Kaplan and Norton state that ‘A company’s ability to innovate, improve, and learn ties directly to the company’s value.’ In this day and age basing your business strategy solely on Financial measures is not enough anymore. These days with all the technology and globalization a company has to excel in every way to be successful. Kaplan and Norton are the creators of the balanced scorecard(Bukh and Malmi, 2005). Now companies as Rockwater and Apple are using the Balanced Scorecard to measure their performance and set strategy(Kaplan and Norton, 1993). The balanced Scorecard is a report consisting not only out of financial measures but also consists out of non-financial measures. The balanced scorecard consists out of four different perspectives; financial perspectives, customer perspective, innovating and learning perspective and internal business perspective( Kaplan and Norton, 1993). By using several perspectives companies have more knowledge and can better act on the changes in the economy and competition(Lev, 2001). The Balanced Scorecard is a tool to get the companies vision and strategy on paper and communicate it better to the rest of the company. It will make connections between financial and non-financial perspectives.
In this thesis a Balanced Scorecard will be made for a Flower Wholesaler from Los Angeles named, Holland Flower Market. This company was founded by three Dutchmen in 1984 in Pasadena, CA. It started out as flower sales out of the back of a truck and grew into a large flower wholesaler on the Los Angeles and Carlsbad markets. In the first years the focus lay on selling flowers to event planners and florist but in the last few years, as the market changed, the focus shifted to selling bouquets and arrangements to supermarket chains. Because of the large market changes, growing competition and a large shifts within the company it is hard to keep things straight. Also is the Bouquet department vastly growing and is the Carlsbad market making losses for the last couple of years. There will be a lot of restructuring within the company. That is why Holland Flower Market would benefit with a implementation of the Balanced Scorecard.
The question to be answered is: How can Holland Flower Market function better? The question will be answered by making and applying the Balanced Scorecard. First there will be a literature review about the balanced scorecard. What is the balanced scorecard and what does it consist out of? The next section will discuss Holland Flower Market. This chapter will tell the background story of Holland Flower Market, the will depict the finances of the company and the views of the staff and customers. This will be followed by the application of the balanced scorecard for Holland Flower Market. And the last section will give the conclusion.
Theoretical framework
2.1 Origin of the Balanced Scorecard
The origins of the balanced scorecard can be traced back to 1990 when the Nolan Norton institute started researching other ways to measure performance. Till then most companies reviewed their companies performance solely on financial measures. The study was started because there was a believe that performance measures based solely on finances were becoming obsolete. The study participants believed that focusing entirely on financial measures hindered companies’ ability to create future economic value. Two of the participants of the research were David Norton and Robert Kaplan and with the study the concept of the balanced scorecard was born. This led to the article: The balanced Scorecard: Measures that drive performance(1992), where the duo published their findings. And this was followed by their book: The Balanced Scorecard: Translating Strategy Into Action(1996).
2.2 The perspectives of the balanced scorecard
The balanced scorecard consists out of four perspectives, namely: Learning and Growth Perspective, Customer Perspective, Internal Business Processes Perspective and the Financial Perspective. An organization has to translate its mission and strategy into one of these perspectives. By defining the organizations mission and vision into all of these perspectives a clear day-to-day plan in how to achieve these missions and visions will commence.
In addition, the BSC extradite a cause-and-effect relationship between all the perspectives. The perspectives have a hierarchical order(Bryant, Jones and Widener, 2004). It will start with the learning and growth perspective, followed by the internal business process perspective then comes the Customer perspective and finished with the financial perspective. The outcome of a lower-level perspective may be an indicator or predictor of a higher-level perspective.
2.2.1 Learning and Growth
Learning and Growth is the first perspective in the BSC Hierarchy. The main question that has to be answered for the learning and growth perspective is: Can we continue to improve and create value? The objectives in the learning and growth perspective is to enable ambitious projects to be achieved in the other perspectives. It offers an infrastructure for the other three perspectives and that is why it is the first perspective in the hierarchy.
In this perspective managers need to define the employee capabilities and skills, technology and corporate climate needed to support a strategy (Kaplan and Norton, 2001, 94). The three main categories for the learning and growth perspective are therefor: employee capabilities, information systems capabilities and motivation, empowerment and alignment.(Kaplan and Norton, 1996). Managers must base their objectives in these categories. To better the company in this perspective significant investments in people, systems and organizational alignment are necessary.
