Question

how to apply non financial index with the concepts of balance score card?

Answer 1

Balance score card used to motivate employees and evaluate performance of an organization. There are four perspectives that form a part of a balance score card:

1. Financial

2. Customer

3. Internal business process

4. Learning and growth

The non financial measures of a balance score card are internal business process, learning and growth and customer.

Customer:

The main focus of an organization is towards the customers it caters. An organization's performance from its customers’ perspective is of the utmost priority for the management. The balance score card categorizes customers’ concerns into four categories: time, quality, performance and service, and cost. The time required to meet customers’ demands is measured as lead time. Quality measures the level of defects in the products/ services provided by the organization. Performance and service measures the value that is created by the organization's products. The customers are sensitive towards the price of a product. Hence the companies should measure the cost in order to keep the prices of the products competitive without compromising on the other parameters.

Internal business process:

The internal measures that have impact on customer satisfaction are the factors that affect cycle time, quality, employee skills and productivity. Core competencies and critical technologies needed for continued market leadership should be identified. Measures for each core processes and competencies must be specified. Measures must be defined for employees’ actions that affect the goals on cycle time, quality, productivity, and cost. Measures for cycle time, quality, product, and cost need to be devised at employee level. The measures link management’s judgment to the actions taken by individuals. Thus employees at lower levels have clear targets, decisions and improvement activities that will contribute to the overall mission.

Learning and growth:

Organizations need to make continual improvements to their existing products and processes due to intense competition. They should also have the capability to introduce new and improvised products. Ability to innovate, improve and learn is directly linked to the organization’s value. With the ability to launch new products, value addition and improved operating efficiencies a company can enter new markets and increase revenues and margins. This would in turn increase the shareholders' value.