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The Effects of Balanced Scorecards on Decision Makers of Management

1224 Downloads1 I Published: 24 Sep ,2019

1.0 Introduction

A balanced scorecard refers to a “strategic planning and management system” which is used extensively in industry and business, Non-Governmental Organizations (NGOs), and even in governments across the world in order to align business activities of such entities to their strategy and vision (Ahmadi & Bagheri, 2016). A Balanced Scorecard is also used in enhancing both the external and internal communications and in the monitoring of organizational performance against the strategic goals. It is important to note that the use of a strategic scorecard evolved during the early use when it was just used as “simple performance measurement” tool to the current total “strategic planning and management” system.

1.1 Background of the Study

During the last decade, most researchers and academics have devoted some of their time to increase attention to not only the measurements of organizational performance, but also towards the influence or impact of the “Balanced Scorecard” or BSC on it as well as on the strategic planning (Akhtar & Mittal, 2015). Since it was developed by Kaplan Norton in the year 1992, the use of the Balanced Score Card has been adopted widely by various organizations across the world. In fact, it has greatly evolved from a tool that is used in measuring performance to an instrument used in the implementation of strategy (Lundberg et al, 2016). The use of the Balanced Score Cards has a significant impact on most of the decision makers in both the oil and gas industry. This is attributed to the fact that BSC are used in respect to the achievement of target strategic goals of operation and development by decision makers in the oil and gas industry.

The use of BSC helps in the promotion of an organization’s strategy realization and also helps organizations to select the most preferred strategies that can effectively be applied in their specific organizations (Busco & Quattrone, 2015). It can truly be asserted that for the sustainable development of any contemporary enterprise in any business field, then there is need to design not only long-term strategies, but also assure the strategic partnership with associated production units. In the most recent past, the significance associated to the strategic vision of most corporate entities across the world allows has greatly surged (Badiru & Osisanya, 2016). In the modern world, world practice presents a broad range of instruments which make it possible for the harmonization of economic interests for the organizational units.

The use of the Balanced Scorecard is an example of such one instrument that is used by decision makers in both the oil and gas industry (Tsaur, 2015). It is important to note that the current balanced scorecard is capable of transforming the strategic plan of organizations in the oil and gas industry from an attractive and passive document to provision of marching orders for such organizations. This is because it provides an effective framework for the performance measurements and also helps decision makers in the Oil and Gas industry to identify what needs to be done as well as what needs to be measured (Subramanian & Gunasekaran, 2015). It also enables executives in the Oil and Gas industry to genuinely execute their set strategies.

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1.2 Problem Statement

The improper application in the use of balanced scorecards has actually emerged as one of the most critical issues facing most of the contemporary organizations across the world (Grant, 2016). Despite the fact that most of the organizations across the world have adopted the use of BSC, the improper use of this vital influential idea has made some of such organizations lose on the benefits attributed to its constant use (Heinzelmann, 2015). Despite the fact that the BSC was established with the aim of helping executives and managers to have an additional strategic “non-financial measures” to the traditional financial metrics, it is quite unfortunate that most of these leaders have failed to use it in order to have a clear view of their organizational performances (Rahdari, 2016). Even though the major aim of the BSC is to help executives and decision makers of management in the Oil and Gas Industry effectively execute their duties and strategies, it is quite unfortunate that some of the managers have not fully embraced its use (Kirwan, 2015).

Even though the most recent study that was carried out by “Bain &Co” actually named the balanced scorecard as being the fifth on the top ten management tools that were widely applied across the world (White et al, 2016). It is quite unfortunate that some of the organizations have not yet realized the importance of a BSC (Tsagarakis et al, 2015). Indeed, BSC was also selected by a team of editors working at Harvard Business Review as being one of the most “influential business ideas” that have ever occurred for the past seventy five (75) years (Chiarini, 2016). The improper use or application of BSC by organizations across the world have made some of the decision makers of management in the Oil and Gas industry to fail to recognize some of the vagueness and weaknesses of the previous management’s approaches (Prince & de la Harpe, 2015).

It is quite apparent that some of the decision makers working in the oil and gas industry to fail in having a clear and comprehensive prescription regarding what ought to be measured so as to have a financial perspective of their respective organizations in a balanced manner (Kumar, 2016). Failure to effectively apply balanced scorecards by decision makers in the oil and gas industry has had a negative impact on the affected organizations (Bellamy, 2015). This is because it has made such decision makers to become unable to effectively clarify both the strategy and mission of their industries (Hossan et al, 2016) .This ensures that they are ultimately transformed into desired action by relevant stakeholders (Wibisono et al, 2016).

