A Consolidated Model of Putting BSC into Action in Textile Industry in Pakistan
A Consolidated Model of Putting BSC into Action in Textile Industry in Pakistan
By Muhammad Hassan Maqbool & Dr Nadeem Ishaq Kureshi
Engineering Management Department
Center for Advanced Studies in Engineering, Islamabad, Pakistan
University of Sciences and Technology, Taxila, Pakistan
BSC is one of the most advanced and widely used management tools. This is being used by most of the ‘Fortune 500’ companies. However, implementation of BSC has always been tricky to varying with the requirements where it is being implemented. Researchers have variably used different models for implementation of BSC in specific cases. As long as the perspectives develop a cause and effect relationship between themselves, the number of perspectives can be any random number. Implementation of BSC in a textile industry of Pakistan was equally challenging due to lack of previous literature and model for implementation. This paper is aimed at presenting a 6-persepctive workable model for implementation of BSC in Pakistan textile industry. The paper also clarifies the rationale for using 6-perspective model instead of a typical 4-perspective model.
David Norton defines BSC as ‘a system of linked objectives, measures, targets, and initiatives which collectively describe the strategy of an organization and how the strategy can be achieved. It can take something as complicated and frequently nebulous as strategy and translate it into something that is specific and can be understood’ (Bloomfield, 2002). Claimed variably by different researchers BSC is in use by estimated 60% of the USA Fortune 500 companies (Silk 1998), by 44% of the world companies with 57% in UK, 46% in USA and 26% in Germany and Austria (Bititci, 2005) and 88% of the world companies with 98% in North America, 95% in South America, 71% in Europe and 65% in Asia (Rigby, 2001).
Ideally, BSC is considered as a multifaceted tool capable of managing and guiding the business organization towards success and triumph by following and monitoring the approach set by the top management and executives. BSC can be primitively considered as a strategic management system, strategic measurement system and strategic communication tool, as shown in figure 1. ‘If you cannot measure it, you cannot manage it’ (Kaplan, 1996). Unless you are able to describe anything, it is impossible to manage it. After the description is done, next step is the measurement of the indicators. These indicators, resultantly, will help in management of strategy. Further, it is important to communicate strategy and indicators to the lowest level in order to help the top management implement its vision through the strategy in the right desired way.
Figure 1. Components of BSC
2. Literature Review
Strategy and strategic plan should be conceptual, visionary and directional, and should be different from operational plan. The author has also researched for using Analytical Hierarchy Process (AHP) measurement and prioritization of strategic objectives, as dished out by the management (Huang, 2009).
Presence of BSC in a business organization, alone, is not a sufficient condition for its success. This tool does not support management-by-exception and management-from-a-distance. However, design and implementation of BSC helps companies to articulate strategy Key Success Factors (KSFs) and focuses management’s perspectives and attention on strategy of the company (Epstein, 1998).
QPR Software Plc is an international organization providing software solutions. It has implemented BSC in phases including model synthesis, technical implementation, organizational integration, technical integration and operation (Virtanen, 2009). Different researchers have proposed various sequences, contents and number of step for implementation of BSC, for example, (Ahn, 2001) has proposed 6 steps; (Brewer, 2002) proposed 4 steps for value dynamics framework; (Butler, 1996) also proposed a 6 steps model; and (Lohman, 2004) has proposed a 9 step model for implementation of BSC. Another appealing implementation framework is shown in figure 2 (Papalexandris, 2005).
Sunnybrook’s Health Science Center (HSC) also implemented BSC for better care of the patients. They had 8 strategic objectives grouped under 3 perspectives, for 2011-2014, which are quality of patient care; research and education; and sustainability and accountability (Sunnybrook, 2013). Another model as proposed by Strategy Management Group, Balanced Scorecard Institute for implementation is shown in figure 3 (SMG, 1997-
While implementing BSC in a software company, researchers (Papalexandris, 2002) have made a 7-phase model. This has been explained in detail in the paper and is comprehensive and all-inclusive. The implementation includes following steps: –
• Phase 1. Visioning, scoping and planning of the project.
• Phase 2. Clarification of vision and identification of strategy.
• Phase 3. Identification and prioritization of strategic objectives.
• Phase 4. Selection of measures for monitoring the strategic objectives.
• Phase 5. Target setting and scheduling for measurement.
