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Human Resource Management Term - III

Indian Institute Of Management, Kozhikode

BALANCED

SCORECARDThe Initiative at Hindustan Petroleum Corporation Limited

Section – C, Term IIIProf. Manoranjan DhalMarch 21, 2013

SUBMITTED BY:

Group 10 :

Arkaprabha Debnath PGP/16/133Panii Ngaoni PGP/16/152Nisarg Rajvansh PGP/16/158

Ritika Kathuria PGP/16/161Ruchir Mehrotra PGP/16/162Shalinee PGP/16/164

Sharmi Halder PGP/16/166



Indian Institute Of Management, Kozhikode Human Resource Management

BALANCED SCORECARD ii

Table of Contents

Acknowledgement ........................................................................................................... 1

BALANCED SCORECARD ........................................................................................... 2

The Initiative at Hindustan Petroleum Corporation Limited .......................................... 2

Introduction ........................................................................................................................................ 2

Need Of Balanced Scorecard ............................................................................................ 3

Limitations of earlier performance measurement .................................................................................. 3

Reasons for organization’s failure to execute strategy ........................................................................... 4

Principles of organization focusing on strategy ..................................................................................... 5

What is Balanced Scorecard? ............................................................................................ 6

1. The Learning and Growth Perspective ............................................................................................. 6

2. The Business Process Perspective ..................................................................................................... 6

3. The Customer Perspective ............................................................................................................... 7

4. The Financial Perspective ................................................................................................................ 7

Features of Balanced Scorecard ........................................................................................ 9

Strategic Fit And Balanced Scorecard Framework ............................................................. 9

Framework to translate vision into operational terms through BSC ................................... 10

Implementation of Balance Scorecard at HPCL ............................................................... 11

Cascaded Scorecards .......................................................................................................................... 11

Challenges ...................................................................................................................... 12

Tasks Involved for successful implementation .................................................................. 12

Benefits of Balanced Scorecard ........................................................................................ 13

Some Excerpts ................................................................................................................ 13

Conclusion ..................................................................................................................... 15




BALANCED SCORECARD 1

AcknowledgementWe would like to thank our Prof. Manoranjan Dhal for giving us the opportunity to work

on the project, which helped us in understanding the concept, need and business

implications of the HRM practice called Balanced Scorecard. Also, we would not have been

able to accomplish the project without the guidance we received from you.

We would also like to thank the employees of HPCL, for helping and guiding us

throughout the entire project.

We would finally like to thank our institute for providing us the resources.





BALANCED SCORECARDThe Initiative at Hindustan Petroleum Corporation Limited

Introduction

A new approach to strategic management of firms was

developed in the early 1990's by Drs. Robert Kaplan of

the Harvard Business School and David Norton

(Balanced Scorecard Collaborative). They called this

system the ' balanced scorecard'. With the objective of

removing the inherent weaknesses and vagueness of

traditional management approaches, the balanced scorecard approach was devised to

provide a clear prescription as to what companies should measure in order to 'balance' the

financial perspective.

The balanced scorecard is a management system (not only a measurement system) that enables

organizations to clarify their vision and strategy and translate them into action. It provides feedback

around both the internal business processes and external outcomes in order to continuously improve

strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise 1.

Or, as HPCL says,

“A framework that helps organizations to translate strategy into operational objectives that drive both

behavior and performance”

Norton and Kaplan describe the innovation of the Balanced Scorecard as follows:

"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

1 http://www.balancedscorecard.org/bscresources/aboutthebalancedscorecard/tabid/55/default.aspx Accessed





journey that information age companies must make to create future value through

investment in customers, suppliers, employees, processes, technology, and innovation2

."

The balanced scorecard suggests that any organization should be viewed from four

perspectives and its objective should be to develop metrics, collect data and analyze it with

respect to each of these perspectives:

Need Of Balanced Scorecard

Limitations of earlier performance measurement

! No communication of Drivers of Future performance – Lead indicators

! Drawbacks of managing only with financial measures

! There is no clue on Value Propositions for the existing and new customers –Differentiation

" Creating Excellence and Core Competency

2 Kaplan and Norton





" Corporate Climate that supports Change

! No inclusion for Innovation and Growth which drives sustainability ! Other Initiatives being taken by the Corporates are not enough

o Quality Initiatives like Malcolm Baldrige in US, Deming Prize in Japan, Six

Sigma etc.

o Customer Relationship Management (CRM)

o Business Process Re-engineering (BPR)

o Supply Chain Management (SCM)

o Enterprise Resource Planning (ERP)

All these initiatives were touching upon a key aspect of the business and at best were Strategic

Initiatives but not Strategy

Successful execution of strategy is found to be elusive

Reasons for organization’s failure to execute strategy

• 95% of typical workforce does not understandstrategy

• 60% of organizations do not link budget tostrategy

• 70% of organizations do not link middle

management incentives to strategy

• 85% of executive teams spend less than onehour per month discussing strategy





Principles of organization focusing on strategy

Thus,

“A framework that helps organizations to translate strategy into operational objectives that drive both

behavior and performance”





What is Balanced Scorecard?

