Challenge №3. How exactly should it be managed?
Conception BSC is properly the most general answer for all of the 3 challenges at the same time. On the one hand it allows to put into digital form any type of assets and any aspect of business thank to the use of non financial criteria and on the other hand to manage seamlessly “digitalized” business in the form, which is ideologically very close to that one, which was used in traditional material economy.
Let’s look through any business from official point of view. Its compulsory aim is the reception of positive financial results, practically without any dependency on historical prerequisites which the business is carried out in. Manipulation of material and non material assets is the implement for influence on the external community in relation to business and the financial result is an estimation and summation of this influence.
[image 1]
On the image there is a description of the scheme of conversion process of assets in conditions of nonmaterial economics. The classical reorganization “Tangible assets > Money” was altered by reorganization “Tangible assets + intangible assets > Money + Intangible assets stroke.” By the way exactly the increase in the course of this “distillation” of intangible assets (consider that they are presented at the right part of reorganization as well because they are not only to be expended but also to be increased by right business conduct) explains a faster growth of non-material economies comparing with the material. As part of present article scheme will make us interested just in the context of question about the management job.
In spite of apparent obviousness of the scheme not so obvious deduction succeeds out of it as follows: any managing influence must explicitly consider all echelons of this cause-effect chain (in other words all movements of all assets in strong interrelation no matter on which level they would be provoking these movements of business processes). Disregarding of lower link (by of top management) leads to financial indexations and indexations that characterize position of company in the market “hang down” in the air and become inapproachable.
Administrative staff does not understand how they should turn into the reality the words the personable aims, which headquarters “appose” for them. Disregarding of higher links (by the managers of the middle link) results to that point of activities that activity itself becomes the reason of that activity, that doesn’t lead to consummation specific financial and trading multiple (further under “criterion” will be comprehend financial and nonfinancial criterions). In other words there’s the same “slant” aside managing of only some assets of a company about which we have mentioned above.
That is why when it is spoken about a seamless business managing we have in minds, or to be more correct, BSC supposes the next series of steps:
On the basis of viewing business expressed or not expressed of this way or another in form of mission (better expressed adequate enough) and with due consideration of the realities of the market property owner must represent to the top manager list of clear aims that are stated through resulting criteria, which should be reached. Results can be financial criteria; criteria that characterize position of the company in the market and consumer attributes of manufactured goods; criteria of staff competence and so forth depending on viewing and inside units of property owner. The only condition is that criteria must be quantitative. Later the practice will show whether the chosen criterion expresses some non material asset adequately or not. The criteria is simple: if the change of meaning of this criteria some way or another influences value of financial criteria then it is expressed and if it does not then the only one that is expressed is unfortunately the only restless soul of property owner. If the performance measurement of criterion is not obvious, for example, consumer attributes of material items or criterion of staff competence then the direct responsibility of supervised “problem” direction of top manager to offer some alternative estimation procedures at option for property owner. (By the way it will be not so bad to test about adequacy for the job or compatibility of top manager and property owner what is generally the same.) This stage in BSC is called the approach.
After recording the resulting criteria, that is the result of the previous step top manager must represent the array of aims, which must be done for the track records of intended resulting criteria (in other words those criteria that attest to intend or not intended strategic aims). In arriving at aims probably it will be emerged that some resulting criteria depend on other missing nevertheless at the list of resulting criteria. These accessorial indicators we will name forming (clearly that forming indicators are criteria that attest to reaching or not reaching tactical threats). Clearly that level of “inclusion” – depends on forming indicator that can be whichever and measure only by the complication of business.
Consequently all that top manager must do at the present stage is to record the full list of the criteria (resulting, that are definite at the stage of strategy determination + forming, that are definite as at the stage of strategy determination and at this stage too) with assignment of formulas that connect the criteria between each other and list of aims realization of which must lead to reaching recorded criteria. In other words aims are those concrete actions, which must be done by dominated of top manager’s structures for reaching strategic aims and the list of criteria is a way to control the task activity. Clearly that each criterion in that way if doesn’t show independent of company reality (for example, the volume of new for company market or macroeconomic activities), must be connected with facing concrete manager a concrete task either directly or indirectly through the forming indicators. All the time it must be absolutely clear who exactly is in charge of reaching any criterion and what way he must influence by the meaning of this criterion.
[image 2]
Tasks that are not connected with of the confirming criteria existed in list are to be rejected. (Occam would tell like this: “Do not augment performances over necessity”.) This stage in BSC is named like “strategies”. Of course we are talking about list of users we mean that those meanings of criteria, which must be reached to the definite time moment. In this particular case this means that about tabular compositions that describes the time history changers of measures through time.
The next stage is very simple as everything already is specified at previous two stages. It’s time to apply and conduct monitoring of reached planned values indicators. Here everything depends on discipline of activity, movement exactly by target goals. This stage in BSC is named like operational administration. Diagrammatically the whole process is introduced at image number 2.
