Balanced scorecard (BSC) – what for?
More and more modern technological routes, ERP systems which help planning in more detail and more and more precise market research – all this facilitates management in a stable environment.
However, companies must change continuously in order to remain competitive. Implementing changes often meets with resistance and reluctance. Strategic objectives which indicate the direction of changes are difficult to reflect in operational objectives of particular departments and employees. A business tool that makes it easier is BSC.
Can an IT system help in strategy realization?
Nobody now can imagine manual conducting sales, from a contract through an order, dispatch, invoicing and payment monitoring. The same is true for processes in the warehouse, production or accountancy. Operational processes are widely supported by IT systems, as they are usually well defined and do not change too often. Strategic processes, on the contrary, are bound to be changeable. That is why every tool which can help in this area is valuable.
BSC is considered to be one of the best ways to indicate directions of changes and monitor them on the level of operations with stable highlight on their consistency with strategic objectives.
The balanced scorecard (BSC) is a term introduced in 1992 by Robert S. Kaplan and David P. Notron. Nowadays BSC is defined as managing in such a way that the employees‘ operational objectives are completely compliant with the company’s strategic objectives. In order to create BSC it is necessary first to define the company’s perspectives, i.e. areas important for the company’s survival and development. Usually about 4-5 perspectives are defined, like: a customer’s perspective, a financial one, internal processes and development and knowledge. In every perspective the objectives comply with the strategy. For every objective the indicators measuring the level of objective achievement are defined.
Due to their big influence on the company’s efficiency, the factual tool, namely BSC, should be supported with IT tools which will help aggregate and analyze data coming from various sources and present data in a manager-friendly form.
BSC in SAP system
SAP is one of the few ERP system producers offering a solution that supports using BSC. The SEM-BSC functionality was created and is still developed in cooperation with the creators of BSC concept. This ensures complete compliance of an IT tool with business needs.
SEM-BSC functions have been prepared with the view to supporting BSC business side as much as possible:
- SEM-BSC includes predefined business indicators (CFROI, EVATM, DCF and many others). A user may use them and develop the list by new ones suitable for the company
- BSC has templates for particular industries
- it includes developed tools for BSC graphic representation help in understanding, analysis and evaluation of the degree of objective attainment. The data may be displayed in a traditional star form, or as a map of relations, or a list of perspectives, objectives and indicators
- it possesses numerous tools to facilitate group work, like comments on results and answers to comments
- there is a consistent data base for SEM-BSC, which is SAP BW data warehouse and which enables to connect the data from other IT systems with BSC data and makes data management easier
Among the advantages of SEM-BSC the following are the most important:
- easy access through a WWW browser both to general and detailed data on business indicators
- centralization of data storage for BSC needs – one source for all users; it stores indicator definitions, planned and actual data, actual data evaluation and comments
- graphic presentation of indicators and their components enables better interpretation of business facts
- automatic evaluation with visualization by means of icons facilitates verifying indicators which do not meet the assumed criteria
- BSC serves as a clip for detailed reports that help deeper analyze chosen business aspects
BSC and SEM-BSC in Nestlé Polska
The leader in food production in Poland (brands such as Nescafe and Winiary) has decided to unify business objectives in units by defining balanced scorecards on the level of headquarters and the concern’s units in Poland.
The result of his business undertaking was an IT project, namely BCC-led implementation of SAP SEM-BSC.
The implementation works were preceded by a detailed analysis of business needs. In March 2004, after preparing detailed definitions of indicators, specifying sources of data and designing the form of entering and evaluating the indicators, and defining detailed analysis reports layout, the implementation started.
BCC – SAP Expert Partner in SEM
SAP SEM is a group of solutions that support strategic enterprise management including budgeting and measuring the efficiency of operations. Besides BSC, the components of SAP SEM are.SEM-BPS (strategic planning and simulation in SAP – a basic application that handles budgeting process) and SEM-BCS (consolidation).
BCC has a status of SAP expert partner in SEM. Apart from Nestlé, BCC clients in SAP SEM development are KGHM, Opoczno SA, Sanitec Koło, Żywiec group and others.
The project covered six BSCs (one in the headquarters and five in units), which included the following elements:
- 25 key business indicators grouped in 5 perspectives: financial, customer (middle man), target customer, internal processes and human resources development
- a review of the values of basic business indicators of the chosen BSCs with automatic evaluation of their values
- a review of objectives and perspectives, evaluated on the basis of an analysis of indicators related to business objectives and perspectives
- an analysis of definitions, history and a trend of the chosen indicator (a table and a chart)
- table and graphic reports that analyze components of particular business indicators
- introducing planned and actual data concerning business indicators
- managing access rights to elements of particular BSC
In mid-April 2004 the BSC for the headquarters was ready. On its basis before the end of May a full BSC functionality for units was started.
Since the very beginning one of the SEM-BSC implementation objectives in Nestlé Polska was improving data visualization during monthly board meetings, which are an opportunity for a strict and regular tool evaluation by the management of the company.
Nestlé is the world’s biggest food producer, which since the beginning of its operations in Poland in 1993 has invested here over USD 400m. The concern possesses in Poland 9 production plants, which jointly employ over 4,300 people. The best known Nestlé brands on the Polish market are: Nescafé, Nestlé , KitKat, Princessa, Lion and Winiary.