Implementation Of Balanced Score Card In China

As the business landscape keeps on changing, it is no longer enough for business to only look at the long term-profits and hence pursues strategies that will lead to long-term profits. In most instances, this strategy has flopped when the targets are not met or when business strategies drift  and most business have been left with nothing to hang on  to, thereby orchestrating their demise from the market (Lawson, Mukankusi, & Miller, 2008: 80). Modern business environment demands that business have to focus on their long-term competitive advantages with an aim of ensuring that there is sustained financial performance to survive in an ever changing business environment.

Therefore, it  is generally accepted that the traditional methods that focused on long term financial performance of the business are no longer valid in modern business environment  and business have to embrace and implement new methodologies that will lead them to higher financial performance (Neely, Adams, & Kennerley, 2002: 82; Andersen, 2001: 9). Traditional business methods involved financial measures that act as “lag indicators” only reporting on the outcomes of the past actions (Martinsons, Davidson, & Tse, 1999: 77).

This means that continued reliance on financial indicators can promote behaviors that will sacrifice long-term value creation that are meant for short term performance.  The traditional business measures are therefore focused on short-term performance and may not be linked to  the strategy of the company because they tend to ignore customer  and competitor perspective and fail to generate early-warning signals of changes taking place in the marketplace  or impending shortcoming on business financial performance (Kaplan and Norton, 2000: 170).

For sustained operation of the business, there has to be measures related to parameters like quality, productivity, market share, customer satisfaction, employee satisfaction, and others that will give concrete insight into factors that will drive financial performance of the business.

It is in view of the above situation that Kaplan and Norton (1992: 75) came up with the balanced scorecard concept. The implementation of balanced scorecard looks into the business performance in different linked perspectives including financial, customers, internal process, and in the area of innovation and learning. This implies that implementation of the balanced scorecard is meant to ensure long term survival of the business and adaptation to the changing business environment (Neely et al., 2002: 93; Green, Amenkhianan & Johnson, 1991: 52).

It is in this realm that the implementation of the balanced scorecard has been considered as an important measure of business development in any country. Most business organizations are in a position to realize performance breakthroughs within a period of two to three years of implementation of the balanced scorecard.

Today, the extent of implementation of balanced scorecard has been used to assess maturity of any business sector.  The purpose of this literature review is to compare the implementation of balanced scorecard between developed and developing market with a special focus on China as the developing market and UK and U.S. as the developed market.

The balanced scorecard is the most widely used business management and organizational system in the developed world that measures business enterprise performance.  Research indicates that more than 70 percent of Fortune 500 companies in developed countries used balanced scorecard (Beiman & Johnson, 2010).  The implementation of balanced scorecard has proved to be quite successful in the developed countries and hence it’s increased acceptability as a measure of business enterprise performance.

There are different examples that can be used in this study to illustrate the increased acceptance of balanced scorecard and resultant financial breakthroughs. Mobile Oil, which operates in North America recorded   $1.2 billion cash flown and return on investment rising from 6 percent to 16 percent within a period of 2-5 years after it implemented balanced scorecard (Beiman & Johnson, 2010). Just within a period of 2 years after the company implemented balanced scorecard, it moved from last place in lit of industrial profitability to become the first in the region for straight record of five years until it was sold to Exxon.

Another company that illustrates that success of  implementation of balanced scorecard is UPS (United States Parcel Service) that increased its revenues by more than 9 percent and net profit increased by more than 33 percent within a period of 2 years after it implemented balanced scorecard (Beiman & Johnson, 2010). In the same manner, Wells Fargo Bank realized 450 percent increase customer base after it implemented balanced scorecard. Chemical Bank realized a 20-fold increased in group profit within a period of 4 years after it had implemented balanced scorecard. According to the Vice-Chairman of Chemical Bank, a balanced scorecard has slowly become to be accepted as the part of change management process in the developed countries (Beiman & Johnson, 2010).

It has enabled most business enterprises in developed countries to look beyond their financial measures and look at other factors that are likely to create economic value including quality, organizational learning, focus on customers, and others.  Saatchi and Saatchi, the world leading advertising firm also recorded a five-fold increase in market capitalization to more than $2.5 billion within a period of 3 years after it has adopted and implemented balanced scorecard (Beiman & Johnson, 2010).

According to the Chief Financial Officer of Saatchi and Saatchi, implementation of the balanced scorecard has not only helped the company to manage human capital but it has also transformed the company agencies to become action-oriented and client-focused. Siemens IC Mobile Company increased its sales by more than 76 percent to reach 9 billion euros within a period of one year after implementing balanced scorecard.  President of Siemens acknowledged that balanced scorecard helped the company to bring strategies to life (Beiman & Johnson, 2010).

The list of companies in U.S, UK, and other developed markets that have implemented balanced score cards is endless. The fact that more than 70 percent of Fortune 500 companies uses balanced scorecard is a clear indication that developed markets have realized the importance and effectiveness of balanced scorecard in their immediate and future operations and have not shied away from integrating it in their growth strategy (Dawe, 2007: 57).

Evidence from developed countries shows that balanced scorecard is being used by non-profit, government and even by state owned companies to foster business performance and achieve strategic alignment  of strategies and growth. U.S Defense, Accounting and Finance Services (DFAS) implemented balanced scorecard in 2001 and has been in a position to increase customer satisfaction by 2 percent and employee satisfaction by 14 percent (Beiman & Johnson, 2010).

In the same way, UK ministry of Defense implemented balanced scorecard in 2000 as part of modernizing agenda. This implies that implementation of balanced  scorecard in the developed countries is not only pegged on increasing profit, as would be the purpose of its implementation in business enterprises, but also for improvement of goods and service for higher customer satisfaction (Beiman & Johnson, 2010).