The results of stages of strategy determination and tactic are possible to record, for example, in form of diagram Excel. Obviously it is necessary to “register” those administrations that are relevant to the concrete company. This can be the management of education and the staff development (for example, for financial companies or consulting), and managing of process reception marketing advantages by marketable and mis targeted methods (for example, for producers of juice) and re engineering process of the production. The principal meaning in the context of BSC does not have it. On principle it is important if any of this districts relevant for your business will be overlay either in district of inside or exogenous processes and finances, or at their interception and always will be described as methodologically only the way in the context of BSC.
By analogy with “traditional” budgeting that are generally recognized as a management tool of material assets, “expanded” may be budget of solution and fact, so it can be such effective means of the management as “traditional” as well as the nonmaterial assets already.
That is why there are all reasons to confirm that BSC is really the management procedure of the business in all together! At least till humanity will invent the third type of the assets to add to material and non material assets.
Let’s look at the following example. Let proprietor of some enterprise to decide about possibility and desirability expansion of the enterprise’s activity at the expense of the departure on the regional markets, for instance wholesale. The best of all is if this decision will be formulated in the form of purposeful instruction, for example: “Our Company after period X must enter to Y of the major companies that are operational at such-and-such markets” and as appropriate informed to staff of the company. Then there must be conducted the next arrangements:
1. Marketing department must explain the opportunity of reaching these strategic indicators in terms of evaluation of these markets, calculate the revolution that is necessary for implementing a goal and depending on volume of the market and formulate a plan of performance. In particular in order for informing the information about company and about its products to local concessionaire, it is necessary to work out with concrete materials (for example, informational letters and commercial proposals) and put into practice arrangements about their delivery to consignees (for example, the direct mail). Then the concrete criterions that characterize the activity of marketing department will be the amount of consignees of potential concessionaires along which it is necessary to put into practice the distribution of commercial proposals. At the same time the quantitative meanings of this criterion must be measured from the anticipation of what part of those who received the suggestions will conclude contracts. The predicted percentage ratio and assumed amount of contracts (in turn it calculated on the basis of share of market that is planned to be taken possession) allows calculating the amount of consignees in the address basis of distribution.
2. Sales department must plan the performance in such a way that it can be assured the reaching of the demanded percent who signed a deal among those who will receive the commercial proposal.
3. Both of departments must present plans of their activities in BSC and finalize it with financial, manufacturing career and HR Department.
Upon approval BSC all careers must monitor approved plans according to the predesigned intermittent. Obviously that the on-line monitoring independence of expanded budget plans (in other words meanings of non financial indicators “the amount of potential concessionaires” which received the commercial propose”, “percent from the signed deal” and so forth) will give the opportunity for early detection of appeared problems (we are coming back to the image number 1). At the same time the low meaning of percent of those who signed a deal can be the result of bad work of the sales department or unsuccessfully composed commercial propose (inappropriateness of its conditions) or mismatched address basis. Monitoring of financial indicators (reverse by contracts) can give the information about approximation of promoted products to the regional market.
So, the strategy expressed in form of system of interfacing criteria of course transfers in tactic and guarantees ability of adequate control of reaching intended purposes at least because in case of rising problems it allows to define clearly their source and represent method of their eliminations. (Of course the method of eliminations of problems also must be predesigned through suitably matched quantitative indicators). The interest of using BSC is doubtless even in that case when the reason of rising problem was voting initial error of approach. Then the property owner can understand that the route was chosen erroneously until that time when the business sheep will get a hull breach.
Therefore to the tag of traditional budgeting managing in BSC conforms the scheme that is described on the image number 3.
It’s clear that BSC is necessary not only for managing by sales and it serves not only for producing (in the example based on first sales could be adjusted requirements as to output products and represented plans of its localization for concrete market) but also for training of personnel (low operational efficiency of selling assistants could be the result of lacking qualified personnel where under could be formulated plans of the reeducation for reaching necessary percent of taking place deals). We will take the responsibility to approve that BSC serves for managing of any business aspect including such a specific area like managing of the nonmarket processes.
Although this will raise a storm of indignation of consultants of the approach, but BSC says that the strategy is not so important on its own. The system of the objectivities approach, mechanism of its transformation in the performance and back, control of activity on the accordance of approach are much more important. It’s not accidentally that in original edition of founders BSC there was subtitle “Translating the approach on the language of activity”. This result is also approved by the newest exhaustive investigation of the famous American companies for the last 15 years.
The deduction №3: If the material assets are a “body” of the enterprise and the non material assets are its “soul” then BSC is the integrated system of the transducers and augmenters that are managing business as a life form. The extended period of the history of civilization during which business was considered as some “Frankenstein imaginative” and “was paying” for this by the shocking inoperativeness is declared close. Full point.
The map of the article
Part 1. Discovering the new horizons of management: Introduction;
Part 2. Discovering the new horizons of management: Measuring non-material;
Part 3. Discovering the new horizons of management: How exactly to measure?;
Part 4. Discovering the new horizons of management: The benefits.
Expert_KPI Balanced Scorecard Theory balanced scorecard, BSC, performance management
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