Advantages and Disadvantages of Balance Scorecard Model
Balance scorecard model is a strategic planning model which significantly assists business to determine and enhance their operations to assist their external results. It is composed of simple communication on what is being achieved (Terziev, Stoyanov and Georgiev 2017). It emphasis, calculates and tracks performance, while aligning the work with overarching plan.
The balanced scorecard serves as the foundation for business strategy and planning. The healthcare home has previously established the success targets, as well as the envisioned vision for our working responsibilities and structure to be carried out for the benefit of our company and the regular customers. “Strategic planning and management”, may be conducted in a various means. The strategy is a logical and rigorous method to ensure that all parts of our business are managed clearly and wisely (Rahimi et al. 2017). It will help in retaining the purpose and mission of the company as the primary focus. It further tracks progress and activity using specified metrics and statistics. It will further help workers in defining goals, appreciating strategic issues which must be handled.
Furthermore, this Model Streamlines Management and the BOD’ communication of the company’s strategy. It is due to the fact that a strategic map would be created which would set clear strategic strategy. As a consequence, each section and department within the organization would have a clear understanding of the strategy and objectives, as well as their responsibility in helping the firm achieve its stated goals. If done well, it would present all workers and stakeholders with a clear picture of the goal and target of the organization and encourage them to consider it (Soysa, Jayamaha and Grigg 2019). They will work on simultaneous endeavours to attain them. It will further help workers in defining goals, appreciating strategic issues which must be handled.
This would also assist workers to comprehend how their personal goals link to the goals of the organization. As a consequence, it will make it easier for individuals to connect their goals with those of the firm. This may be done at many levels of the firm, from the objectives of their own division to the overall aims (Rahimi et al., 2018). As a consequence, the approach would help all workers relate their work to the overall success of firm and the team. Lastly, in management reporting, the Balanced Scorecard system emphasizes policy. This technique can help examining the company’s strategy on a daily basis, if it is started with a well-organized strategy (Hasan and Chyi 2017). It will help determine where the company is, in terms of meeting the healthcare home’s performance and growth goals.
The model, on the other hand, has significant disadvantages. Firstly, it is a intricate structure with which to operate. It may be puzzling to not know what to do at each stage of the implementation process (Soysa, Jayamaha and Grigg 2019). In order to be effective in any business, a planned, methodical strategy is required. In addition, the Balanced Scoreboard approach cannot be easily and exactly copied from other scenarios. It is due to the fact that the strategies utilized in understanding are not always appropriate to the organization in question (Soysa, Jayamaha and Grigg 2019). Because our strategies are still unique to us, we are unable to compare them to the examples offered in the case studies. Further, in order to be adequately performed, the model requires continual and practical assistance from the whole management department of this firm. It will be difficult to attain efficacy unless all members are satisfied that this design is successful. The notion necessitates the organizations and management’s complete commitment (Bergeron 2017). It takes some getting used to, and stopping use is not advised. It will be challenging for a leader to adjust to, but once in place and everyone is comfortable with it; it would operate successfully and profit the firm.
Advantages and Disadvantages of Issue-Based Model
When trying to keep everyone else in the firm on the same page, this strategy may be challenging to adopt. It is frequently managed in PowerPoint or Excel that can result in a variety of concerns, including version control issues, accuracy issues, data loss, and among others. Furthermore, while Excel looks to be free, there are hidden charges such as data entry fees, manual reviewing, and so on (Rahimi et al., 2018). As a result of these factors, executives may assume that the model is a task in and of itself, rather than a tool to help the business. Finally, it has a rather firm handle, especially when first start using it. It is due to the likelihood of internal misconceptions achieved (Terziev, Stoyanov and Georgiev 2017). It takes some getting used to, and stopping use is not advised. It will be challenging for a leader to adjust to, but once in place and everyone is comfortable with it; it would operate successfully and profit the firm.