• Phase 6. Development of strategic initiatives for achieving targets.
• Phase 7. Formulation of implementation of plan and selection of IT support for implementation and use of BSC by employees.
3. Consolidated Approach for Textile Industry
As originally designed (Kaplan, 1992), there were four perspectives, namely financial, customers, internal process and learning & growth. However, as the time passed on, improvements, expansion and enlargement in PMS were conceived by public and private sectors, alike. The variation in situations, socio-economic and political conditions locally and globally, concept of globalization, law and order situation due to Global War on Terror (GWOT), competition in international and local markets supplemented by various other factors warranted requirement of improved and enhanced management tools. Therefore, many researchers (Kaplan, 1996; Huang, 2009) have evolved and modified various perspectives to suit the requirements and environment of the companies for which PMS is being developed.
Developing the BSC further on the basis of researchers efforts (Karabay, 2012 & Lohman, 2004), a 6-perspectives model has been proposed for implementation in textile industry in Pakistan. This model has been shown in figure 4. The importance of each perspective from bottom to top is explained in preceding paragraphs as under: –
3.1 Internal Process Perspective
The internal process of the textile industry is one of the two foundations, which shoulders the complete structure of the business in all practical terms. The more efficient the processes are, the more advantage it will have in the market. Performance of the internal process will have direct bearing on the performance of the industry as a whole.
3.2 Internal Learning Perspective
The internal learning is the second foundation of the industry. This perspective looks after the organizational environment and factors that can be used to improved the environment in favour of the company. Knowledge of the latest trends and technologies coupled with continuous analysis entails better feeding of the inputs to other perspectives.
3.3 Supply Chain & Market Perspective
This perspective would help in evaluation of inputs and outputs of the industry. Inputs are received from the supply chain. Establishing a strategic partnership and developing the supplier so as to meet the standards of raw material as required by the company is a great challenge. It is equally important to gain the competitive advantage in the market. On the other side, market must be continuously updated and modified by the company in favour of the company, by introducing new trends, fashions, designs and products.
3.4 Sustainable Growth Perspective
To keep the employees motivated and management satisfied from the returns of their efforts towards building the business organization, sustainable growth guarantees loyalty and retention of the trained and skilled workers and educated, qualified and experienced managers. In this context, it is not only important to keep the infrastructure (sub units) operational but also not to downsize in terms of state-of-the-art technological machinery and Human Resource (HR).
3.5 Customer Perspective
Those sitting in the company honour the customers the most. It is clear from top to bottom in the textile industry that customer needs drive the industry, wants industry to invest more and more in Research and Development (R&D), designing and conception. The needs of the customer may be self generated (from the side of the customer), or by the sense of following a trend (from some other culture or society) or from the introduction of new conceptual designs and products (by the manufacturer). In all the cases, industry has to out-perform customer to stay in the market and gain competitive advantage against the competitors.
3.6. Financial Perspective
Sitting at the top of the perspective pyramid, financial perspective evaluates the overall financial performance of the business organization. All the strategic goals met in the perspectives mentioned above would subsequently help in attainment of strategic financial goals. The results of this perspective is generally a concerned of stakeholders.
Figure 4. 6-perspectives model of BSC for Textile Industry in Pakistan
4. Rationale for Cascading Perspectives
Cascading is the process of developing BSC at each and every level, horizontally and vertically, of the organization. By this process, BSC at the highest level by identifying strategic objectives and measures at lower level to track progress in contributing to attainment of company goals (Niven, 2002).
Mentioned below are the reasons for horizontally and vertically stacking the perspectives. This is a self generated rationale and may be taken as a guideline but not as a rule. These are based on the discussions and interactions with the executives of the company. Since, they may vary from environment to environment and industry to industry, hence all cautions must be exercised before fully implementing them on any other industry.
Internal process of the industry leads to better understanding and evaluation of supply chain and market for the industry. Outputs from the internal process are always affected by these two entities. The input to the internal process is provided by the supplier in the form of raw material, which warrants monitoring and management of supply chain and, if needed, develop it for ensuring attaining requisite standards for raw material supplies. The output of the internal process is sent to the market, which must be analyzed, updated and modified, when needed, to attain competitive advantage and perform better than others in the same industry.
