Balanced scorecards-Balancing the unbalanced-Indian perspective


By

Prof. R.K. Gupta
Professor of Management & Senior Business Consultant
Aravali Instituite of Management
Jodhpur
E-mail:
cityju@rediffmail.com
 


Keywords: Business Environment changes in India, Balanced scorecards, Performance Prism, Critical Success Factors, Indian babus (officials).

India's Business Environment- A quick retake/recapitulation

Indians as usual are very fond of Western theories (The assumption being that whatever is developed, taught and published in West is the best .It is partly true also) and any word from a white academician and now even almond eyed yellow guys is taken as a historical event and gospel. Deep seated inferiority in our professionals and entrepreneurs is deeply rooted in following :>

* Our forgetting the glorious historical past of Indian arts and crafts and how international trade was conducted by Indian merchants, successfully and impressively (Our global trade share has gone down to 0.8%)

* Profiteering even up to point of cheating (Some countries like china are no exceptions to this) is main stay of most Indian businessmen, whatever they talk.

* Bone-less entrepreneurs and employees are highly risk shy and depend on government support for ready-to-eat meal like technology, licenses, permits and subsidies and support (Crutches in fact). We clamor for Level playing field ( I never understood the real meaning of this), now whatever that means to Indian businessmen like those big guys calling themselves Bombay club, and FICCI and FIEO and IMC etc.

* Complete disrespect for knowledge and for service people like professors, technicians, researchers and consultants as everything has only one metric –Profits-cash and surplus and tangibility of goods. Fat returns on investment even if ethics are put aside (A typical Marwari would want Pay- back period of 1.5 to 2 years). No reinvestment as entrepreneurs are very quick in India to divert business funds for personal assets creation and same tendency is seen in rampantly corrupt and arrogant, mafia networked civil servants. They take bribes, steal public money from projects and purchases and misuse everything including cars and office trips to take spouse and family along. Make fraudulent foreign visit of national importance.

* Corruption alone is costing nation more than 20% in costs AND productivity lost at various stages. India's 30% GNP is being pumped out by this corrupt nexus of businessman-babus and politicians. Thus concentration of wealth in few hands, impoverishment of urban and rural consumers is creating big problem in purchasing power and this is attempted to be met by increasing taxation and free distribution of largesse ( Like in USA they have started feeling heat). One of main reason of Indian textile industry going down the drain was this trading mentality of top industrialist of country exception being a few.

* No interest of Indian industry in Research and creating new things on their own. Copying is easy, less costly and even free. But they are outdone by Chinese, Taiwanese and Koreans in that too.

Now against this backdrop, in 1991 promises was shown to Indians that Liberalization (A new panacea is being imported from west-(Post Uruguay round and Washington Consensus) is a new imported funda (idea) from UK and USA and their allied lobby. This will alleviate all social and economic problems of India. People will become rich, fountains of money will start sprouting from below the ground in every village and India will turn into heaven and proverbial old Sone Ki Chiriya. So L.P.G process was started. First, the Indian entrepreneurs cried, howled and protested and then quickly learnt the tricks and fell in line once they noticed , there is good and easy money in it. Several clauses of WTO made it easy for MNC entries in India.

MNCs, to operate in India, also needed local partners, particularly in complex and corrupt country like ours. So at high salaries watchdog employees (basically their job is to wag tails for their masters at MNC HQs and keep their money and interests safe in India) were hired at huge salaries as a still cheaper substitute to deputation of their own native experienced executives who would have cost much more and even could have failed in India, where even a police officer has hearing problem unless the disease is treated with color of green back before the eyes.

Thus we as Indians forgot over last 5 centuries of subjugation- our arts, craftsmanship, our business acumen; the way international businesses were run and the Principle of good Public administration ('Arthashastra' by Kautilya) and also forgot to innovate new products and models like in mathematics and other sciences (even powerless planes were created once in India) > Known for its intellectual capital in past history, modern Indian businessmen and government have together failed to take advantage of this genetic treasure of Indians focusing on bribery, exploitation and quick money.

So then Liberalisation process started and consumer hoped that "happy days are here again' and people will get international quality goods, mass produced and delivered in a license Raj free competitive environment. But just opposite has happened. Where is competition in India really? Is consumer able to have access for redress? How complex are consumer forum proceedings? How much time, they would take? The corrupt people in Indian Parliament passed a RTI Act to show people that the Government seriously means business. Actually it is so complex and toothless Act with impotent Information Commissioners in Centre and State that nothing comes out of RTI application except for harassment and indignation. No officer is afraid of this Act as adequate penalties are not included and what if an officer simply tears off paper from files? In any case there was never any need to enact such an act as Constitution and very model of democracy needs transparency and accountability to citizens of all elected or appointed public servant right up to President of India. They are anyway bound to act and inform on disposal of a grievance. We have separate Ministry also for public grievances.  So we passed many Acts including controversial SEZ Act, but left as always all of these loose for poor implementation. Same applies to modern management practices in Indian companies and quality models like Scorecard, EVA, and ISO 9000 and so on. To be framed and showcased in reception hall of CMD office or even PMO.