1.3 Research Objectives

The aim of carrying out this research study is to:
• To ascertain the improper application and use of balanced score sheet on decision makers of management in the oil and gas industry.
• To ascertain why the improper application of balanced scorecards by decision makers of management in the oil and gas industry can have a negative impact on the organizations.
• To ascertain the importance and positive effects of using balanced scorecards by decision makers in the oil and gas industry.

1.4 Research Questions

• What are the effects associated with the improper application and use of balanced score sheet on decision makers of management in the oil and gas industry (Agarwal et al, 2016)?
• How can the improper application of balanced scorecards by decision makers of management in the oil and gas industry have a negative impact on the organizations affected?
• What are the importance and positive effects of using balanced scorecards by decision makers of management in the oil and gas industry?

1.5 Significance of the Study

This study is quite important because it will help in providing information to stakeholders in the oil and gas industry regarding the negative effects that are linked with the improper application as well as use of the BSC by decision makers and thus help them to take corrective actions that will help in enhancing their operations (Baumworcel et al, 2016). This study is quite essential in the contemporary society because it will aid in the provision of important information on why it is good to decision makers in the oil and gas industry to apply the used of Balanced Scorecards (Gibbons & Kaplan, 2015). This is because it will provide information regarding the different types of balanced scorecards and help them in ascertaining which one may work the best in their respective organizations. The study is also quite important because it will assist stakeholders in the oil and gas industry to have a greater understanding of both the positive and negative impacts of using the Balanced Scorecard.

1.6 Scope of the Study

This research study will be limited to the top management of companies and organizations in both the gas and oil industries because they are the ones who are responsible with the developing and implementation of policies and strategies that are ultimately used by their respective organizations. In addition to that, the study will also be limited to only the gas and oil industries because it was ascertained that they are the ones which have not effectively embraced the use of BSC in their organizations.

1.7 Operational Definition of Key terms

Effect- An Effect refers to

Balanced Score Card - This refers to a strategic planning as well as management system used in organizations to align their business activities with their strategy and vision.
Scorecard- This refers to a statistical record that is used in the measurement of progress or achievement towards a specific goal (Crutzen, N., 2016).

Decision maker - This refers to an individual who is tasked with the responsibility of deciding things or issues especially at high organizational levels within a specific organization. It can also imply to a person who faces extreme pressure and long hours in a position as being an organization’s “top decision-maker”( Haleem, 2016). A decision maker can also be defined as an individual who is tasked with the responsibility of administering a specific organization or business entity.

Management : Management refers to a process of controlling or dealing with people or things. Management can also be defined as a composition of interlocking functions of developing corporate policy, planning, directing, controlling, and organization organizational resources so as to achieve the policies of a set objective.

1.8 Organization of Chapters

This research paper is composed of five major chapters. Chapter one of the research paper deals with the introduction in which the definition of the Balanced Score Card is given. Chapter one also deals with the background of the study, problem statement, research objectives, research questions, significance of the study, scope of the study, operational definition of the major terms which have been used, and finally, it presents a summary of the whole chapter.

The second chapter of the research paper is the literature review and it presents previous information regarding the issue of Balanced Scorecards and offers a discussion on why there is need for organizations to have balanced scorecards. In addition to that, the second chapter of the research paper also offers a discussion on the various types of the balanced scorecards and also offers a discussion on the perspectives of the balanced scorecards. The steps that are involved in the developing and implementation of the balanced scorecards in organizations as well as the types of decisions, decision making process in organizations, among other aspects have also been discussed in the second chapter.

1.9 Summary

This chapter has effectively discussed the meaning of the terms “balanced scorecards” and offered a general overview regarding the other chapters of this research paper. The reason as to why this study has been carried out has also been well discussed in the chapter thus giving readers a background knowledge regarding what the research paper is all about through research objectives. Buy Assignments

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2.0 Literature Review

This chapter is indeed a detailed review of literature which is related or associated with the subject of the effects of balanced scorecards on the Decision makers of Management in the oil and gas industry. It is based on previous studies, decision making processes, and the effect of BSC on decision making.

2.1 Previous Studies

In order to effectively manage as well as deploy various organizational resources to both deliver and achieve organizational objectives or goals as was required by management and finance professionals, different tools were evolved (Lachmayer et al, 2016). Such tools, frameworks, and techniques were evolved in order to help managers included among others total quality management, performance prisms, values based management, and the balanced scorecard (Ward & Peppard, 2016). The balanced scorecard was developed with an aim of enhancing the corporate performance of organizations. The BSC was initially developed as a “performance measurement tool” but as of now,

it is increasingly associated or linked with the implementation of strategy (Thekdi & Aven, 2016). This is because it highly acts as a framework of management that has the potential of both identifying and exploiting their major value drivers of organizations to their own “best strategic advantages” (Murthy, 2016).