Issue based model begins with reviewing the vision, mission, values and directing principles of the organization. It includes porter’s five forces, PESTLE, SWOT to determine areas to emphasis, establish, and modify values, missions and goals, track strategic performance, create budgets, and develop action plans (Terziev, Stoyanov and Georgiev 2017). The advantages and disadvantages of Issue based model are as follows:
Issue-based or Goal based model is widespread since it evaluates external and internal aspects which impact the business. The model would allow Arden Mountain to access its threats, opportunities, weakness and strengths in the sector, and also technological, social, economic and political elements, which would impact the expansion objective (Lamberton 2016). The model is constantly forward-thinking and therefore would allow the nursing home to propose complex strategic plans. This model would improve the supply of sources, as the management would connect sources to particular objectives. As a result, it would encourage the smooth and efficient achievement of the strategic objectives and goals (Willis, Cave and Kunc 2018). For example, the care home would thoroughly distribute sources towards developing facilities in order to assure it effectively develop at least five new facilities in England in a particular timeframe (Safonov and Borshch 2019).
Further, issue based strategic planning would re-establish, modify and enhance the values, missions and goals of organization (Septiana, et al. 2020). Therefore, it would maintain the company emphasised on achieving its mission and vision thus quality services and successful activity to achieve competitive edge. The model continuously emphasis on long run arrangement and therefore enables a company to be proactive instead of reactive (Al Mansoori, et al. 2018). Issue based planning would significantly help health care in order to project unfavourable issues and future trend and employ strategies to face them prior they occur, therefore maintaining its position in the market (Septiana, et al. 2020). Finally, it improves the competitiveness, profitability, and sustainability of an organization. It would allow health care to get useful insights on several problems such as products, and services offering, evolving industry trends, and consumer demands, therefore support a well planned market development and success (Terziev, Stoyanov and Georgiev 2017).
Issue based model requires a lot of skills, experience and knowledge to accurately and precisely predict future strategic problems. In that case, the `business requires appropriate resources to employ skilled and qualified employees and managers to begin, implement and track strategic plan (Septiana, et al. 2020). This model is complex, since it considers a wide range of issues within and outside of the corporate environment (Al Mansoori, et al. 2018). Issue based model would implement several tools such as Porter five forces, PESTLE and SWOT which necessities efficient and precise accountability, participation and communication from the employees, managers and experts that sometimes become very difficult.
However, issue based model takes time to complete. The model covers a broad range which needs efficient and precise communication extensive research and preparation which might hamper day to day operations and by unknowingly negatively influence the business (Terziev, Stoyanov and Georgiev 2017). For example, the home care management might waste significant effort on growth while failing to address current concerns in a timely manner, decreasing quality and the productivity of existing facilities (Willis, Cave and Kunc 2018).
Issue based model is recommended for Arden Mountain Nursing Home in order to accomplish the organization’s objective, as it is flexible and dynamic. Unlike the balanced scorecard, which primarily emphasis on internal issues, issue based model is complex means which emphasis on external and internal problems (Schober 2017). Arden Mountain Nursing wishes to expand and needs the management to broadly understand the external and internal environment to develop strategic decisions to accomplish. Issue based strategic model improves some decision by Porter’s Five, PESTEL and SWOT. Therefore, this stands to be more important to the leaders than balanced scorecard.
Du Point is a valuable approach for accessing the financial performance and financial health of a company to develop more precise investment decisions. It is and shares evaluation strategies which employs equity and debt ratio which develop the profitability ratio of ROE into a more thorough and broad assess (Benjamin Mohamed and Marathamuthu 2018). Additionally, it considers three critical performance aspects. These are financial leverage calculated by the equity or asset multiplier, operational efficiency calculated by asset utilization, and profitability calculated by profit margin. If return on equity is greater, because of enhanced assets utilization or operational efficiency. If ROE is higher due to improved operational efficiency or utilization of assets, this is commonly understood positively by market analyst (Stefko et al. 2017). Nevertheless, if the ROE only enhances because a firm is employing improved financial leverage, then the improved equity returns are not an outcome of greater profits, and the firm might be overextending, building it an unsafe investment.