India is one of few countries where a law abiding consumer cum citizen suffers daily life of indignation, unfairness, cheating and oppression. If LPG (Liberalization, Privatization-which never really happened seriously, and globalization) were a mechanism to bring competition, capacity installation and creativity in country, why prices have not fallen and quality has not gone up in last 15 years except for electronics where Moore's law is operating. As far as customer service attitude is concerned , like typical old British time barking clerks, the service executives and officers in government and private sector both still keep barking on citizens ,show their supremacy  wanting best perks and salaries and ignoring complaints and duty . Even in industry they either don't reply at all or give auto-reply and then go to a long sleep till buyer forgets about his or her grievances.

So in this setting, India is undergoing economic and social transformation where 80 % people claim to be called downtrodden and backwards and fight on streets for same. Is not that a national shame? They keep clamoring for government help like our boneless industrialists and businessmen as explained above. As we were always dependent on  Sarkar ( government) –To design projects for us, provide cheaper (even looted and snatched arable and fertile land  from farmers), low cost loans, rescheduling of loan defaults, subsidized raw materials and so on and on and on. Indian entrepreneurs normally are not any better than collecting abnormal profits whatever way these can be managed. Rest work is to be done by government who foolishly try to run economy and industry fortunes by largesse distribution and tax rate and interest rate manipulation (which are at best short term Quick fixes in economics theory)

So in such an unbalanced economy (where there is no consumer surplus really) and business environment we are going to talk about innovation and balanced score card system.

The prerequisite for any system to succeed is first a balanced mind and balanced character which we as Indians mostly lack right up to the top most industrialists of India (with due apologies)

Western theories Vs Indian systems:

A close scrutiny of some famous management gurus' present and past theories including that from  USA and Japan simply show pure commonsense and such many practices were already used in India by spirited entrepreneurs in long past and even today. Take example of Kan Ban and Lean manufacturing- Marwari entrepreneurs have been using this trick indirectly by keeping the feed line a little starved which worked like a good 'fasting' works on human body. The toxins are thrown out. So most of unwanted material and stocked items are hunted out by employees and utilized for production. It also gives them time to experiment for producing good item from bad inputs or intermediary goods and for improving quality systems. Production order was released against confirmed or in-pipeline orders only (except for mass produced commodities like cement).

The Marwari Perta system is one of world's best methods to ensure productivity expressed in terms of finance figures. That is where it lacked as compared to balanced scorecard and Performance pyramid 2 views. But I myself have combined several such methods to produce daily progress reports that gave overview of all critical points of production and operations for productivity metrics and finally the profit in terms of money.

The minute study and short listing of critical processes in business operations and critical factors of success is must for balanced working of an organization.

The ' core competence' model of C K Prehlad and his 'bottom of pyramid' (though an Indian professor –but now settled in West ) are nothing but old wine in new bottle for western economist's consumption as they never saw need for this and with increased industrialization diversification was a tempting alternative . Hindustan Levers and ITC type companies long back attempted penetration in rural untapped markets. They were also involved in societal marketing like distribution of condoms through their network which they did not ostensibly liked much and abandoned.

A large number of Indian entrepreneurs have been using these core competence strategies and have been successful since ages. Many units later died as they diversified frittering away resources and failing to build diversely capable organizations. Thus creating a competent and committed workforce (Not by theory X or Y) and competent organization work force is as crucial as financial projections and planning. But in India most planners are basically accounting clerks influenced by Chartered accountants and Tax avoidance (read planning) advisors. How to manipulate tariffs and government favors.

Western economist never needed to identify potential of lower rung of consumers in society because it did not much existed,  simply as the society though capitalist,  has to its credit fairly satisfactory distribution of wealth across the citizens, unlike in India or Pakistan. So what Prehlad talks about is simply in context of badly managed developing countries. Anyone knows that with 70 crores people even though spending less than Rs 1000 per year per head make it a market of  Rs  700,000 millions or INR 70 Bn which is still just peanuts vis a vis any major country and in global context. So what 'bottom of pyramid' he is talking about and for where? World class facilities cannot be conceived and logistics so easily set up to distribute more than 1000 frequently used commodities and products scattered around in 4000 kms by 3500 km length and breadth of a country with bad roads and railways network, pot holes, road blockades, dust in across over 600,000 villages. It is gigantic task. Talking of pyramid is very easy. Both Indian governments and industrial lobbies have failed to invest in this with, as an indicator, 30-40% fruit and vegetable go waste in India.