1. The Learning and Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both

individual and corporate self-improvement. It recognizes people -- the only repository of

knowledge -- as the main resource in today’s knowledge-worker organization. In the current

climate of rapidly changing technology, continuous learning is necessary for knowledge

workers. In case of government agencies, like HPCL, the inability to hire new technicalworkers and a decline in training of existing employees is often seen. This is a leading

indicator of 'brain drain' that must be reversed. Metrics, to guide managers in focusing

training funds where they can help the most, can be put into place. In any case, learning and

growth constitute the essential foundation for success of any knowledge-worker

organization.

Kaplan and Norton differentiated between learning and training and emphasized that

'learning' is more than 'training' as it also encompasses supporting roles like mentors and

tutors within the organization. Also, the ease of communication among workers, that allows

them to readily get help from peers and seniors on a problem when it is needed, also forms apart of learning.

2. The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective

allows the managers to know how well the business is performing, and whether the products

and services it provides is conforming to customer requirements (the mission) or not. These

metrics must be designed with care by people who know these processes most intimately as

the uniqueness of a firm’s mission hinders the development of metrics by outside

consultants.

Two kinds of business processes may be identified apart from the strategic management

process: a) mission-oriented processes, and b) support processes. The latter refers to the

special functions of government offices which are historically proven to have unique





problems. On the other hand, the support processes being repetitive in nature are relatively

easier to measure and can be benchmarked using generic metrics.

3. The Customer Perspective

Recent management philosophy indicates the increasing realization among firms of the

importance of customer focus and customer satisfaction in their businesses. The leading

indicator being: dissatisfaction of customers will eventually lead them into finding other

suppliers that will meet their needs. This means that poor performance from this perspective

will lead to decline in the medium to long run, despite the fact that the current financial

picture may look good.

During the development of 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.

4. The Financial Perspective

The traditional need for financial data cannot be disregarded3. Timely and accurate funding

data will always be among the top priorities, and managers will do whatever is necessary to

provide it. In fact, it is seen that there is more than enough handling and processing of

financial data. The implementation of corporate databases will mean that more of the

processing can be centralized and automated. But the important point is that the current

emphasis being laid by firms on their financials’ is leading 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.

3 Kaplan and Norton





To Summarize:

Why is it called Balanced?

It derives its name as it provides a balance between the following parameters:

• Measures theultimateresults that the

businessprovides to its

shareholders

• Focuses oncustomerneeds andsatisfaction aswell as market

share

• Focusesattention ontheperformance ofthe key

internalprocesseswhich drivethe business

• Directsattention to the

basis of allfuture success -the

organization'speople andinfrastructure

Financial measuresInternal customer

Short term objectiveHard objective measures

Lagging indicatorsInternal performance perspectives

Non Financial measuresExternal customer

Long term objectiveSofter subjective measures

Leading indicatorsexternal performance perspectives





Features of Balanced ScorecardThe following are the noticeable features:

1. It helps to translate strategy into measurable targets and actionable objectives

2. All across the organization it cascades from top to down

3. It addresses interdependencies and encourages cross functional synergy

4. It not only links financial and non-financial objectives and but also establishes cause

and effect relationship

5. It enables recognition and fulfillment of internal customer needs

Strategic Fit And Balanced Scorecard

Framework





Framework to translate vision intooperational terms through BSC





Implementation of Balance Scorecard at

HPCLCorporate Scorecards were designed and being implemented on quarterly basis.

