CONTEMPORARY MANAGEMENT

 

 

UNIT- V

CONTEMPORARY MANAGEMENT

 

End-user computing

 

In computing, End User Computing (EUC) refer to systems in which non-programmers can create working applications EUC is a group of approaches to computing that aim at better integrating end users into the computing environment. These approaches attempt to realize the potential for high-end computing to perform in a trustworthy manner in problem solving of the highest order.

 

        The EUC Ranges section describes two types of approaches that are at different ends of a spectrum. A simple example of these two extremes can use the SQL context.

                     The first approach would have canned queries and reports that for the most part would be invoked with buttons and/or simple commands. In this approach, a computing group would keep these canned routines up to date through the normal development/maintenance methods.

                      For the second approach, SQL administration would allow for end-user involvement at several levels including administration itself. Users would also define queries though the supporting mechanism may be constrained in order to reduce the likelihood of run-away conditions that would have negative influence on other users. We see this already in some business intelligence methods which build SQL, including new databases, on the fly. Rules might help dampen effects that can occur with the open-ended environment. The process would expect, and accommodate, the possibility of long run times, inconclusive results and such. These types of unknowns are undesirable 'before the fact'; the need to do 'after the fact' evaluation of results is a prime factor of many higher-order computational situations but cannot (will not) be tolerated by an end user in the normal production mode.

Analysis

 

The concepts related to the end user cover a wide range (novice user to intellectual Borg—see Slogan 2), hence End User Computing can have a range of forms and values. Most early computer systems were tightly controlled by an IT department; 'users' were just that. However, at any point in the evolution of computer systems through time, there was serious work in several domains that required user development. In the sense of serious domain computing and given the intertwining of computation into all advanced disciplines, any tool (inclusive of any type of capability related to a domain/discipline) that is provided by a computer becomes part of the discipline (methodology, etc.).

 

Slogans

·                     Computing concerns and good End User Computing can be antithetically related.

·                     Good End User Computing practices might help temper things such as the AI Winter.

·                     The computational needs to wed with the phenomenal (are 'borgs' inevitable?).

·                     There is always more than meets the eye Material requirements planning

 

MATERIAL REQUIREMENTS PLANNING (MRP)

It is a production planning and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

·                     Ensure materials are available for production and products are available for delivery to customers.

·                     Maintain the lowest possible level of inventory.

·                     Plan manufacturing activities, delivery schedules and purchasing activities.

·

The scope of MRP in manufacturing

 

The basic function of MRP system includes inventory control, bill of material processing and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities.

"Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required."

Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below:

·                     If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.

·                     If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all.

·                     Beginning production of an order at the wrong time can cause customer deadlines to be missed.

MRP is a tool to deal with these problems. It provides answers for several questions:

·                     What items are required?

·                     How many are required?

·                     When are they required?

·                     MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies,

Outputs

There are two outputs and a variety of messages/reports:

·                     Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the Master Production Schedule (MPS).

·                     Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the purchased items should be received into the facility AND the dates that the Purchase orders, or Blanket Order Release should occur to match the production schedules.

 

Problems with MRP systems

 

The major problem with MRP systems is the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data, or the master production schedule, then the outputted data will also be incorrect (colloquially, "GIGO": Garbage In, Garbage Out).

Another major problem with MRP systems is the requirement that the user specify how long it will take a factory to make a product from its component parts (assuming they are all available)..

A manufacturer may have factories in different cities or even countries. It is no good for an MRP system to say that we do not need to order some material because we have plenty thousands of miles away.

This means that other systems in the enterprise need to work properly both before implementing an MRP system, and into the future. For example systems like variety reduction and engineering which makes sure that product comes out right first time (without defects) must be in place.

Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently.

The other major drawback of MRP is that takes no account of capacity in its calculations.

 

JUST IN TIME

 

Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. Just In Time production method is also called the Toyota Production System. To meet JIT objectives, the process relies on signals or Kanban Kanban^?) between different points in the process, which tell production when to make the next part.

Quick notice that stock depletion requires personnel to order new stock is critical to the inventory reduction at the center of JIT. This saves warehouse space and costs. However, the complete mechanism for making this work is often misunderstood.