Table 1: Calculation for DU Pont Analysis
Source: Author
The total margin is a critical metric for Arden Mountain Nursing Home, as it calculates the net profit of the care home (Benjamin Mohamed and Marathamuthu 2018).. It is clearly observed from the metrics, that there is a decrease in the total margin which is 1.77 per cent as compared to industry average which is 3.5 per cent. This indicates that the Arden Mountain Nursing Home is underperforming.
The total asset turnover is a crucial metric in evaluating how well a firm utilizes its assets in order to create revenues (Benjamin Mohamed and Marathamuthu 2018).. The total asset turnover of Arden Mountain Nursing Home is measured to be 1.31 times which is lower than the industry average of 1.5 times. It implies that the Arden Mountain Nursing Home is not successfully utilizing assets in order to create revenues.
The equity multiplier is a risk metric which calculates the percentage of firm’s asset which is supported by stockholder’s share instead of debt (Benjamin Mohamed and Marathamuthu 2018).. The Arden Mountain Nursing Home has an equity multiplier of 6.99 times which is very higher than that of industry average which is 2.5 times. This implies that the care home uses greater volume of debt in order to funds its assets, as compared to other care homes in the market.
Return on equity (ROE) is a metric that measures company’s profitability in relation to the shareholder’s equity (Stefko et al. 2017). A 15 per cent to 20 per cent is considered as good. The return on equity of Arden Mountain Nursing Home is measured to be 16.18 per cent which is slightly higher than the industry average of 13.10 per cent. It is due to the fact the Arden Mountain Nursing Home is successfully generating profitability with the shareholder’s equity.
Table 2: Calculation for Financial Ratio
Source: Author
The return on assets (ROA) implies how a company is creating income from its total amount of assets (Purwanto and Daryanto 2020). The ROA of Arden Mountain Nursing Home is calculated to be 2.31 per cent The Arden Mountain Nursing Home has an ROA of 2.31 per cent which is slightly lower than that of industry average which is 5.2 per cent. It indicates that the management of Arden Mountain Nursing Home is not using its assets to generate sales as compared to rest of the industry.
The current Ratio assesses the company’s capability to satisfy the short term debt (Purwanto and Daryanto 2020). The ROA of care home is calculated to be 2.31 per cent The Arden Mountain Nursing Home has an ROA of 1.37 times which is slightly lower than that of industry average which is 2 times, this means that Arden Mountain Nursing Home has less capability to repay its short term debts as compared to the industry.
The days cash on hands is a metric used to calculate the financial security of the firm and number of days it gets to satisfy its day to day operation and maintenance cost prior depleting cash (Rashid 2018). The days cash on hands of Arden Mountain Nursing Home is 12 days as compared to the industry average which is 22 days. It indicates care home could run out of cash in twelve days of covering operating cost as compared to the average of the industry.
The average collection period measure the days needed to transform into cash from account receivable (Purwanto and Daryanto 2020). The care home has an average collection period of 24 days which implies that the care home has a less capable arrangement for collecting accounts receivables as compared to the industry average.
The debt ratio is a critical metric that measures the financial leverage of the firm. The debt ratio of industry average is 69 per cent. However it is observed that the in case of Arden Mountain Nursing Home, the debt ratio is 85.70 per cent. This indicates that the Arden Mountain Nursing Home has a greater degree of financial leverage than other care home in the market and could be difficult in taking loan.
The debt to equity ratio is metric used to measure the total debt of the firm as opposed to shareholder’s capital (Rashid 2018). The D/E ratio of the home care which is 5.99 time is higher than that of the industry average which is 2.5 times. This implies that the Arden Mountain Nursing Home taking more loans for funding
The fixed turnover ratio reveals how a company is successfully creating sales by utilising fixed asset (Rashid 2018). The ratio of the care home has calculated to be 1.73 times, however the industry average is seen to be 1.4 times. It indicates that the management of Arden Mountain Nursing Home is successfully utilising its fixed asset to generate revenues.