It is simple theory of economics that when need arises either buyer finds the seller, or vice versa. Once rural incomes have started rising thanks to unproductive largesse distributed by our foolish planners and pseudo economic experts, the rural markets have started developing on their own. Here is where huge micro level employment potential lies but is being neglected.

I as marketing executive having traveled from one backward area to other backward areas and Metros all over the country in 70s and 80s realized this power of lower part of pyramid. The point is how sincere are we to tap it and do we need that and can we do it? When even after 16 years of LPG, we are still having suppliers' cartels, supplier monopoly, shortages of basic commodities and unfair trade practices, adulterated goods, with rising prices across the board @ 15-20-% per annum on average. It is alarming and shameful situation. Probably it points to lack of national character.

Indians having not even 2% of indigenous technology content in their manufactured and service sector outputs claim to become superpower, fooling the people (Vote banks) and showing day dreams.

The only advantage India has is poor regulations that allows Multi national companies ( Union carbide for example) to spread pollution in the country and the cheap & greedy illiterate labor that is still quite cheap (Even technically qualified skilled labor) and less demanding  despite low productivity ( ˝ to 1/10th of other countries in various areas). It is also a test laboratory for dangerous and new chemicals and drugs. India has surplus labor market with large number of people not even earning $1 per day. There are hardly any welfare laws in India existing, in reality, in majority of organized private and almost 100% of unorganized sector; whereas Public sector is full of corruption, low productivity, politicization, and huge expenditures making them unproductive and in competitive.

Huge salaries given by a few MNCs and the entrenched rich IIT and IIM alumni network to their juniors are used as a cover up for lack of employment, exploitation of majority of labor, lack of any protection and welfare laws for labor and dismal condition of unorganized sector labor. Without building infrastructure and preparatory work we move fast and jump queues in areas that benefit like CEOs fixing Rs 10 to 100 Million annual salaries and perks in a country for themselves where decent living costs only just Rs 50,000 PM in Delhi or Mumbai.

Even, Quality controlling agencies like BIS, AICTE, for example, have miserably failed to monitor quality and prevent exploitation of Employees; exploitation of professionals and teachers, alike. Can you imagine a management Professor getting Rs 20,000 per year- much lesser than starting salary of a fresh MBA pass out and a physics teacher in school getting Rs 4000 PM as against Rs 1.2 crores salary fixed for MD of Maruti Udyog , as an example? And we talk of Great Indian economy, super power and Indian talent? Brain drain is where the Indian talent is going. Indian industry is still not understanding the big mistakes western economies did; trying to exploit and not empower consumers and employees. Capital formation in India is in private domain only and not in national and productive assets. Most of it is in surreptitious form unavailable for productive employment.

So what an organization in India has to face? They need to balance their prejudices and mind sets of profiteering, exploitation and tax evasion first, before balancing of strategic goals?

The unbalanced -Balanced score card:

The Balanced Scorecard is a strategic management (Strategy is a much abused word since last 20 years) and measurement system that links strategic objectives to comprehensive indicators or metrics/performance criteria).

It recognizes that companies have a tendency to fixate on only a few measurements1 (In India mainly the figures below the bottom line) – and this blinkers their assessment of how the business is performing overall (With still high protection, political corruption and nexus and cartel forming and short capacities for almost all commodities, does it really matter?). The Balanced Scorecard focuses management attention on a set of other key performance indicators (metrics) to provide an overall view.

The concept was originally created by Robert Kaplan, the Marvin Bower Professor of Leadership Development at Harvard Business School, and David Norton, co-founder of the consulting company Renaissance Solutions. They have written a bestseller The Balanced Scorecard: Translating Strategy into Action (1996). (The problem with Indians is translation and implementation and not conceiving ideas. We are very fertile planners and day dreamers, otherwise)

(There is very interesting phenomenon going on since last 50 years- Publish or Perish in academic world globally. So same product is edited cut, modified and repacked and new and new jargons are coined by so called academicians and professors of eminence, to prevent from getting perished). Balanced score card is also one such jargon and new concept coming out of competitive research and publishing, though with due regards to its originators.