For instance, its effective application cannot be independent of other key components of a lean manufacturing system or it can "...end up with the opposite of the desired result." In recent years manufacturers have continued to try to hone forecasting methods (such as applying a trailing 13 week average as a better predictor for JIT planning, however some research demonstrates that basing JIT on the presumption of stability is inherently flawed.

 

Benefits

Main benefits of JIT include:

·                     Reduced setup time. Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time. The tool used here is SMED (single-minute exchange of dies).

·                     The flow of goods from warehouse to shelves improves. Small or individual piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its management.

·                     Employees with multiple skills are used more efficiently. Having employees trained to work on different parts of the process allows companies to move workers where they are needed.

·                     Production scheduling and work hour consistency synchronized with demand. If there is no demand for a product at the time, it is not made. This saves the company money, either by not having to pay workers overtime or by having them focus on other work or participate in training.

·                     Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationships extremely important.

·                     Supplies come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is reduced.

 

Within a JIT system

 

Just-in-time operation leaves suppliers and downstream consumers open to supply shocks and large supply or demand changes. For internal reasons, Ohno saw this as a feature rather than a bug. He used an analogy of lowering the water level in a river to expose the rocks to explain how removing inventory showed where production flow was interrupted. Once barriers were exposed, they could be removed. Since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup downstream. A key tool to manage this weakness is production levelling to remove these variations. Just-in-time is a means to improving performance of the system, not an end.

 

SIX SIGMA

 

Six Sigma is a business management strategy originally developed by Motorola, USA in 1986. As of 2010^[update], it is widely used in many sectors of industry, although its use is not without controversy.

Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization ("Black Belts", "Green Belts", etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).

 

            The term Six Sigma originated from terminology associated with manufacturing, specifically terms associated with statistical modeling of manufacturing processes. The maturity of a manufacturing process can be described by a sigma rating indicating its yield, or the percentage of defect-free products it creates. A six sigma process is one in which 99.99966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million).

                  Motorola set a goal of "six sigma" for all of its manufacturing operations, and this goal became a byword for the management and engineering practices used to achieve it.

Six Sigma is a quality management initiative that takes a very data-driven, methodological approach to eliminating defects with the aim to reach six standard deviations from the desired target of quality. Six standard deviations means 3.4 defects per million. A defect is defined as any unit that does not meet the specified level of satisfaction for the customer. Like TQM and other quality initiatives, Six Sigma includes tools used to drive down defects, improve quality and profits, and thus, morale and profitability.

 

SUPPLY CHAIN MANAGEMENT

Supply chain management encompasses all activities associated with the flow and transformation of goods from the raw material stage to the end user.

Definition:- Supply chain management is the process of planning implementing and controlling the operations of the supply chain as efficiently as possible.

            Supply chain management is defined as the design, planning, execution, control, and monitoring of supply chain activities with the objectives of creating net value, building a competitive infrastructure, leveraging worldwide legists, synchronizing supply with demand and measuring performance globally

Objectives of supply chain management:-

• To maximize the overall value generated
• To achieve maximum supply chain profitability
• To reduce supply chain costs to the minimum possible level
• To improve product quality, performance, efficiency, customer relationships, profitability.
• To increase customer satisfaction so loyalty and revenue
• To get the right product to the right place at the least cost

Components of Supply Chain Management

®    Supplier Management:- The main function of supplier management is to maintain optimum number of suppliers and make them partners in the business.

®    Inventory Management:- Inventory management maintains minimum required inventory levels for the raw materials and to shorten the order bill cycle.

®    Distribution Management:- It keeps records of documents required for transportation/shipping Ex: purchase order, bills of lending etc

®    Channel Management:- It is responsible for communication among the trading partners. Channel management informs to the trading partners about changing operational conditions.

®    Payment Management:- It keep track of payments and receivables among suppliers, distributors and company.

®    Financial Management:- It manages overall resources of finance for the organ, also money in foreign exchange accounts.

®    Sales force Management:- It keeps co-ordination among production department, marketing department, customer service and payment management by providing necessary information.

®    Logistics:- Logistics is closely related to supply management. Logistics is time related positioning of resources or the strategic management of the total supply chain.

®    Inbound logistics:- The management of resources entering an organ from its suppliers and other partners is called in bound logistics.

