Sunday, September 1, 2013

COST ....FINANCIAL & ORGANISATIONAL ENGINEERING THROUGH BALANCED SCORECARD

Financial and organizational engineering are the demand of the current economic condition. Indian economy over the next 3 years would require extensive engineering and mush of the responsibility lies on the heads of the Cost Accountants. Today I have come up with process examples of achieving the financial and organizational engineering case study aligning with the balanced score card. In short how balanced score card helps to achieve the upcoming Indian corporate growth which would get reflected into the GDP. Alignment of physical and financial resources to the strategy should be the key role of cost management. Long term budgets, capital investments and strategic initiatives all should be aligned with the balance score card. There are several steps which need to be adopted which are as follows:

  1. Stretching the target levels
  2. Gap analysis for achieving the same (comparison of achieved target) 
  3. Identification of strategic initiatives to achieve the targets 
  4. Linking of strategic expenses with the long term budgeted performances. 

Today I will be broadly discussed about stretching targets and designing the same with the changing culture of the organization. Managers of the companies are the communicators and the bearers of the target of the organizations. For example an organization plans to double the stock price by 120% for an organization in the next 3 to 5 years or an sales company decides to increases the revenue by 150% over the next 3 to 5 years are some of the targets being taken into an organization. These targets might sound to be new but they are the realistic targets being taken often by various organization. Indian corporate has been taking more risk than what I have mentioned above. The Balanced Scorecard has proven to be a powerful tool to gain acceptance for aggressive targets because it stresses the linkages for achieving outstanding performance in related measures, not just improving performance in isolated measures. For achieving these targets organization team members often break it into smaller part.

Now a question might come up that how to break and where to break it. Well it is very easy to break it into 4 smaller parts aligning with the balanced score card principles. Financial targets have been fixed but we need to break into the different parts of the financial parts which would help the organization to achieve the targets. What type of internal process changes are required needs to be figured out and the same needs to be communicated and implemented within the business cycle or culture of the organization? Now we need the human resources to be nurtured for achieving the desired targets. For this we need to figure out type of changes we need in each department so that they ailing with the long term objective of the organization. For example the reduction in rework, reduction in times of errors and adding constant value to the day to day activities of the internal process helps the organization to achieve the targets. More frequent communication and interaction with the carriers of the targets would help the organization to reduce the errors.

We might needs some special type of changes in the manufacturing segment so that product quality improves. For this we might have to enter into automation of certain parts of the manufacturing segment. For this we might require some specialized skills which falls under the learning and growth perspective of the balanced score card. With the changes in the business and manufacturing process the internal process of the organization changes and hence one of the perspective of the balanced score card gets mingled with the new culture. When the internal control process changes it gets the customer servicing and its product quality enhanced in terms of customer perspective of the balanced score card. For example the customer/business development group of marketing, proposed aggressive targets for new customer acquisition, average size of sale, and customer retention takes a new change in its process aligning with the targets.

When we started the stretched targets it seemed that it was an herculean task but the same is broken into smaller parts and now combining all we get into the final perspective of the balanced score card of financial perspective. Well one of the key aspect of success behind achieving the targets is that every segment of the team which was broken into 4 parts aligning to the balanced score card was that it was open communication organization and not an isolation based platform.

The inclusion of performance drivers and lead indicators on the scorecard enables managers to identify the operational factors, such as strategic investments, market research, innovative products and services, re-skilled employees, and enhanced information systems that must be created if the ambitious financial targets are to be achieved. Hence balanced score card helps an organization to achieve turn around growth over the next 3 to 5 years. In my next article I will come up with an gap analysis and other steps of the financial engineering and organization engineering.

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