2.2.2 Internal Business Process Perspective
Secondly in the BSC Hierarchy comes the Internal Business Process Perspective. The main question to be answered here is: Where do we must excel at? This perspective consists out of a generic view of the value chain in the internal business process. The value chain includes, innovation, customer management, operational, and regulatory and environmental processes.
It has to make objectives to better new products and services and further market penetration. The value chain has to be made more efficient. The outcome of the Internal Business Process Perspective provides a base for the customer perspective. By making products and services better and make the whole process more efficient, customers will be more satisfied.
2.2.3 Customer perspective
The Internal Business Process Perspective is followed by the customer perspective. How do customers see us? Is the essential question to be answered. This perspective offers the company to align their core customer outcome measures, satisfaction, loyalty, retention, acquisition and profitability. And by knowing this information the organization knows which customers and market segments to target. It is important for a company to be aware of its target customers and market segment to align its products and services to the demand. Companies that do not recognize this see themselves fall behind their competitors.
Managers must also choose which value propositions to achieve for their targeted customer segment. Managers can select objectives in three classes of attributes, and when they satisfy these objectives it will enable the business to retain and expand. The three classes of attributes are: Product and service attributes, customer relationships and image and reputation. When managers keep these attributes in mind, and make objectives across them they can maximize the value of their targeted customer segments.
2.2.4 Financial Perspective
The last part of the BSC hierarchy is the financial perspective and also the most important. Traditionally companies solely based their performance revues on how they did financially. The main question to be answered is: How do we look to shareholders?
The financial perspectives has two purposes, on the one hand it gives a financial view on how a certain strategy works out. And on the other hand it measures how well the other goals from the other perspectives do. Because all the activities within the other perspectives are executed to increase the financial results.
In the balanced scorecard it is important that operational results are linked to financial results(Kaplan and Norton, 1996, p. 150). But Financial result only show their light on how the company has done in the past. To anticipate on the changing environment it is important for the balanced scorecard to have the other perspectives. Those are the leading drivers for future performances. A company’s value is determined by its expected value in the future. And the performance measures in the financial perspective are a snapshot of its past achievements, for example; The profit, revenue and market share.
2.3 The balanced scorecard as strategic management system
A problem that a lot of companies face is the inability to link a company’s long-term strategy with short-term actions. When a company implements the balanced scorecard it not only lets them introduce different perspectives but also four new management processes.(Kaplan and Norton, 1996, p. 76)
The first new process, translating the vision, help managers create a consensus across the rest of the organization regarding its vision and strategy. Very often management gives vague goals and objectives that are hard to convert to day-to-day activities. By translating its vision into operational terms it will be clear to the lower-level staff how to achieve the company’s vision.
The second process is ‘communicating and linking’ and this process lets managers communicate their vision up and down the organization. Traditionally management evaluates departments by their financial performance. But by implementing the balanced scorecard it gives managers a way of ensuring that the organization understands the company’s vision and that the objectives of the organization, the departments and individual are aligned.
After the communicating and linking process, the business planning process follows. This process gives companies a way to combine the business vision with it financial goals. Today a lot of organizations hire outside help, and managers find it often difficult to implement their ideas in the companies objectives. But by using the balanced scorecard the outside help first of all gets a better idea where the company needs improvement. And second of all it enables managers a way to make practical changes.
And last of all, the fourth process, ‘feedback and learning’. It enables companies to learn from the short-term results and how successful the balanced scorecards perspectives and processes are. By reviewing the perspectives it will offer the company a way to modify these and better future results.
When a company will implement the balanced scorecard with both the perspectives and processes it will offer a great backbone. But even with the theory about the four perspectives and processes it stays very theoretical. The next chapter will be more practical and show how to implement the balanced scorecard.
2.4 Process of implementing the Balanced Scorecard
The theory of the balanced scorecard is one thing but implementing it is another. Even with all the perspectives and processes it is hard to translate a vision into day-to-day objectives. So to develop a balanced scorecard for an organization several steps have to be followed(Phadtare, 2010.)
The first step is collecting background information of the company. The information needed consists out of financial statements, summary of offers by suppliers and customers and information about the competition.
The next step consists out of providing education to top and middle management on the BSC. It is important for management to know what is achievable with the BSC and why it is so important that is implemented properly.