Internal learning of the organization provides academic and theoretical foundations for the internal processes and sustainability of growth. Latest trends of fashion; higher education and qualification of HR; modern and state-of-the-art technology for material and machines; all are the multiplying factors when it is a competitive market. This investment is always paid back well. Sustainable growth warrants employees’ satisfaction, enlightened image of company in the market, morale of the workers and labours and helps in growth of many other factors of the industry.
The four perspectives so far discussed above feed the customer perspective in all possible ways. Customer, and consumer alike, is the center of focus of industry’s business. Colors, trends, fashion and styling are defined by the customer. Nevertheless, customer care and satisfaction is supported by bottom four perspectives of the proposed BSC.
Towards the top of this pyramid sits the financial perspective. This will not be a false statement that “the sole purpose of any business is to generate profits”. Market competition keeps the sails of the business organization in the wind. The stronger are the sails, the faster the ship will sail. Hence, more the customers are satisfied from the company’s products, more returns the company is expected to get from the customers. Thus, in all possible terms, financial perspective is easily understood by the masses both in and out of the company.
The proposed model completely suits the requirements of textile industry of Pakistan. This has been validated by acceptance of the results by the management of the textile industry. However, it is recommended that the model be reviewed before implementation in any other industry either in Pakistan or abroad.
Ahn, H., 2001, ‘Applying the Balanced Scorecard Concept: An experience Report’, Long Range Planning, Vol 34, pp. 441-461.
Bititci., U. S., Mendibil, K., Martinez, V., & Albores, P., 2005, ‘Measuring and managing performance in extended enterprises’, International Journal of Operations & Production Management, Vol. 25 No. 4, pp. 333-353.
Bloomfield, C., 2002, ‘Bringing the Balanced Scorecard to Life: The Microsoft Balanced Scorecard Framework’, Microsoft White Paper, pp. 5.
Brewer, P., 2002, ‘Putting strategy into the Balanced Scorecard’, Strategic Finance Magazine, 83(7), pp. 44–52.
Epstein, M. & Manzoni, J.F., 1998, ‘Implementing corporate strategy: from Tableaux de Bord to Balanced Scorecards’, European Management Journal 23(2), pp. 190 – 203.
Huang, H., 2009, ‘Designing a knowledge-based system for strategic planning: A balanced scorecard perspective’, Expert Systems with Applications 36, pp. 209 -218.
Kaplan, R.S. & Norton, D.P., 1992, ‘The Balanced Scorecard – measures that drive performance’, Harvard Business Review. 70(1), pp. 71–80.
Kaplan, R.S. & Norton, D.P., 1996, ‘Translating strategy into action – the Balanced Scorecard’, Harvard Business Review, Harvard Business School Press, Boston.
Karabay, G. & Kurumer, G., 2012, ‘Managing through Strategic Performance Management in Apparel Companies’, Fibers & Textiles in Eastern Europe, 20, 4(93), pp. 13-19.
Lohman, C., Fortuin, L. & Wouters, M., 2004, ‘Designing a performance measurement system: a case study’, European Journal of Operational Research 156, pp. 267–286.
Niven, R.P. 2002, Balanced scorecard, step-by-step: maximizing performance and maintaining results, John Wiley & Sons, Inc, pp. 202.
Papalexandris, A., Ioannou, G., Prastacos, G.P. & Soderquist, K. E., 2002, ‘Implementing a Balanced Scorecard at a Software Development Company’, IEEE IEMC, Cambridge, UK, Proceedings, Vol. 2, pp. 743–748.
Papalexandris, A., Ioannou, G., Prastacos, G.P. & Soderquist, K. E., 2005, ‘An integrated methodology for putting the balanced scorecard into action’, European Management Journal 16(2), pp. 214-227.
Rigby, D., 2001, ‘Management tools and techniques: a survey’, California Management Review 43, pp.139-160.
Silk, S., 1998, ‘Automating the balanced scorecard’, Management Accounting, 79(11), pp. 38 – 44.
Strategy Management Group, 1997-2012, ‘Building & Implementation a BSC: Nine Steps to Success’, Balanced Scorecard Institute.
Sunnybrook, 2013, ‘Sunnybrook’s Strategic Balanced Scorecard’ Sunnybrook, Health Sciences Center, pp. 1–20.
Virtanen, T., 2009, ‘Guidelines for Implementing Balanced Scorecard’, QPR, White Paper.