009): 10-12. Print.