Key performance indicators such as customer satisfaction, quality, cost or employee satisfaction are accepted measures all organizations seek to improve upon and often tie compensation or reward systems directly to performance improvements in these areas. The ability to link these measures to overall strategy and drive commitment to successful strategy implementation on the individual level throughout the organization is imperative to ensuring continual improvement. The balanced scorecard is an ideal tool for tying compensation or incentive programs to performance as it clearly communicates divisional or departmental expectations without losing focus on their respective roles in overall organizational strategy and success. Through incorporation of data relative to non-financial and financial drivers, the balanced scorecard seeks to improve systems of performance measure in the company that drive economic performance (Atkinson, Kaplan, & Young, 2005). The potential for each individual within the organization to commit to the goals of the organization and maintain a focus that stretches beyond self-service is directly linked to their thought of and feeling of significance within a more great view of operational performance and the incentives involved with continuous improvement (George, Jones, 2005).
Appropriate application of the balanced scorecard embeds five principles focused on a successful strategic management system for the entire entity. The balanced scorecard is initially developed with a basis in the strategy map. Development of the balanced scorecard, the tool that the organization will use to understand expectations and divisional roles in overall strategy, to assume the objectives as presented in the organizational strategy blueprint is the first principle in maintaining a strategical focus and encouraging coherence and commitment to strategy. Numerous business units, divisions, and functional departments with their respective operations have their own knowledge, language, and culture, however become part of, and are presented in alignment with all other divisions and become integrated into the other processes within the company. Divisional strategy often becomes a barrier to progress and strategy implementation due to the lack of communication and coordination inherent in this practice. The second principle of aligning the entire organization to overall strategy addresses this obstacle and creates links to create cooperation, communication, and support among the many different divisions, departments, and their processes. The impact of each person realizing their roles in the overall strategy and how their roles support and depend upon success in other operational divisions, aids in the third principle of making successful strategy implementation everyone's responsibility. Using the balanced scorecard as a communication and education tool, employees learn about and understand new strategies, and also learn to understand about elements of performance significance such as customer segmentation, cost practices such as the contribution margin, and marketing related tools and practices. Understanding where the company desires to be, what is expected of each division and each individual, and a better understanding of the different tools for analysis provide all employees with a point of reference for better decision making practices (Atkinson, et al.).
In the fourth principle of effectively implementing the balanced scorecard to support a focus on organizational strategy indicates that strategy must be linked to the budgeting process, and monitored and improved upon on a continual basis. The balanced scorecard serves as a screening tool as that is employed to evaluate investment opportunities and other financial initiatives in addition to its other uses. Just as the scorecard protects long-term performance objectives from short-term lack of optimization, integrating the strategy into the budget and that strategy reflected in the balanced scorecard, delivers short-term and long-term financial success. Having the necessary framework or infrastructure in place to obtain, support, and measure strategical success using the balanced scorecard, leadership from owners and management is the fifth principle in successful strategical implementation and the single most significant condition for success. Changes in strategy will require changes throughout the organization, and organizational change must be managed appropriately to encourage positive change benefits and mitigate the negative consequences associated with organizational change. From an organizational wide culture that promotes and embraces the positives of change, to effective change management practices, individuals at the top must relay an energetic and confident message as it relates to the change that continual improvement will bring (Atkins, et al.).
Realizing the connection between individual commitment to organizational strategy and objectives to motivation and employee satisfaction, the organization must foster this commitment through carefully and purposefully integrating strategy into the balanced scorecard both for use as a communicator and as a means of performance measure. Considering that the balanced scorecard is extremely effective in communicating overall as well as divisional and individual goals and expectations to all divisions, it would serve as an excellent tool by which any organization can gauge performance and consequently tie compensation based on that performance. Aside from aforementioned requirements associated with successful strategy implementation using the balanced scorecard, there is likewise room for inaccurate use and technique of the scorecard with respect for using it as a tool for incentive and reward programs. Tying bonuses or other incentives to scorecard performance measures should be done, however it should only occur once the balanced scorecard has been used within the organization for a minimum of one year, and if the strategy of the organization has been well integrated into the balanced scorecard as previously discussed. Only then can the organization be confident that all individuals understand the information that is represented in the scorecard, further understand how to employ this information in decision making and process changes, and the data is less likely to be manipulated when all are familiar with the data and data has historical record (Garrison, Noreen, & Brewer, 2008).