A performance management system is typically considered to include both non financial and financial performance metrics. However, the performance pyramid makes an endeavour to include both. The performance pyramid, established by Lynch and Cross, is a hierarchy of financial and non financial success variables (Kludacz-Alessandri 2016). The two propose a series of stages that go well beyond typical financial indicators such as return on capital employed, profitability, and cash flow. The two measures provided are linked to firm operating systems and expound on the motivators that drive the strategic aims of the organization.
The performance pyramid specifies particular activities that significantly aid the business accomplish its goals at various levels, connecting day-to-day operations and strategies (Hansen and Schaltegger 2016). Cross and Lynch both feel that the primary motivators for the organization’s aims are productivity, flexibility, and customer satisfaction. They further advocate for an examination and monitoring of the status of the driving factors, such as cycle time, delivery, quality, departmental, and which may be deduced from the lower level (Hourneaux Jr, da Silva Gabriel and Gallardo Vázquez 2018).
The purpose and vision of the organization are located at the top of the prism, at the highest level of the prism. The firm describes its intentions for long term development and gaining a competitive edge (Hourneaux Jr, da Silva Gabriel and Gallardo Vázquez 2018). The level underneath is concerned with meeting the firm’s CSFs based on financial and market data. The marketing and economic achievement of a recommendation is the starting focus for achieving the vision of the organization.
The marketing and financial approaches of the second level should be linked to the third level’s achievement of improved flexibility, high productivity, and customer satisfaction (Idowu 2017). These components are in charge of directing and leading the firm’s strategic goals. Lower-level departmental metrics of delivery, waste, quality, and cycle time could be used to observe and track the state of the three guiding aspects (Hourneaux Jr, da Silva Gabriel and Gallardo Vázquez 2018). Various non-financial variables would be utilized to evaluate operations at this time. In terms of accomplishing horizontal and vertical goals, all the levels of the pyramid are regarded to complement one another. For example, profitability, cash flow, and productivity would be increased by reducing waste and cycle time (Lachman, Batalden and Vanhaecht 2020).
The measurements on the left side of the performance prism are mostly non-financial and can be modified by an outside source. On the other hand, on the right side, those are primarily financial and are concerned with the company’s internal efficiency (Long, McDermott and Meadows 2018). Nevertheless, only disadvantage is that it does not emphasis on the more number of shareholders. It solely cares about two types of people which are shareholders and consumers. It is critical to include all pertinent information for other parties (Cherry and Jacob 2016).
The strength of the performance prism model is that it combines a hierarchical perspective of company performance assessment with an evaluation of business processes. Furthermore, it differentiates among the approach of external interest, such as quality, customer satisfaction, and delivery, and metrics of internal interest, such as productivity, cycle time, and waste (Silvi et al. 2015).
Historically, many companies have estimated their success using a restricted set of financial performance metrics, including return on investment, earnings per share and operating profits (Glodzinski 2018). The financial performance indicators are significantly important because they identify the economic impacts of a company decision. Nevertheless, they are likely to lag behind aspects that signify the performance of the company which account the impact of operational and financial company decision following the decision has been made (Taouab and Issor 2019).
The organizational administrators and employees use non-financial resources and physical flows in order to exercise control over their activities. Sales managers, for example, often emphasis on share of wallet, customer happiness, sales volume, market size, and other comparable metrics (Narkunien? and Ulbinait? 2018). Production managers, on the other hand, are concerned with measures such as the productivity, turnaround time, quality, and manufacturing capacity of the company. Human resource management is in charge of hiring the necessary competent people, keeping the workplace lawful and safe, and maintaining organizational growth results (Wellman et al. 2020). The financial performance indicators are significantly important because they identify the economic impacts of a company decision. Nevertheless, they are likely to lag behind aspects that signify the performance of the company which account the impact of operational and financial company decision following the decision has been made (Korneta 2018).
