Thesis on "Balanced Scorecard Using Balanced Scorecards to Optimize"

Thesis 15 pages (3977 words) Sources: 10 Style: APA

[EXCERPT] . . . .

Balanced Scorecard

Using Balanced Scorecards to Optimize Organizational Performance

Defining, developing and managing to Balanced Scorecards (BSC) within the enterprise software industry require objectives that measure both performance and collaboration. The four dimensions that effective BSCs are based on include customer-based, financial, internal business process, and learning & growth objectives (Liedtka, Church, Ray, 2008). The synchronization of strategies around these four perspectives is critical for keeping any BSC balanced and capable of moving a company forward to its goals (Barrett, 2004). When applied to the enterprise software industry in general and to a given firm specifically, the alignment and synchronization is made all the more challenging by how quickly this industry changes amid very high levels of uncertainty as well. The intent of this Balanced Scorecard Analysis is to evaluate how Cincom Systems, a $100M privately held enterprise software company, manages five divisions that have potentially conflicting strategic directions and as a result, metrics on which to be measured by. Three specific objectives are provided for each perspective of the BSC framework, and for each objective, one quantifiable metric is provided. This analysis concludes with recommendations as to how Cincom can gain significant performance gains through the use of the BSC framework including the development of corrective and preventative actions. Critical for Cincom as an enterprise software vendor is the ability to continually create new opportunities to become more efficient, or lean in process, as their value proposition to companies purchasing their applications is the delivery of lean manufacturing strategies based on the use of their applications. The defining of lean manufacturing concepts and strategies is essential for sustained unique value propositions of enterprise software companies delivering these solutions (Bhasin, 2008).

Strategic Planning and Balanced Scorecards at Cincom Systems

The strategic objectives of Cincom Systems center on continually developing new enterprise applications that integrate together the call center, manufacturing business solutions (CMBS), document management, service lifecycle management and enterprise compliance and quality management (ECQM) product suites to ensure interprocess integration and data transparency. The strategic objective of Cincom is to deliver measurable, quantifiable value to its customers in Aerospace and Defense (A&D), industrial, discrete and process manufacturing industries. The company relies on a series of metrics to measure their contributions to customers from these industries through a Balanced Scorecard Approach (BSC), concentrating on results delivered. A second strategic objective is to quantify the performance of the actual software installation process to see if it met or exceeded the expectations of the companies purchasing Cincom's software. By taking a BSC-based approach to measuring both the quantifiable value of the software delivered and also measuring how efficient the installation process is vs. customers" expectations, Cincom can ascertain where their relative strengths and weaknesses are. Cincom takes the perspective of adopting BSC-based approaches to measuring the contributions of their ERP systems in customers' manufacturing and operations. The measuring of ERP systems' contributions and performance over time through a BSC-based approach can deliver significant insights into corrective action and continuous improvement strategies (Chand, Hachey, Hunton, Owhoso, Vasudevan, 2005). Transforming this aspect of their business practices into a replicable process is a strategic priority for Cincom Systems.

Strategic Objectives in the Cincom Manufacturing Business Unit (CMBS)

