BSC and the systems of management (Part 4)
BSC and the Motivation system
In the 21st century, the age of information, people with their specific knowledge have become one of the most important types of business resources. There are a lot of theories aimed to increase the motivation of staff in order to increase the performance of the whole business. That is why BSC as a concept aimed to reform the overall logic of business needs to be integrated into the subsystem of motivation.
Every employee’s support is an important condition for a successful functioning of Balanced Scorecard. According to the theory by Kaplan and Norton the staff needs to know exactly not only the strategic goals of the company but also the way on how their operational activity could help to achieve those goals. That is why it is very important to set linking between the staff motivation managerial subsystem and the Balanced Scorecard.
One of the common ways for BSC to be respected by the staff is reconstructing the logic of salary. One of the parts (it could also be an additional part) of every employee’s salary could depend on the degree of achievement of strategic goals. When Balanced Scorecard system is functioning, this part of the salary could be easily calculated according to the information of the indicators performance values. The three main different levels of those calculations are the corporate level, the level of departments and the personal level. The part of salary based on the strategic goals’ achievement could be combined with other part based on the previous logic of salary (price-work, the hourly pay or the fixed salaries).
There are several ways to link the part of the salary with the indicators of BSC:
- Bonus gained for the achievement of strategic goal is linked with one of the indicators. But if more than one is needed, the indicators could be ranged using the concept of weights. For example, the performance value of the indicator called “A” could be linked with 15 percent of the amount of bonus, the performance value of the indicator “B” could be linked with 45 percent and so on;
- There is a basic amount of money for the salary of every of the employees. If the employee manages to reach some value of the performance indicator or indicators (according to their personal plan for a period of time) he or she is responsible for, their salary is set as 100 percent of the basic amount. If the plan is not performed, their salary is set as 80 percent and if he or she overfulfils the plan of performance values of indicators, their salary for a given period is set for 120 percent of the basic amount;
- Referring to the chiefs of branch or grocery departments of the company it is possible to use the composite indicators which could be based on several conditions. For example, the positioning within the branch could be measured using such indicators as “recognition of the company in branches”, “quantity of branch decisions” and others. All of those indicators could be a good measurement system along with the main indicators the department is responsible for. This way also shows the logic of personalized concept of motivation linked with BSC – it has to found the way how to measure the role of every employee and no of their contributions to the whole company’s strategy achievement has to be forgotten.
But it needs to be noticed that the system of motivation should not be fully oriented only on strategic goals and the contribution of the whole company’s performance. It might be risky because employees could start thinking only about their strategic roles and indicators their bonus stands for but not about their routine operational tasks. So it needs to leave one of the parts of their salary to be based on their operational activities’ results in order employees to pay attention to it as well. In theory Balanced Scorecard perfectly translates all the strategic goals into operational tasks but practice of the system’s usage almost never rich such ideal situation, especially in the big companies where might be lost of lags in feedback and linking. That is why operational indicators sometimes do not show the same as indicators given by strategy and referring to salary it could be separated.
A practical example
The mistakes in creation of indicators could be risky for the motivation of the staff. It often happens when wrong indicators could be disincentive for employees. For example, a manager of logistics department of one of the big companies had “decreasing the cost of supplies” as one of his main indicators. But if some lag of supplies happened during the first dates of the new month, the plan for the indicator failed for all the period and the manager stopped to pay attention to it until next month. Certainly, the performance of one of the strategic goals became worse and worse. Another example shows the chief who set too high value of planned performance for his people’s indicators which caused a sharp decrease of the staff’s salary while the level of performance was not changed. It means sometimes it is better to avoid such binary indicators as those that was mentioned above. “Yes or No” conditions could be changed into something more objective and the decisions of changing salary somehow could also be overviewed if the logic does not work for one or another person.
Summary
Referring to human resources, the main purpose of Balanced Scorecard system is showing the strategy of the company to every its employee. The theory considers that for employee the understanding of their role and their contributions to the whole company’s strategy is already a good reason to be motivated. But practically it does not always happen this way. Since this article is only a part of series called “BSC and the systems of management” the question of how to link the subsystem of motivation staff and Balanced Scorecard is given here just referring to the easiest and most understandable way – the salary changing.
Certainly there are great number of theories and concepts aimed to motivate the staff and every company could use any combinations of those studies. That is why there is no ideal instruction that could give an answer on how to coordinate those systems; it needs specific knowledge of the situation in company to create a suitable plan of integration of the BSC. Just like anything concerned to a man the way of linking BSC and the motivation system needs a personalized concept – every man is unique and needs their own specific methods of motivation.
The map of the article
- Part 1: This part is the intro, the first part of the whole article. It also contains the pyramid of management systems;
- Part 2: BSC and the Strategic Management system;
- Part 3: BSC and the Budgeting system;
- Part 4: BSC and the Motivation system;
- Part 5: Balanced Scorecard and the subsystem of Organization Design. This part also contains the conclusion and summary for the whole article.