Kaplan and Norton compared running a company to flying a plane 1. The pilot who relies on a single dial is unlikely to be safe. Pilots must utilize all the information contained in the cockpit. "The complexity of managing an organization today requires that managers be able to view performance in several areas simultaneously," wrote Kaplan and Norton (is that great as finding electrons first time in atomic particles?). "Moreover, by forcing senior managers to consider all the important operational measures together, the Balanced Scorecard can let them see whether improvement in one area may be achieved at the expense of another," they added ( Great observations ?).

Kaplan and Norton suggested there are four important elements that need to be balanced.

  • First, is the "customer perspective". Companies must ask how customers perceive them (Forget this in India). In India seller is the king, a typical government Babu (IAS and such guys) is the king. India has not commissioned consumers and citizen's surveys in various matters including police and other important social and economic organizations.
  • The second element is "internal perspective." Companies must ask what it is at which they must excel.( How companies will excel when they exploit employees, ill treat them hire an fire, are shy to spend money on training and research-A typical example is technical education in private sector where there is mass scale exploitations of faculty in every respect and almost nil efforts for Research, training and development besides not even half salaries paid as recommended  by UGC/AICTE which itself are not even half as good as they should be- So Indian technical education system including MBAs is collecting junk and demoralized custodians of knowledge- The Professors ). Industry institute interaction and focused research is totally missing unlike in west Sham research is going in majority of national organizations and university without any purpose, direction and accountability.
  • Third is the "innovation and learning perspective". Companies must ask whether they can continue to improve and create value. ( This concept of Learning organization and Fifth Principle are unknown and hated words for Indian profit seeking CEOs/Secretaries and top pseudo scientists , except for their own training trips abroad)
  • Finally, there is the "financial perspective". Companies must ask how they view shareholders. (Most Indian companies view Indian shareholders as outsiders, irritation and only a cost free source of milk (money) like cows are. Keep extracting milk from them. This money is almost free except for public issue expenses- Now a new funda (idea) of price band and liberalization has been started so companies are laughing all the way to bank while new shareholder is robbed (even before he or she become part owner of company) paying up even as much as 25 to 50 times the face value of a new company share which is several times more than its real economic value and profit potential.

By focusing on all four of these dimensions of Balance score Card; companies become driven by their mission rather than by only short-term financial performance. (Unfortunately most of companies, it has been seen have 'missions' that are vague or for mere public consumption or are wrongly exchanged with Vision or both are mixed badly)

These points are not quite enough for a balanced score card success:

Many things more are needed to be measured: Ethics, respect and adequate compensation for employees and their hard work and contribution, social responsibility, Economic value of Assets (as these are not free like promoters view it in India) and environmental degradation  and sustained global competitiveness ( Michael porter/ Jagdish Seth ).

Some academic authors have claimed that over 64% of US companies (Kurtzman, 1997) are using some form of scorecard that uses both financial and non-financial metrics. Over the last many years, large Indian corporate (like TATA Motors) too has started using the Balanced Scorecard. Many more have made a bee line for it and other models like like TQM, Poka Yoke, ISO 9000, and HACCP and so on.

While all this is fine in theory what should be important is for me as a CEO is:

1. To minutely breakdown and simulate business processes (BPA) and isolate the ones which are critical success factors and focus to improve these on regular basis by involving people in my company ( This is nothing but 'kaizen' concept of Japanese). I have successfully attempted dramatizing and aura building by rejuvenating the drab and boring routine work atmosphere in some companies I worked bringing in startling improvements in rejection rate reduction and productivity increase. This is also a foundation for Total Productive Maintenance or its variants ( TPM). Surprisingly resistance came from owners of business and not employees.

2. Identify Critical Ratio/Norms  for measurements to ensure productivity and profitability both : For example a Daily Progress Report (now ERP modules are installed) going to CEO can have following compilations:

2.1 Production targets for month/year-Achieved value and its percentage-Conforming /Non conforming

2.2  Daily production of various key items of output as against agreed capacity for the product mix


2.3 Ratios of key inputs and services like (steam consumption for tire vulcanizing in a tier factory) as against agreed norms of productivity. 

