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PROCEEDINGS OF THE SCIENTIFIC CONFERENCE QUALITY AND LEADING INNOVATION´2014

KOŠICE – HRADEC KRÁLOVÉ, SEPTEMBER 19 – 20, 2014

CASE STUDY OF BALANCED SCORECARD USE

IN AUTOMOTIVE INDUSTRY
DOI: 10.12776/QALI.V1.#4

ANNA NAGYOVÁ, ANDREA SÜT OVÁ

ABSTRACT
Purpose: The aim of the paper is to apply Balanced Scorecard in the automotive
company to ensure the alignment of objectives with the organization strategy and
to balance the indicators into four perspectives.
Design/methodology: In this paper balanced scorecard was used as one of the
performance measurement systems to develop suitable organization indicators,
which are able to reflect achievement of strategic objectives.
Findings: The strategy map was created to represent the set of designed
objectives and their causally linkages. Subsequently indicators were proposed for
each perspective, which would most likely to support organization strategy. It is
necessary to highlight that BSC can be use effective only when appropriate
actions are taken with the frame of improvement based on PDCA cycle.
Practical implications: This paper highlights the necessity of setting the
minimum number of indicators, which are able to reflect the real achievement of
strategic objectives.
Keywords: Balanced Scorecard, strategy map, quality, metrics, performace
management system

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1 INTRODUCTION
The success of any organization is reflected by its performance which is in turn
highly dependent on organization`s strategy. In today`s high competitive
environment it is crucial to frame the rightstrategy, but without its right execution
the desired outcome can not be achieved. Organizations monitor various
performance metrics based on set and approved goals. The question is the extend
to which these goals are aligned and linked with organization vision and strategy.
Many organizations` operational and management control systems are built
around financial measures and targets, which bear little relation to the company`s
progress in achieving long term strategic objectives (Kaplan and Norton, 1996).
Thus the empasis of organizationson short term objectives leaves gap between
the development of a strategy and its implementation. However, organization
strategic value depends on its people, processes and innovation ability (Kaplan
and Norton, 2002). If managers are pushed to a short term profit, investments
into growth opportunities are limited, which can negatively influence long term
performance of organization. There are several tools which can help
organizations to manage their performance. One of these tools is Balanced
scorecard which enables to integrate the strategic contribution of all relevant
organizational value drivers for two key reasons (Murby and Gould, 2005):
• It helps to ensure consistency and alignment between the non-financial
and the financial indicators.
• It helps to identify and measure the specific value drives that support
performance.
Blanced scorecard has increased in popularity and occupies a prominent position
among other management tools used by organizations. Recent global study by
Bain & Company listed balanced scorecard fifth on its top ten most widely used
management tools around the world, a list that includes closely-related strategic
planning at number one (Rigby and Bilodeau, 2013).
The aim of the paper is to propose Balanced Scorecard use within the process of
performance measurement in the autmotive company. Currently organization
uses Business Cocpit methodology, which devides indicators into three
categories. The main aim was to create strategy map with objective, which are
linked to organization strategy and subsequently to set and balance indicators
within four perspectives to ensure clear reflection of the strategy.

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2 DESCRIPTION OF BALANCED SCORECARD

Balanced Scorecard was first introduced in 1992 by Robert Kaplan and David
Norton in the Harward Business Review as a performance measurement
framework, that added strategic non-financial performance measuresto traditional
financial metrics to give managers and executives a more 'balanced' view of
organizational performance (Kaplan and Norton, 1992).The authors pointed out
that traditional financial measures (lagging indicators) can not provide an
accurate picture of a company's performance in the innovative business
environment, because they represent past events. Beside finacial metrics, value
drive measures (leading indicators) were include into Balanced scorecard
representig customers, internal processes and growth and learning capabilities
which provide foreward-looking views (Ellen, 2013).
After the first Balanced Scorecard publication several companies adopted the
concept which gave autors deeper and broader insights into its power and
potential. The concept was futher developed and went much beyond just a
scorecard that is balanced. During following years, as it was adopted by
thousands of private, public, and non-profit organization around the world, the
concept was extended and broadened into a strategic management tool for
describing, communicating and implementing strategy (Kaplan, 2010). Table 2
shows the characteristics of three evaluation stages of the Balanced Scorecard
(Kaplan and Norton, 2006).
Table 1 – Balanced Scorecard generations