The employees and managers contribute to the decision making and utilises resources which affect the financial results of the company. Thus, in order to do so successfully, employees and managers require feedback on the outcomes which could link the result of their decision to the financial objectives and plans of the company (Catuogno et al. 2017). The input is often useful in case of a top performance metric or when it is close to the job at hand. As a result, the balance scorecard model was created to significantly help managers in order to better understand and linking the operational results, company choices, frequent consumers to financial results as well as the projected goals of the firm (Hwang and Chung 2018). A balanced scorecard successfully conveys the strategy of the firm while also educating employees on the goals necessary to carry out the plan. A balanced scorecard further gives feedback to the management team via measures linked to particular strategic objectives. Employees and management could achieve better results if they understand the strategic accomplishments and goals of the company aspects (Hourneaux Jr, da Silva Gabriel and Gallardo Vázquez 2018).
In a Harvard Business Review paper published in the 1990s, David Norton and Dr. Robert Kaplan established the notion of a balanced scorecard. It was after that, extended in other professional publications (Hourneaux Jr, da Silva Gabriel and Gallardo Vázquez 2018). It is widely recognized in the majority of firms. According to the most recent figures, it is used by almost 700 companies across the globe. Balanced Scorecard viewpoints encompass organizational, operational, customer, and financial elements.
By selecting important performance indicators in these four traits, management communicates organizational goals and strategic objectives to employees and managers. Management may assess how close the performance is to meeting the strategic goals by collecting data from each of the aforementioned metrics (Hwang and Chung 2018). The overarching strategy and vision are linked to the four classic perspectives of balanced scorecard, and each viewpoint suggests a specific area for strategy implementation and, hence, performance management. Internal business systems are focused with the day-to-day operations of a corporation (Wellman et al. 2020). Internal business operations of a corporation comprise a wide range of activities such as societal performance, engineering distribution, environmental, production, design, and purchasing. The link to sales ratio, staff productivity, response time, and process quality, are all examples of metrics that may be used in any customer service organization.
The financial perspective focuses on the monetary components of performance and links the monetary outcomes to the strategic goals. This dimension often includes the income statement, balance sheet, and cash flow (Hwang and Chung 2018). Other alternative financial success metrics used by certain firms include sales growth added, economic value added and recycling income. The consumer viewpoint focuses on signs which might show how a firm creates value for its customers. Indicators of satisfaction are common, however top firms would frequently incorporate metrics such as accessibility, consumption per capita, customer retention, share of mind, and share of wallet (Catuogno et al. 2017)
Internal business systems are focused with the day-to-day operations of a corporation. Internal business operations of a corporation comprise a wide range of activities such as societal performance, engineering distribution, environmental, production, design, and purchasing. The link to sales ratio, staff productivity, response time, and process quality, are all examples of metrics that may be used in any customer service organization (Catuogno et al. 2017).
The learning and growth viewpoint seeks to examine how well the company and its employees are preparing for the future. This point of view generally involves the measurements on the company’s system development, staff satisfaction and growth, practice and deployment, and so on (Narkunien? and Ulbinait? 2018). Innovation indicators, employee expenditure, training hours, organizational environment evaluations, and staff turnover are all components that are commonly analyzed.
To summarize, the Balanced Scorecard model is an effective management tool with the ability to alter a company (Hansen and Schaltegger 2016). The model is more than just a strategic management tool; it is a multidimensional tool that requires management to recognize the approach in operational term, as well as address and comprehend the reason and influence the relation among the work done at all levels of the organization and greater level of strategic goals.
A balanced scorecard successfully conveys the strategy of the firm while also educating employees on the goals necessary to carry out the plan (Wellman et al. 2020). A balanced scorecard further gives feedback to the management team via measures linked to particular strategic objectives. Employees and management could achieve better results if they understand the strategic accomplishments and goals of the company.
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