®    Out bound logistics:- The management of resources supplied from an organ to its customers and intermediaries such as retailers and distributors is outbound logistics.

Role / Activities / Functions of Supply Chain Management:-

Supply chain activities can be grouped in to strategic, tactical and operational levels

Strategic level:-

·   Strategic network optimization, including the number, location and size of ware housing distribution centers, and facilities.

·   Strategic partnerships with suppliers, distributors and customers creating communication channels for critical information and operational improvements.

·   Product life cycle management, so that new and existing products can be optimally integrated in to the supply chain and capacity management activities.

·   Information technology chain operations

·   Where - to – make and make-bye- decisions

·   It is for long term and needs resources commitment

Tactical Levels:

·         Sourcing contracts and other  purchasing decisions

·         Milestone payments

·         Focus on customer demand

·         Inventory decisions, including quantity, location, and quality of inventory.

·         Focus on customer demand

·         Transportation strategy, including frequency, routes and contracting.

Operational Level:-

·      In bound operations, including transportation from suppliers and receiving inventory

·      Outbound operations, including all fulfillment activities, warehousing and transportation to customers

·       Production operations, including the consumption of materials and flow of finished goods.

·      Daily production and distribution planning, including all nodes in the supply

·      Production scheduling for each manufacturing facility in the supply chain

 

Importance of supply chain management

®    The goal of Supply chain management are to reduce uncertainty and risk in the supply chain

®    Many companies have to improve their internal and external operations with its customers and suppliers in the supply chain to gain farther improvements in their operations

®    The supply chain reduces the material travelling time, cost and better deliveries.

Supply chain management Problems

® Distribution network configuration:- Number, location and network mission of suppliers, production facilities, distribution centers, ware house and customers.

® Distribution Strategy:- Questions of operating control Ex; direct shipment, cross docking, push/pull strategy.

® Information:- Integration of systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation, etc

® Inventory Management:-  Quantity and location of inventory including raw-materials, work-in-process and finished goods.

® Cash – flow:- Arranging the payment terms and the methodologies for exchanging funds across entities within the supply chain.

 

 

THE CAPABILITY MATURITY MODEL:

 

 (CMM) is a service mark registered with the U.S. Patent and Trademark Office by Carnegie Mellon University (CMU) and refers to a development model that was created after study of data collected from organizations that contracted with the U.S. Department of Defense, who funded the research. This became the foundation from which CMU created the Software Engineering Institute (SEI). Like any model, it is an abstraction of an existing system.

When it is applied to an existing organization's software development processes, it allows an effective approach toward improving them. Eventually it became clear that the model could be applied to other processes. This gave rise to a more general concept that is applied to business processes and to developing people

Structure

The Capability Maturity Model involves the following aspects:

·                     Maturity Levels: a 5-level process maturity continuum - where the uppermost (5th) level is a notional ideal state where processes would be systematically managed by a combination of process optimization and continuous process improvement.

·                     Key Process Areas: a Key Process Area (KPA) identifies a cluster of related activities that, when performed together, achieve a set of goals considered important.

·                     Goals: the goals of a key process area summarize the states that must exist for that key process area to have been implemented in an effective and lasting way. The extent to which the goals have been accomplished is an indicator of how much capability the organization has established at that maturity level. The goals signify the scope, boundaries, and intent of each key process area.

·                     Common Features: common features include practices that implement and institutionalize a key process area. There are five types of common features: commitment to Perform, Ability to Perform, Activities Performed, Measurement and Analysis, and Verifying Implementation.

·                     Key Practices: The key practices describe the elements of infrastructure and practice that contribute most effectively to the implementation and institutionalization of the KPAs.

Levels

There are five levels defined along the continuum of the CMM and, according to the SEI: "Predictability, effectiveness, and control of an organization's software processes are believed to improve as the organization moves up these five levels. While not rigorous, the empirical evidence to date supports this belief."

1.                  Initial (chaotic, ad hoc, individual heroics) - the starting point for use of a new process.

2.                  Managed - the process is managed in accordance with agreed metrics.

3.                  Defined - the process is defined/confirmed as a standard business process, and decomposed to levels 0, 1 and 2 (the latter being Work Instructions).