2.4 Dispatches for the day against daily and monthly goals set and percentage achieved

2.5 Total logistics costs as percentage of agreed monthly cost

2.6  New customer added during the month

2.7 Orders lost during the month from regular customer

2.8  No of customer complaints received and disposed till date in the month and satisfactorily closed as percentage

2.9  Total Cost of production or gross margin ( Perta)  on daily and cumulative  basis in the week/month

2.10 Interest costs up to the day and percent of agreed monthly cost 

2.11 Previous closing average share price and last price and highest in last one year period.

2.12 No. of workers on role in senior, middle, supervisory (frontline) and  labor employed as on day and beginning of month

2.13 Cost of employment per unit of production

2.14 Cost of R & D work incurred till last month end.

2.15 Employee turnover at Managerial and non managerial level till last month end ( surprisingly in many companies these ratios are widely different for two categories and pint to different HR policies of companies)  

2.16 ROI till close of last month (pro rata) agreed value and ROI of first 2 nearest competitors.    

2.17 Total outstanding credit in market , percentage of revenue and age (less than 30 and more than 30 days)   

2.18 Total raw material, work-in-transit, and supply chain inventory (Finished goods/ SKUs) on the previous day as against agreed targets and industry average. This needs huge involvement of sales force and distributors.

2.19 New products/designs added by the company up to end of previous month.

2.20 Product development projects in hand  

I don't see any reason why any good company can't compile these data on daily and if not daily on weekly and monthly basis with all the ERP, MIS and computerized systems in place. If Companies are not geared up for such analyses regularly, they are certainly not mature enough to implement SCORECARD system and will not benefit an iota by doing that. In India, particularly economic structural reforms, improvement of labor laws and deregulation measures and greater accountability of both CEOs of companies as well as Secretaries to various Governments is necessary. Reckless tax collection like done by Present Finance Minister is to gain a quick step jumping process and will and has already resulted in huge inflation and consequent failure of economy.

In other words and to summarize:

There is need for evolving country specific systems and for making sustainable growth oriented and competitive corporations, the business environment, ethics and business practices identifying critical success factors and critical business process have to be put in place, nurtured and constantly, a great work team is to be developed and then only implementation of concepts like scorecards will yield desired and expected results. You can't make out a champion of a diseased person living in unhealthy environment.  So many management theories and formulae have already created a confusing jungle of management literature. Balanced Scorecard is a performance measurement tool although  it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that Balanced Scorecard itself has no role in the formation of strategy. Several senior managers, working closely together can have radically different perspectives on business  performance.

The Performance Prism 2 theory has five facets like of a Prism surfaces: – The top and bottom facets are Stakeholder Satisfaction and Stakeholder Contribution, respectively. The three other side facets are Strategies, Processes and Capabilities. APPLYING THE PERFORMANCE PRISM TO MEASURES DESIGN:

Five distinct, but logically interlinked, perspectives on performance have been identified together with five key questions for measurement design:

1. Stakeholder Satisfaction – who are the key stakeholders and what do they want and need?

2. Strategies – what strategies (Business policies and action plans) do we have to put in place to satisfy the wants and needs of these key stakeholders?

3. Processes – what critical processes do we require if we are to execute these strategies?

4. Capabilities – what capabilities do we need to operate and enhance these processes?

5. Stakeholder Contribution what contributions do we require from our stakeholders if we are to maintain and develop these capabilities?

It is thus no accident that the balanced scorecard starts by asking, "What do the shareholders want" (Of course if I care for them). A key reason for strategic failure is that the organization's processes are not aligned with its strategies. Many times none of them is understood or clear to top management or second rung managers and they may different views pointing to poor vertical and horizontal communication in organization. Another important example of stake-holders interest in scorecard design and implementation is aptly explained by this example. Today, Boeing manufactures only three components on a 777. Its reliance on suppliers for components and spares is immense and its exposure, should its suppliers fail to perform, cannot be underestimated.
According to author of this article these concepts are tough to implement and even identify and can work only in specific business environment enabling or disenabling factors like for the growth of a sapling in right soil and climatic conditions. The approach has to be varied and redesigned on situation concerned and markets where you focus to operate. But one thing is sure, the customer service of even world class organizations even today is not up to mark and hence  implementation of concepts like 'performance prism' and  balance scorecards seem to be doubtful and ineffective.  
       

References and acknowledgements:

The Balanced Scorecard: Translating Strategy into Action. Boston, MA: Harvard Business School Press, 1996

The Performance Prism: Andy Neely, & Chris Adams Mike Kennerley, 2002, Prentice Hall

Journal Articles:

"The Balanced Scorecard: Measures That Drive Performance." Harvard Business Review, Jan./Feb .1992

"Putting the Balanced Scorecard to Work: Harvard Business School, Sept./Oct.1993

Internet:

MBAUniverse.com 1, Wikipedia.com 2
 


Prof. R.K. Gupta
Professor of Management & Senior Business Consultant
Aravali Instituite of Management
Jodhpur
E-mail:
cityju@rediffmail.com
 

Source: E-mail June 7, 2007

       

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