The organization's strategy must move the organization in the apt direction, otherwise employees are thus moving the organization in the wrong direction, by direction, and reaping the consequences of bad management and planning. Creating and sustaining a strong ethical culture is not only necessary in terms of communicating and educating on intolerant and inappropriate behaviors, but could prove a further consideration or value to be defined and measured on the balanced scorecard. This involves full consideration of all stakeholders, including appropriate strategy planning that maintains and reflects focus on mutual relieve among all those who hold interest. Corporate responsibility considerations that must be included in strategy and on the balanced scorecard will include consumer values, employee values, social and environmental values, civility, and/or ethical sourcing concerns. Only when the organization takes all interests into account can it ensure increased value, long-term success and future stability (Crawford & Scaletta, 2005).
The organization's ethical stance trickles down from top to bottom, and employees can only be expected to behave with mountainous regard to ethical consideration when the example is set by owners and management. Further steps in controlling and spotting specific unethical behaviors as they relate to manipulating the financial data by which compensation will be based will become a necessary addition to a strong ethical culture and enforcing strong ethical employee expectations as they become responsible for their own reward or incentive. Protecting all interests will include closely controlling and monitoring measuring and reporting activities. Internal controls that seek to share multiple users and provide verifiable data tracking and recording practices will provide a means by which the firm can ensure that data is suitable, and owners and management are not being misled by manipulated information that benefits only those who are positioned to benefit financially.
Complete alignment to main strategic goals throughout all levels of the organization is the first step in implementing a plan that allows management to associate motivational elements that relate to both extrinsic and intrinsic applications. Identification of the exact elements, whether financial or non-financial, that are to be measured and scored against expected performance values is necessary, however further identification of the processes and methods that support these activities and the system of data collection and accumulation must also be specifically identified to provide accurate and relevant information. The values that are proposed by the organization should be pleasurable, available to and trust by the employees and should provide incentive based on total performance (Report on Salary Surveys, August, 2005). Programs that assist employees in gaining skills and knowledge that encourage and promote improved performance in specific areas are often necessary to attractive the organization forward and ensuring everyone has the skills necessary to achieve what should be realistic goals that have been set forth.
Having too many measures or areas of performance for which individuals must maintain focus can become an overload and decrease the chances that goals are attained, therefore no more than six or seven goals that represent the greatest potential for positive change in organizational performance should be chosen at any given time to drive maximum performance. Targets are applied to each specific objective to indicate success, each target is then given a specific weight measure with respect to its significance level in an encompassing view of all targets or objectives. This scorekeeping approach can be applied to compensation or incentive programs in different ways, one such example would be basing bonus pay on performance objectives met. If the company planned to pay a 10% bonus based on meeting objectives, or targets in the different performance areas, some objectives might be met or exceeded, whereas others are not met. Using the weight of the multiple targets, simple math can decide what portion of that 10% is due in bonus pay to employees for compensation in meeting some of the performance objectives (Aquila, August 2005).
Tying compensation to the balanced scorecard will undoubtedly require much effort and bring much change within the company. Once the company has reached the point where employment of the scorecard as a produce of measure and as a means of communication is considered common practice and understood and embraced at all levels, the company has to be certain that all ethical considerations relative to corporate responsibility have been included in the strategy reflected within, that all goals are realistic and attainable as to not squander motivational efforts, compensation details linked to these goals are reasonable and trusted, and that effective internal controls are in place to ensure accuracy in reporting, measuring, and consequently, compensating individuals in the organization. A strong ethical culture, open to, promoting and encouraging change is a further necessity in ensuring successful implementation of such a method of management and compensation, as is continual education providing knowledge to employees on notion and using this data to improve performance as well as providing increased skill and competence. There are likely easier and less right means of compensating the individual for performance attribution, focused on short-term goals and immediate gratification. However, these efforts will bring continued value and performance improvement, focused on long-term success and directly aligned with specific organizational goals, as it provides a meaningful and fair means by which to determine and reward performance initiatives.
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