4.                  Quantitatively managed

5.                  Optimizing - process management includes deliberate process optimization/improvement.

Within each of these maturity levels are Key Process Areas (KPAs) which characterise that level, and for each KPA there are five definitions identified:

1.                  Goals

2.                  Commitment

3.                  Ability

4.                  Measurement

5.                   

ENTERPRISE RESOURCE PLANNING (ERP)

 

It integrates internal and external management information across an

entire organization, embracing finance/accounting, manufacturing, sales and service, etc. ERP systems automate this activity with an integrated software application. Its purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders.

ERP systems can run on a variety of hardware and network configurations, typically employing a database to store data.

ERP systems typically include the following characteristics:

·                     An integrated system that operates in (next to) real time, without relying on periodic updates.^[

·                     A common database, that supports all applications.

·                     A consistent look and feel throughout each module.

·                     Installation of the system without elaborate application/data integration by the Information Technology (IT) departmen

 

Functional areas

Finance/Accounting :General ledger, payables, cash management, fixed assets, receivables, budgeting, consolidation

Human resources: Payroll, training, benefits, recruiting, diversity management

Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow, and activity based costing, Product lifecycle management

Supply chain management: Order to cash, inventory, order entry, purchasing, product configuration, supply chain planning, supplier scheduling, inspection of goods, claim processing, and commissions

Project management 

: Costing, billing, time and expense, performance units, activity management

Customer relationship management: Sales and marketing, commissions, service, customer contact, call center support

Data services: Various "self–service" interfaces for customers, suppliers and/or employees

Access control: Management of user privileges for various processes

 

Advantages

The fundamental advantage of ERP is that integrating the myriad processes by which businesses operate saves time and expense. Decisions can be quicker and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include:

·                     Sales forecasting, which allows inventory optimization

·                     Order tracking, from acceptance through fulfillment

·                     Revenue tracking, from invoice through cash receipt

·                     Matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)

Disadvantages

·                     Customization is problematic.

·                     Re–engineering business processes to fit the ERP system may damage competitiveness and/or divert focus from other critical activities

·                     ERP can cost more than less integrated and/or less comprehensive solutions.

·                     High switching costs increase vendor negotiating power vis a vis support, maintenance and upgrade expenses.

·                     Overcoming resistance to sharing sensitive information between departments can divert management attention.

·                     Integration of truly independent businesses can create unnecessary dependencies.

·                     Extensive training requirements take resources from daily operations

 

BUSINESS PROCESS OUTSOURCING (BPO)

 

Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain. In the contemporary context, it is primarily used to refer to the outsourcing of services.

BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact center services.

BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called near shore outsourcing.

Given the proximity of BPO to the information technology industry, it is also categorized as an information technology enabled service or ITES. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry.

 

Benefits and limitations

An advantage of BPO is the way in which it helps to increase a company’s flexibility. However, several sources^[have different ways in which they perceive organizational flexibility. Therefore business process outsourcing enhances the flexibility of an organization in different ways.

Most services provided by BPO vendors are offered on a fee-for-service basis^[This can help a company becoming more flexible by transforming fixed into variable costs. A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible. Outsourcing may provide a firm with increased flexibility in its resource management and may reduce response times to major environmental changes^.

 

Threats

Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. For example, security of North American or European company data is more difficult to maintain when accessed or controlled in the Sub-Continent. From a knowledge perspective, a changing attitude in employees, underestimation of running costs and the major risk of losing independence, outsourcing leads to a different relationship between an organization and its contractor.

 

BUSINESS PROCESS REENGINEERING

 

Business Process Reengineering is the analysis and design of workflows and processes within an organization. A business process is a set of logically related tasks performed to achieve a defined business outcome. Re-engineering is the basis for many recent developments in management.

                      The cross-functional team, for example, has become popular because of the desire to re-engineer separate functional tasks into complete cross-functional processes. Also, many recent management information systems developments aim to integrate a wide number of business functions. Enterprise resource planning, supply chain management, knowledge management systems, groupware and collaborative systems, Human Resource Management Systems and customer relationship management.

 

Business Process Reengineering is also known as Business Process Redesign, Business Transformation, or Business Process Change Management.