1st Generation 2nd Generation 3rd Generation

Balanced Measurement Objectives and Strategy maps Strategy management
Four - Objectives not measures - Themes link objectives
categories/quadrats of are significant accros departments,
measurement - Perspectives are layers Cascading
Focus on leading and through which linkages - Tighter alignment with
lagging indicators flow operation and execution
- Objectives are linked in - Focus on change (engaging
cause and effect chains to people, teamwork)
create a “Strategy map” - Strategy management
- Initiatives are launched to systems (software)
achieve the objectives

Balanced scorecard is not a tool for strategy formulation; rather it is a description

and interpretation of the strategy, founded on assumed causal links between
actions and their impacts. As a strategic management system, Balanced
Scorecard consists of the following management processes Kaplan, 1996):

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1) Translating vision into objectives,
2) Communicating vision, objectives and measures to all employees,
3) Business planning and target setting,
4) Feedback and learning in order to improve the business strategy.

2.1 Balanced Scorecard perspectives

The BSC model identifies four related perspectives or activities that are likely to
be critical to most organizations and to all levels within organizations: investing
in learning and growth capabilities, improving internal process efficiencies,
providing customer value, and increasing financial success (Figge, 2002).
The financial perspective asks how the organization should appear to
shareholders so that the company can succeed financially. This perspective
indicates if the business is improving the bottom line, measuring items such as
profitability and shareholder value. Financial objectives reflect economic
consequences of actions already taken.
The customer perspective asks how an organization should appear to customers
to achieve the organization’s vision. Customer objectives identify customer and
market segments where the business would compete and what performance
would be expected for these targeted segments. The scorecard focuses on
customer concerns primarily in four categories: time, quality, performance and
service, and cost (Caulde, 2008).
The internal business process perspective asks what business processes should
the organization excel in to satisfy shareholders and customers (Caulde, 2008).
This perspective measures the internal business processes, core competencies,
and technologies that would satisfy customer needs.
The learning and growth perspective asks how the organization would sustain its
ability to change and improve to achieve the organization’s vision. The learning
and growth perspective identifies the organization’s infrastructure needed to
support the other perspectives’ objectives. This perspective measures an
organization’s ability to innovate, improve, and learn (Caulde, 2008).
There is no limitation on number of above mentioned perspectives and they can
be adjusted according to specific conditions and requirements of organization
(Ravi, 2002).
2.2 Strategy maps
Strategy maps are part of Balanced Scorecard management approach. Strategy
map doesn`t contains measures, it contains objectives. This simplifies the
selection of measures in the balanced scorecard and instills the discipline of
„Objectives before Measures“ ( Jones, 2011).

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Strategy maps are communication tools used to tell how value is created for the
organization. They show a logical, step-by-step connection between strategic
objectives in the form of a cause-and-effect chain. Generally speaking, improving
performance in the objectives found in the Learning & Growth perspective (the
bottom row) enables the organization to improve its Internal Process perspective
objectives, which in turn enables the organization to create desirable results in
the Customer and Financial perspectives (Kaplan and Norton, 2000). It is crucial
that the map represents a chain of assumed cause and effect links between and
within each scorecard perspective. Building of strategy map involves the
following steps (Rohm, 2013):
1) Clarifying mission and vision.
2) Clarifying strategic areas.
3) Specifying objectives in the scorecard areas necessary to achieve strategy.
Objectives are subsequently used to cascade strategy through departments and to
individual employees to create an aligned strategy focused organization.

