Application of Balanced Scorecard in Technology Organizations

Application of Balanced Scorecard in Technology Organizations
The balanced Scorecard is the management tool that is often used by the
management teams of different types of organizations to align their
activities with strategic plans, organization missions, and objectives.
According to Rohm & Malinoski (2010) balanced scorecard can be used as a
performance measurement tool for different categories of performance
measures (such as financial measures, process, organizational capacity,
and customer measures) or as a performance measurement tool for the
strategy of the entire organization with a focus on the planning
process, measurement, and management system. Usefulness of the balanced
scorecard is enhanced through the integration of non-financial
performance measures and financial metrics to provide the management
with a balanced view of performance of the entire organization. The
present paper will address the application of balanced score in
technology organizations with a focus on industry-specific challenges
and how technology organizations design objectives for different
perspectives to overcome these challenges.
Application of balanced scorecard in strategic planning and management
Investment in the technology sector has been growing steadily over the
last few decades, but the main challenges among the management teams of
the technology organizations is ensuring that the returns are as high as
their initial plans (Sarkar, 2003). This goal can be achieved by
striving to achieve market leadership, which calls for differentiation
of the organization’s products and services from other players in the
technology industry. This implies that the management teams have to
formulate performance measures reflects the overall strategy for the
organization for all departments. However, there are several industry
specific challenges that threaten the effective implementation of
balanced scorecard in technology organizations. These challenges include
rapidly shrinking product cycle, recruiting and retaining technology
experts, challenges in product development decision process, tracking
features of market demand and consumption of the company products, and
disruptive technologies that has the capacity to invalidate business
models and products in technology sector (Rohm & Malinoski, 2010).
Effective use of balanced scorecard allows the management teams to
handle these challenges and create value for the company.
Balanced scorecard framework for technology organizations
The balanced scorecard frame empowers technology organizations in
utilizing the balanced scorecard to maximize returns on information
technology, employees, customers, and processes (Bloomfield, 2002). The
management team assesses the needs of customers and other stakeholders,
which are then incorporated into the scorecard framework. In addition,
the management team incorporates the components of the organization’s
strategy, which include company vision, mission, strategy perspectives,
core values, strategic themes, performance measures, and strategic. The
management team creates strategic themes strategic objectives and
strategic results for each of the created themes. These themes are then
aligned with corporate missions and visions. Strategic themes designed
for a technological organization may include technological excellence,
operational excellence, growth through technological innovation, and
strategic partnering (Rohm & Malinoski, 2010). The scorecard framework
is completed by creation of strategic objectives that are linked to form
a strategic map for organization’s value creation.
Practically, the scorecard frameworks differ from one organization to
another because organizations pursue varying strategies. Bloomfield
(2002) identified three factors that contribute to the complexity of the
process of re-organizing challenges, organizational needs, and impact of
successful implementation of the balanced scorecard. First,
technological and business requirements for technology organizations are
complex and this presents the challenge of bundling them into a single
package. Systems designed for implementation of balanced scorecard are
linked to existing systems for the successful implementation process.
Secondly, rapid changes in technology necessitate the design of an open
framework that allows the addition of other capabilities when the need
arises. This increase flexibility of the balanced scorecard framework
and allows the management team to make the necessary adjustments to deal
with prevailing market conditions and enhance competitiveness. Third,
the management team should leverage existing technologies and
capabilities to reduce culture shock and increase the speed of adoption
(Bloomfield, 2002). This helps technology organization avoid the risk of
technological obsolescence that may be caused by slow adoption.
Elements of balanced scorecard
The balanced scorecard is used to communicate and describe
organizational strategies based on four basic perspectives namely
financial, customer, process, and learning and growth perspectives
(MacKay, 2004). Technology organizations formulate objectives for all
perspectives in a way that enables the organization in disrupting their
marketplace and avoid disruption of their marketplace by other players
in the industry. Management teams utilize return on investment to
formulate objective for financial perspective to ensure that operational
performance is commensurate with financial performance. However, the
traditional return on investment used in other companies often fails to
satisfy the need for managers of technology organizations in determining
the return on investment of their product development expenses (Rohm &
Malinoski, 2010). To this end, management teams opt to use analytical
approaches (such as operating income, EBIT, and EBITDA) that guide their
companies towards maximization of revenue and improved innovation and
product development.
Technology organizations design objectives for customer perspective with
the aim of maintaining a positive interaction with their customers. This
is because technology companies have a system of beliefs that determine
the success of their interaction with suppliers they transact with. The
rapid rate of technological advancement and high competition creates the
necessity of these organizations to systematically track issues raised
by consumers of their products so that those issues can be addressed.
This ensures that the products attain a high level of success in the
marketplace. In addition, rapid technological advancement pressure
technology organization to design objectives for process perspectives
that allow the organization to assess, market demand for its products in
a continuous process. This reduces the chances for their products to be
faced out of the market (obsolescence) should they fail to meet the
customer needs. Moreover, technology organizations should exploit all
the available options (including partnering with universities, industry
consortia, and soliciting government funding) to reduce costs and use
enabling technologies to enhance their capacity (Rohm & Malinoski,
2010).
Conclusion
The balanced scorecard is an effective tool that helps executives of
technology companies in evaluating organizational performance and guides
them towards successful implementation of strategic plans. The balanced
scorecard framework is executed through four basic perspectives, which
include financial, process, customer, and learning perspective. These
constitute the key elements of a balanced scorecard, but more emphasis
is often placed on financial perspective. Technology firms use the
balanced scorecard to align their organizational objectives with short
term activities. The scorecard is implemented by deciding on the mission
and measurable objectives of every perspective. However, the design of
the objectives for the scorecard perspectives varies from other
organizations because of the inherent challenges that these
organizations face. Some of the key challenges that threaten the
survival of technology organizations and necessitate special objectives
include the rapidly shrinking product cycle, employee turnover, and the
need to track customer demand in a continuous process.
References
Bloomfield, C. (2002). Bringing the balanced scorecard to life: The
Microsoft balanced scorecard framework. Minneapolis: Insightformation
Incorporation.
MacKay, A., (2004). A practitioner’s guide to the balanced scorecard:
A practitioners’ report based on: Shareholder and stakeholder
approaches to strategic performance measurement using the balanced
scorecard. Chartered Institute of Management Accountants. Retrieved from
September 6, 2013, from HYPERLINK
“http://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep
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http://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_
a_practitioners_guide_to_the_balanced_scorecard_2005.pdf
Rohm, H. & Malinoski, M. (2010). Strategy based balanced scorecards for
technology. Balanced Scorecard Institute. Retrieved September 6, 2013
from HYPERLINK
“http://www.balancedscorecard.org/Portals/0/PDF/Technology%20Company%20B
alanced%20Scorecard%20Systems_06222010_Final.pdf”
http://www.balancedscorecard.org/Portals/0/PDF/Technology%20Company%20Ba
lanced%20Scorecard%20Systems_06222010_Final.pdf
Sarkar, P. (2003). Applying the balanced scorecard in the IT
organization. IBM. Retrieved September 6, 2013 from
http://www.information-management.com/issues/20031201/7762-1.html
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