Overview

Business process reengineering (BPR) began as a private sector technique to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. A key stimulus for reengineering has been the continuing development and deployment of sophisticated information systems and networks. Leading organizations are becoming bolder in using this technology to support innovative business processes, rather than refining current ways of doing work

Reengineering guidance and relationship of Mission and Work Processes to Information Technology.

Business Process Reengineering (BPR) is basically the fundamental rethinking and radical re-design, made to organizations existing resources. It is more than just business improvising.

It is an approach for redesigning the way work is done to better support the organization's mission and reduce costs.

Reengineering starts with a high-level assessment of the organization's mission, strategic goals, and customer needs. Basic questions are asked, such as

 

"Does our mission need to be redefined?

Are our strategic goals aligned with our mission?

Who are our customers?"

 

An organization may find that it is operating on questionable assumptions, particularly in terms of the wants and needs of its customers. Only after the organization rethinks what it should be doing, does it go on to decide how best to do it

Within the framework of this basic assessment of mission and goals, reengineering focuses on the organization's business processes—the steps and procedures that govern how resources are used to create products and services that meet the needs of particular customers or markets. As a structured ordering of work steps across time and place, a business process can be decomposed into specific activities, measured, modeled, and improved. It can also be completely redesigned or eliminated altogether. Reengineering identifies, analyzes, and redesigns an organization's core business processes with the aim of achieving dramatic improvements in critical performance measures, such as cost, quality, service, and speed.

                      Reengineering recognizes that an organization's business processes are usually fragmented into sub processes and tasks that are carried out by several specialized functional areas within the organization. Often, no one is responsible for the overall performance of the entire process. Reengineering maintains that optimizing the performance of subprocesses can result in some benefits, but cannot yield dramatic improvements if the process itself is fundamentally inefficient and outmoded. For that reason, reengineering focuses on redesigning the process as a whole in order to achieve the greatest possible benefits to the organization and their customers. This drive for realizing dramatic improvements by fundamentally rethinking how the organization's work should be done distinguishes reengineering from process improvement efforts that focus on functional or incremental improvement

 

BENCHMARKING

 

Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost. Improvements from learning mean doing things better, faster, and cheaper.

Benchmarking involves management identifying the best firms in their industry, or any other industry where similar processes exist, and comparing the results and processes of those studied (the "targets") to one's own results and processes to learn how well the targets perform and, more importantly, how they do it.

The term benchmarking was first used by cobblers to measure people's feet for shoes. They would place someone's foot on a "bench" and mark it out to make the pattern for the shoes. Benchmarking is most used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.

Also referred to as "best practice benchmarking" or "process benchmarking", it is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice companies' processes, usually within a peer group defined for the purposes of comparison.

 

Benefits and use

 

In 2008, a comprehensive survey on benchmarking was commissioned by The Global Benchmarking Network, a network of benchmarking centers representing 22 countries. Over 450 organizations responded from over 40 countries. The results showed that:

1.      Mission and Vision Statements and Customer (Client) Surveys are the most used (by 77% of organizations of 20 improvement tools, followed by SWOT analysis (72%), and Informal Benchmarking (68%). Performance Benchmarking was used by (49%) and Best Practice Benchmarking by (39%).

2. The tools that are likely to increase in popularity the most over the next three years are Performance Benchmarking, Informal Benchmarking, SWOT, and Best Practice Benchmarking. Over 60% of organizations that are not currently using these tools indicated they are likely to use them in the next three years.

 

Procedure

 

There is no single benchmarking process that has been universally adopted. The wide appeal and acceptance of benchmarking has led to various benchmarking methodologies emerging. The seminal book on benchmarking is Boxwell's Benchmarking for Competitive Advantage published by McGraw-Hill in 1994. It has withstood the test of time and is still a relevant read. The first book on benchmarking, written and published by Kaiser Associates, is a practical guide and offers a 7-step approach. Robert Camp (who wrote one of the earliest books on benchmarking in 1989) developed a 12-stage approach to benchmarking.

The 12 stage methodology consisted of 1. Select subject ahead 2. Define the process 3. Identify potential partners 4. Identify data sources 5. Collect data and select partners 6. Determine the gap 7. Establish process differences 8. Target future performance 9. Communicate 10. Adjust goal 11. Implement 12. Review/recalibrate.