3 METHODOLOGY
In this case study was Balanced scorecard used in the automotive company to
ensure the alignment of objectives with the organization strategy and to balance
the indicators into four perspectives. The main goal was to set up the suitable
number of indicators which are closely linked with the strategy of the
organization.
Organization monitors various financial and non-financial indicators but the
question is if these indicators are linked to strategic objectives.
The algorithm of BSC implementation consists of following actions:
1) Clarifying the current strategy – Organization strategy serves as a
guideline for all managerial decisions. In this case, the current startegy
was previously defined by management but it was necessary to understand
its meanings. The strategy is focused on three aspects:
• productuvity;
• quality;
• people.
2) Strategy mapping – based on the strategy, objectives were designed
according to the interaction of all 4 perspectives.
3) Setting the metrics – based on the objectives, specific indicators were
designed.

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4 RESULTS AND FINDINGS

Figure 1 shows the strategy map with the specified objectives, which were
derived from the organization strategy. The created map shows a logical, step-by-
step connection between objectives in the form of cause – effect chain. The set
metrics related to objectives are balanced into four perspectives.
The organization can create a large number of different indicators but for the
evaluation of the organization performance is important to choose the strategic
one. Following the sentence “Twenty is plenty”, that organization should choose
minimum number of indicators, which reflect the state of organization and
objectives achievement identified in strategic map. Based on objectives designed
in the Strategy map, 10 indicators were proposed.
Financial perspective shows the effort of organization to icrease profit and to
reduce total costs. Customer perspective is oriented to increase customer
satisfaction and market share. Aims identified in previous perspectives are
influenced by results in process perspective, oriented to quality improvement and
cycle time reduction. As it can be seen, one of the proposed indicators in this
perspective is oriented to monitor nonconformities occurence in processes. In this
case, the automotive division sorts defects into three groups:
A defects – unacceptable defects, which can influence function and safety of the
vehicle.
B defects – values, which are diverted from specifications and can affect
customer satisfaction.
C defects – defects, which do not influence function or safety, but have some
abnormalities which are not easily recognized by customer. They occur
frequently.
The fundamental element of proposed Strategy map is Learning and growth
perspective. This perspective includes the most important factors, such as
employee involvement,key competencies and knowledge sharing. Employees
skills and their own experience are crucial aspects of any kind of management
system. So, it is very important to invest into employee training and education,
using different tools of idea management and create a culture of knowledge
sharing. Each of the perspectives must be freqeuntly monitored, checked and
modified according to management needs and changes in environment.

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INCREASE IMPROVE
PRODUCTIVITY QUALITY
STRATEGIC AREAS
INVOLVE

PEOPLE

PERSPECTIVES OBJECTIVES INDICATORS

INCREASE PROFIT REDUCE - Total production cost

FINANCIAL PRODUCTION COSTS - Profitability

- Level of Customers Satisfaction

INCREASE CUSTOMER INCREASE MARKET
CUSTOMERS - Percentage of Market Share
SATISFACTION SHARE

- Repair Time
REDUCE REDUCE CYCLE TIME - Average time to produce 1 car
PROCESSES NONCONFORMITIES
- The amount of B-defects per 1

- Total amount of saved money by

implementing employee ideas
LEARNING
AND GROWTH INCREASE INCREASE KNOWLEDGE - Rate of implemented ideas to
KEY EMPLOYEE SHARING proposed ideas by employee
COMPETENCE INVOLVEMENT
- Level of employee satisfaction

Figure 1 – Strategy map

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To complete implementation of BSC and make it sucesfull, it is necessary to
create model, which will help to monitor and evaulate oragnization performance
through indicators. This model can be incorporate into the management system
and recognized as a performance measurement model.
This model can be a usefull tool for performance management only if appropriate
actions are taken. Figure 2 shows, how this model, as a part of management
system. Each strategic objective contains associated projects (initiatives) to
complete and processes to excel. It also includes its appropriate measures and
expected results.The P-D-C-A cycle is fundamental for continuons performance
improvement.
Corrective,
Measures/Indicat
Objectives Initiatives Target value Real value Comparison preventive
ors
actions

Financial

Customer

Internal Processes

Learning and
Growth

PLAN DO CHECK ACT

Figure 2 – Model of Balanced Scorecard

It is up to every organization how their model will look like. The most important
element is, that after the comparing expected and real values, the appropriate
actions needs to be taken. If management will hide the real situation and will
not adopt actions, the BSC becomes formal and useless tool without any positive
influence.