The success in implementation of balanced scorecard in the developed countries is however not really replicated in the developing countries. As more multinationals based on developed markets pitch operations in developing markets like China, the concept of balanced scorecards is slowly gaining inroads into the developing markets but there are grounds to be covered (Yun, 2003: 79). The People’s Republic of China can however be taken as a perfect example of developing markets that are trying to implement balanced scorecard especially in the financial sector.

Research shows that the most important factor that has led to success in implementation of balanced scorecard in China has been the commitment and support of the executives in implementation of balanced scorecard methodology as they integrate with executives from developed markets. According Beiman (2007) there has been growing anticipation in China for successful business management as the country becomes integrated into the global economy. Executive and managers in China are more eager to learn how to compete in domestic and global market and balanced scorecard has become an important tool in this endeavor.

According to a recent book published by Beiman and Sun (2003) on application of balanced scorecard in China, balanced scorecard has been applied in China for the last decade recording relative success.  Unlike in the developed countries like U.S and UK where balanced scorecard has been implemented since it was first published in an article in 1992, the first company to use the tool in China was in 1996 when largest food company in the world  used the it to improve organizational transformation in its operations in China. This first implementation of balanced scorecard in China recorded success as organization performance and profitability was greatly improved (Ying, 2010: 44). There are other companies that have implemented balanced scorecard in China recording high level of success.

Just to look at a few, Jinshan Telecommunication implemented balanced scorecard in 2001 and realized an overall growth of 14 percent in 2003 (Beiman, & Sun, 2003: 142). CCTEC, a scientific and technology holding company owned by China Metallurgy Construction Group also implemented balanced scorecard in 2002. Consequently, the company realized 80% increase in revenue exceeding the initial target by more than 10 percent. CCTEC CEO mentioned balanced scorecard as an excellent communication tool that helped the company achieve great heights. These are just few of the companies that have successfully implemented balanced scorecard in China.

However, Zhang & Li (2009: 150) notes that there are few sectors that have embraced balanced scorecard in the country. They note that the banking sector in China has been slow in adopting balanced scorecard and lag behind compared to financial sector especially banks in developed countries. Zhang & Li (2009: 172) stress that China domestic banks need to learn from the success experienced by international through adopted of balanced scorecard and therefore implement balanced scorecards to improve their performance.

According to Beiman (2007) one of the challenges facing implementation of balanced scorecard in China is that the management environment in China differs from that of Western countries. From the Chinese experiences, there has to be a comprehensive approach to implementation of balance scorecard than how it has been done in western countries.

In addition, research evidence shows that most companies in China have not carried out comprehensive analysis of their business before implementing balanced scorecard and hence some may not realize the effectiveness of the tool (Yannan-Wang, 2008: 15; Tuan, 2010: 95). Therefore, it may be possible that China is facing a shortage of qualified manpower that can comprehensively implement balanced scorecard for most companies in a way that suits the Chinese market. China needs to learn a lot from developed markets like U.S and UK on the implementation of balanced scorecard and the benefits that can be realized as a result.

List of Reference:

Andersen, H (2001) ‘Balanced scorecard implementation in SMEs: Reflection on literature and practice’ Paper presented to the 4^th SME-SME International Conference, Denmark

Beiman, I (2007) Using the balanced scorecard for strategy execution in China [online] accessed from http://www.chinasuccessstories.com/2007/10/24/bsc-methodology-china/ [July 28, 2010]

Beiman, I. & Johnson, C. (2010) Balanced scorecard in developed and transitional economies [online] accessed from <http://www.adb.org/Documents/Books/Balanced-Scorecard/chap2.pdf> [July 28, 2010]

Beiman, I. & Sun, Y (2003) Balanced scorecard and strategy execution: Applications in China. Beijing: Machine Press

Dawe, T (2007) ‘Performance management and measurement in small communities: Taking the first step towards implementing a balanced scorecard approach’ Government Finance Review 23(1), 54-59

Green, F., Amenkhianan, F., & Johnson, G (1991) ‘Performance measures and JIT’ Management Accounting 45, 50-53

Kaplan, R. S. & Norton, P (1992) ‘The balanced score-card that drive performance’ Harvard Business Review 70(1), 71-79

Kaplan, R. S. & Norton, P (2000) ‘Having trouble with your strategy? Then map it’ Harvard Business Review 78(5), 167-176

Lawson, A., Mukankusi, L., & Miller, G (2008) ‘An adaptation of the balanced scorecard for E-government service deliver: A content Analysis’ Journal of Service Sciences 1(1), 75-82

Martinsons, M., Davidson, R. & Tse, D (1999) ‘The balanced scorecard: A foundation for the strategic management information systems’ Decision Support Systems 25, 71-88

Neely, A., Adams, C., & Kennerley, M (2002) The performance prism: The scorecard for measuring and managing business success London: Prentice Hall

Tuan, L (2010) ‘Balanced scorecard implementation at Rang Dong Plastic Joint Company (RDP)’ Management Science and Engineering 4(2), 92-98

Yannan-Wang, Y (2008) ‘The study of general performance measurement in newspaper based on BSC’ 2008 International Conferences on Wireless Communication, Networking and Mobile Computing

Ying, J (2010) ‘The application of BSC in China’s E-government performance evaluation’ Korea University

Yun, P (2003) ‘Using the BSC to implement performance management’ First BSC Forum in China, December 2003

Zhang, Y. & Li, L (2009) Study on balanced scorecard of commercial bank in performance management system Academy Publishers