The following is an example of a typical benchmarking methodology:

 

1. Identify your problem areas - Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include: informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depth marketing research, quantitative research, surveys, questionnaires, re-engineering analysis, process mapping, quality control variance reports, or financial ratio analysis. Before embarking on comparison with other organizations it is essential that you know your own organization's function, processes; base lining performance provides a point against which improvement effort can be measured.
2. Identify other industries that have similar processes - For instance if one were interested in improving hand offs in addiction treatment he/she would try to identify other fields that also have hand off challenges. These could include air traffic control, cell phone switching between towers, transfer of patients from surgery to recovery rooms.
3. Identify organizations that are leaders in these areas - Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study.
4. Survey companies for measures and practices - Companies target specific business processes using detailed surveys of measures and practices used to identify business process alternatives and leading companies. Surveys are typically masked to protect confidential data by neutral associations and consultants.
5. Visit the "best practice" companies to identify leading edge practices - Companies typically agree to mutually exchange information beneficial to all parties in a benchmarking group and share the results within the group.
6. Implement new and improved business practices - Take the leading edge practices and develop implementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.

 

Balanced Scorecard

Definition:

Management practice that attempts to complement drivers of past performance(financial measures) with the drivers of future performance, such as customer satisfaction, development of human and intellectual capital, and learning. Standard balanced scorecards do not include environmental considerations.

                                                                                                                                 - Robert Kaplan & David Norton

             The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.

 

The balanced scored aims:

Ø  To achieve strategic objectives

Ø   To provide quality with fewer resources

Ø  To eliminate non vale added efforts

Ø  To evaluate process changes

Ø  To continually improve

Ø  To increase accountability

 Perspectives:

The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

·         The Learning & Growth Perspective:

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.

·         The Internal Business Process Perspective:

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.

·         The Customer Perspective:

Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

·         The Financial Perspective:

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives.  There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

Balanced scorecard objectives:

 

Ø  Any organization needs to prepare for the future to ensure long term survival and profitability. The balanced scorecard provides an approach to deciding where the organization is heading (it's strategies), what is needed to get there (objectives) and what has to measured and controlled now to ensure that it stays on course to deliver the desired outcome in the future.

 

Ø  Once a strategy has been decided upon it is necessary to determine what will be required from each of the different key aspects of the business to ensure success of the strategy. These key aspects are known as Perspectives and usually there are four - Financial, Customer, Process and Innovation. Balance score card objectives for a strategy are set for each perspective. 

 Reasons for Failure of Balanced Scorecard:

Ø  Lack of visionary leadership and Active senior executive commitment and involvement

Ø  Introducing the balanced scorecard for reasons other than those related to better business performance management

Ø  Lack of cross-functional organizational/employee involvement in developing the balanced scorecard

Ø  Not clearly linking balanced scorecard indicators with strategic objectives

Ø  Using balanced scorecard performance results to punish for underperformance 

Advantages:

* Balanced Scorecard presents organizational goals in a single page chart broken down into relatable areas. 

* BSC raises innovation and process improvement methods such as six sigma and lean manufacturing to a corporate goal. It also ensures that voice of the customer is equally important. 

* Balanced Scorecards can provide a visual means of demonstrating how different goals are related. Increased sales improve the profit or sales goals under the financial section. Improved customer service meets the “voice of the customer” goal.

* Balanced Scorecards are straightforward enough to be used by many managers after gaining familiarity with the concept. Advanced training isn’t required to implement a simple version of BSC.

Disadvantages of Balanced Scorecard

* Balanced Scorecard does not include direct financial analysis of economic value or risk management. Goal selection under Balanced Scorecard does not automatically include

opportunity cost calculations.

* Because Balanced Scorecard can add a new type of reporting without necessarily improving quality or financial numbers, it can seem to be an additional set of non-value-added reporting or,

Worse, a distraction from achieving actual goals.

* Overly abstract Balanced Scorecard goals are easy to reach but hard to quantify. 
* When a company is failing to meet its Balanced Scorecard goals, the goals may be re-interpreted to the current state of affairs to meet success or avoid failure.

Measures