5 CONCLUSION
Using of Balanced Scorecard concept in the automotive company enables to
design the objectives and to point out their linkage with organization´s strategic
areas. The proposed leading and lagging indicators provide a more balanced view
of the organization’s performance. Using BSC enables to improve organization’s
performance and can be customized according to organization’s needs.

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ACKNOWLEDGEMENT
This contribution is the result of the project implementation KEGA – 049TUKE -
4/2014 “Designing a Model for E-learning Support of the Education in the
Production Quality Bachelor Study Program“.

REFERENCES
Caulde, S., 2008: The Balanced Scorecard: A Strategic Tool in Implementing
Homeland Security Strategies. Homeland Security Affairs, Vol. 4(3), pp. 1-17.
Ellen, N., 2013: Aligning planning with outcomes. Performance Measurement
and Metrics, Vol. 14 (2), pp.100 – 117.
Figge, F., et al., 2002. The Sustainability Balanced Scorecard – linking
sustainability management to business strategy. Business Strategy and
Environment, Vol. 11(5), pp. 269–284.
Jones, P., 2011. Strategy Mapping for Learning Organizations: Building Agility
into Your Balanced Scorecard. England: GPL, 2011.
Kaplan, R. and Norton, D., 1992. The Balanced Scorecard – The Measures that
Drive Performance. Harward Business Review, Vol. 70(1), pp. 71-79.
Kaplan, R. and Norton, D., 1996. Using the Balanced Scorecard as a Strategic
Mangement System. Harward Business Review, Vol. 74(1), pp. 75-85.
Kaplan, R., S. & Norton, D., P. 2000. Having trouble with your Strategy? Then
Map It. Harvard Busines Review, Vol. 78(5), pp. 167-176.
Kaplan, R. and Norton, D., 2002. Balanced Scorecard: Strategický systém
m ení výkonnosti. Praha: Management Press, 2002.
Kaplan, R. and Norton, D., 2006. Alignement: USA: Harward Business School
Publishing Corporation, 2006.
Kaplan, R., 2010. Conceptual Foundations of the Balanced Scorecard.[online]
Harward Business School.Available at http://www.hbs.edu/faculty/
Publication%20Files/10-074.pdf [Accessed 20. 8. 2014].
Murby, L. and Gould, S., 2005. Effective Performance Management with the
Balanced Scorecard. [online] CIMA. Available at
http://www.cimaglobal.com/Documents/ImportedDocuments/Tech_rept_Effectiv
e_Performance_Mgt_with_Balanced_Scd_July_2005.pdf [Accessed 11. 8. 2014].
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Rigby, D. and Bilodeau, B., 2013. Management Tools and Trends 2013.[online]
Bain & Company. Available at http://www.bain.com/Images/

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BAIN_BRIEF_Management_Tools_%26_Trends_2013.pdf [Accessed 11. 8.
2014].
Rohm, H. et all., 2013.The Institute Way: Simplify Strategic Planning and
Management with the Balanced Scorecard. USA: The Institute Press, 2013.

ABOUT AUTHORS
Anna Nagyová, Ing., PhD. works at the Department of Safety and Quality
Production, Faculty of Mechanical Engineering, Technical University of Kosice,
Slovakia as a lecturer and also as internal auditor for QMS area. Her professional
activities are focused on the implementation of management systems and project
management. She is also involved to several national projects oriented mainly to
quality production and management systems.
Andrea Süt ová, Ing., PhD. is a lecturer at the Department of Integrated
Management, Faculty of Metallurgy, Technical University of Kosice, Slovakia,
e-mail: [email protected]. Her professional activities are focused on the
field of Quality management systems, Environmental management systems and
Human resource management. She is also involved into several projects oriented
mainly to quality management and education.

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