The Cincom Manufacturing Business Unit (CMBS) specializes in first analyzing the inconsistencies in their customers' manufacturing processes, and then selectively recommending which of their and their software partners' applications can best alleviate process inconsistencies while making clients more efficient. The strategic objective of this business unit is to define Business Process Management (BPM) improvements to manufacturing clients' existing operations to make them more efficient or lean, and therefore profitable over time. CMBS does this through the use of a series of BSCs aimed at measuring the financial impact and performance of ERP systems implementations. The empirical research suggests that measuring the ability of an organization to attain the perfect order, or the delivering of the right product, to the right customer, on the right date, is indicative of broader process efficiencies and is an excellent measure of ERP system performance over time (Fang, Lin, 2006). CMBS uses the perfect order as a metric to delineate which aspects of their ERP implementations are meeting or exceeding customer requirements based on their observations of how effective it is in measuring process performance. Another aspect of defining their performance by the perfect order is based on the level of process efficiencies within the supply chain as well (Gayon, Benjaafar, Vericourt, 2009). What CMBS is also discovering with regard to standardizing on the perfect order as their primary key performance indicator (KPI) is the fact that it measures the balance achieved in the systems they deliver between customer-facing and supply-chain facing systems. In effect, the perfect order measures how well CMBS has designed a customers' system to be demand-driven and agile in the face of significant economic and demand-based uncertainty. Simply put, the perfect order as a metric or KPI is an excellent measure of how balanced the strategies are of a company or not. CMBS is bound contractually via their Service Level Agreements (SLAs) to deliver at level or higher perfect order scores relative to the benchmarking done prior to their software being installed. As a result, the perfect order must show progress in each CMBS account for the company to deliver on the promises it makes in its SLAs. This is unique in the enterprise software arena yet shows how results-driven strategies are being used in a recessionary environment to sell more enterprise-wide software. CMBS relies on the perfect order as part of a broader baseline of KPIs and metrics that comprise the hierarchy of supply chain metrics (Hofman, 2004). This hierarchy was originally developed by the Supply Chain Council (SCOR) and has since been enhanced and made more relevant to the needs of those manufacturers and service companies using enterprise software to automate their operations. The perfect order is accumulative in the hierarchy of supply chain metrics (Hoffman, 2004) and therefore is more indicative of interprocess management on the part of CMBS in conjunction with its customers. As the perfect order forms the foundation of their BSC, CMBS also looks at the many other metrics that comprise the hierarchy of supply chain metrics as well. Figure 1, Hierarchy of Supply Chain Metrics, as defined by Dr., Deborah Hoffman (2004) of AMR Research shows the interrelationships if KPIs that comprise the perfect order.

Figure 1: Hierarchy of Supply Chain Metrics

Source: (Hofman, 2004)

As can be seen from Figure 1, there is a progression from Ground Level to Mid Tier followed by Top Tier series of metrics. The are a total of seventeen different metrics that comprise the Hierarchy of Supply Chain metrics and CMBS selectively uses these on a situational basis to define BSCs for their customers. At a strategic level the use of these seventeen metrics, selectively applied, measures the performance of a CMBS' client's value chain over time (Barber, 2008). In addition, SLAs or contracts of performance are also specifically designed using the collection of these KPIs over time. CMBS has been careful to also create longitudinal studies to measure the effects of creating batch vs. real-time integration across the various systems and process areas CMBS' clients need assistance with in automating their systems.

For many CMBS clients who rely on ERP systems to attain Demand Forecast Accuracy the perfect order and Supply Chain Management (SCM) Cost must be kept in balance to ensure that profitability is maintained. The need for balancing Demand Forecast Accuracy and production efficiency is how CMBS uses the hierarchy of supply chain metrics to ensure its clients balance business requirements with process improvements from a system design standpoint.

In defining objectives by each perspective of BSCs, CMBS has also found that there is a high level of interdependence present in across inventory, cash management, order process and planning accuracy in manufacturing-centric companies for example, while distribution-centric companies require entirely different sets of assumptions with regard to their BSC values. These variations are shown in Figure 2: Interdependence of Metrics (Hofman, 2004).

Figure 2: Interdependence of Metrics

Source: (Hofman, 2004)

Compensating for the wide variation in the metrics that comprise the hierarchy forces CMBS to take into account the inaccuracies present in customer processes and define an acceptable range of performance. Imperfections in the most critical process areas of manufacturing including the Ground level series of metrics shown in Figure 1 need to have performance ranges associated with them that compensate for changes in overall company performance as well (Gayon, Benjaafar, Vericourt, 2009). Due to this fact, CMBS creates a BSC with upper, middle and lower quartiles of performance for determining how their improvements of processes through the selective use of ERP systems increases a company's performance against KPIs over time. The hierarchy of supply chain metrics and the interdependence of matrix are invaluable concepts for putting into context the objectives defined by each of the four perspectives of a BSCs Cincom delivers to customers and also how they evaluate themselves as well. It… READ MORE

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