Cascaded Scorecards

! Level 1 - Scorecards for the SBU / Function Heads were designed

! Level 2 - 64 Scorecards were designed

! Level 3 - 116 Scorecards were designed

! Level 4 - Scorecards were designed for:

o Chief / Sr. Installation Managers – Terminals / TOPs

o Depot Managers – Inland Relay Depots

o Plant Managers – LPG bottling Plants / Import Facilities / Lube Plants

! Individual performance linked to Unit / Department level performance

! From F.Y. 2005-06, KPIs for all the officers were finalized based on Balanced Scorecard

format

o For senior officers from EDs up to DGM / CM level, respective scorecards are

the base for KPIs

o For officers in Grade A/B/C/D, the KPIs were finalized in KPI workshops for

various SBUs / Functions

o Separate KPI workshops were organized for Marketing SBUs, Refineries,

Finance, HR & IR, ERP & IT, and Audit etc. covering more than 2700 officers

! The KPIs were finalized for various categories of officers in each of the SBU / Function





ChallengesThe major challenges faced by HPCL while implementing the Balanced Scorecard approach

across the organizations were as follows –

! Requires significant Senior Management Time

! Issues arise to create the right organizational climate and strategic awareness

! Creation of Core Team and Supporting Teams in various Functions and SBUs

! Aligning the Organization / Process realignment

! Selecting the right measures and targets for various Metrics and Adopting Best

Practices

! Setting up of data collection system

Tasks Involved for successful implementation

The important tasks involved in implementing the BSC as a performance management

system across HPCL were as follows –

! Significant time and efforts is required for scorecard designing

! Identifying Unique Positions in the entire organizational structure

! Determining initiatives and Initiative Owners

! Training and Workshop designing

! Communication of the organization Strategy to Employees

! Identifying interdependencies

! Finalizing SLA





Benefits of Balanced ScorecardThe major benefits HPCL received through the implementation of the Balanced Scorecard

approach for performance management are as follows –

! Provided focus for strategy execution

! Communication of corporate strategy to employees was improved

! The BSC gives importance to lead factors like Internal processes and Human Capital

which in turn ensure future financial achievements and customer delight. This effect

was noticed at HPCL

! It helped HPCL align its SBU’s operation with organizational objectives

! Aligned the individual performance of an employee to that of the SBU or

Department

Some Excerpts

“ Balance Scorecard gives organized and structured way of identifying our roles. It helps in systematic

working by giving clarity to our KPIs. Now, I am able to focus on 4 parameters, viz. financial – metrics

of performance, customer – to keep him happy so that he comes again, process – to identify new

processes for effective working and most importantly, learning and growth, which is very important for

us.”

-Mr. Ganesh Kolambakar, Chief Regional Manager, Mumbai Regional Office, HPCL

“ Most important advantage, I feel, is the overcoming of role conflict which was prevalent earlier. Now,

I have more clarity in my roles. Also, I am able to monitor and achieve my goals and targets. I can

groom my subordinates well. My BSC is more focused on leadership parameters and helps me grow in





the organization. Apart from physical, there are now non-financial parameters, which are very

important for the organization to sustain in the market.

The disadvantage, I feel, is the pressure through which we go through once our goals are set for the year

and once committed, we have to honor our goals and targets. The support sometimes is not sufficient, in

terms of infrastructure and finance to meet our goals, for which our goals should be revised. Now the

company has introduced half yearly appraisals (from quarterly), in which we can change our goals and

targets as per the market conditions. This was a sign of flexibility shown by the management with

change in market dynamics”

-Mr. Rajesh Tupkar, Senior Regional Manager, Aurangabad RO, HPCL

“Now we have to plug in the goals and targets at the start of the year, and cannot edit them, and

neither the performance is undermined/altered by anyone. It gives transparency and is a foolproof

system”

- Ms. Pink Sarvaiya, Senior Officer – Retail, Pune Region, HPCL

“It is very effective tool for performance management and helps in aligning the goals of company to the

employees.

- Mr. Biswajyoti Choudhury, Officer – Vigilance, Mumbai HQO, HPCL





Conclusion

As per the study and having interviews with employees, stretching from lower level

management to middle level management, across regions and strategic business units, we

could found out that the Balance Scorecard framework is of immense importance for anyorganization to effectively implement strategy. It covers all aspects holistically, financials

and non-financials, which are critical for growth and sustainability for any organization. It

gives a road map to the employees, following a two-way flow of communication, and helps

to align themselves with the vision of the company. Thus, it gives clarity and focus of Key

Performance Indices, and aids the employees and organization, as a whole, to implement

the strategy in a structured and well-defined manner.





Bibliography

1. Kaplan, Robert S., Norton, David P.,, The Balanced Scorecard – Measures That

Drive Performance. Harvard Business Review, Jan-Feb 1992

2. Kaplan, Robert S., Norton, David P.,, Putting The Balanced Scorecard to Work.

Harvard Business Review, Sep-Oct 1993 3. Kaplan, Robert S., Norton, David P.,, Using the Balanced Scorecard as a Strategic

Management System. Harvard Business Review, Jan- Feb 1996

4. www.hindustanpetroleum.com

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