It has been ascertained that the using of traditional or conventional structures of Balanced Scorecards for both the national oil as well as gas companies across the world is rarely reasonable (Idemudia, 2016). This is attributed to the fact that their exterior and interior communication formalizations and businesses are marked with peculiarities and complicacies (Joshi & Li, 2016). The use of BSC by management in the oil and gas industry is very vital because it is through it that translation of strategy into specific measures and objectives which are effectively linked in a “causal chain” of lagging and leading indicators that cover four major scorecard perspectives are achieved (Pacheco, 2016).

The oil and gas sector has actually emerged as one of the most important players in the economy of some countries such as South Africa and Russia. It is therefore important to come up with a sustainable “balanced scorecard” that is capable of addressing the needs of oil and gas industries in the affected countries. According to previous studies (Sadiq et al, 2016), it was ascertained that some of the oil and gas companies across the world actually incorporated issues to do with sustainability in their integrated reports with specific attention on their social aspects (Gray & Alles, 2015). It was thus recommended that there is need to incorporate “traditional balanced scorecard measurements” so as to make sure that sustainability is effectively linked towards not only the financial objectives, but also to the general objectives of the oil and gas companies.

The oil and gas industry was faced with numbers numerous challenges which made researchers to come up with a “significant amount” of literature regarding the issue of balanced scorecards (Wanderley et al, 2016). However, it was quite unfortunate that such studies actually differed from one specific country to another one thus making them to become deficient due numerous methodological shortcomings like bias in relation to the chosen samples of organizations, unreliable estimates, and low response rates.

This research paper considers some of the most recent and updated developments in the thinking of scorecards especially in the major role of “strategy mapping” (Abdalla et al, 2016.). It is important for all and sundry to note that the use of balanced scorecards has indeed developed from time immemorial in order to support the various organizational missions such as the maximization of profits to optimization of resources. Many organizations in the gas and oil industry have now realized the importance that strategic values lies not only in their personnel, but also in their processes, systems, as well as their abilities to innovate.

It is important to note that the balanced scorecard usually retains the traditional or conventional financial measures which tell the story regarding past events (Akhtar & Mittal, 2015). Unlike before when it was thought that investment in the long term customer relationships and capabilities were not essential for the success of organizations; this is not the case in the contemporary modern society (Lundberg et al, 2016). This is because despite the fact that the financial measures may be inadequate, they are capable for both guiding and even evaluating journeys which companies, those in the oil and gas industry included must made so as to develop future innovations, technology, and processes (Ahmadi & Bagheri, 2016).

2.2 Balanced Scorecards

Balanced scorecards are performance measurement system that helps organizations or companies to effectively translate their strategies and visions into action thus providing a comprehensive and integrated overview of the organizational performance (Badiru & Osisanya, 2016). Balanced scorecards are an essential part and parcel of a business enterprise because they provide systems that are capable of measuring the current performance of organizations as well as the “drivers” for an organization’s future performance (Tsaur et al, 2015).

The use of Balanced Score Models by decision makers in the oil and gas industries is important because they help in the enhancement of performance (Busco & Quattrone, 2015). The use of BSC by decision makers of management in the gas and oil industries is critical in helping managers pin together just some few sets of critically and strategically developed measures in a single report (Gardas et al, 2017). This is indeed quite important because it not only helped in making the “cause and effect” relationships become transparent, but it also helps managers to avoid placing too much attention on the enhancement of one specific measure at the expense of the other ones (Nenonen et al, 2015). This process is indeed a good method for the application of both financial and non-financial measures (Muruvan et al, 2016). This is because it helps decision makers of management in the oil and gas industry to communicate several and linked organizational goals (Rashidi & Mohammadi, 2015). Such goals must be reached in order to achieve the targeted long-term objectives (Subramanian & Gunasekaran, 2015).

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2.2.1 The Need for Balanced Scorecards

Balanced scorecards are quite important because they help managers in the oil and gas industries have a closer analysis of their business entities or organizations from four major and important perspectives. These perspectives are financial perspectives, internal business perspectives, customer perspective, and the learning and innovation perspectives. The combination of both financial as well as non financial measures by business managers in the oil and gas industries helps them to make vital decisions that can help in the enhancement of business operations (Baki, 2016).

It is prudent for all and sundry to note that the combination of customer, financial, organizational learning perspective, internal processes, and balanced scorecards aid managers to comprehend many relationships. There is high need for having balanced scorecards for decision makers working in the oil and gas industry because it helps them to transcend conventional notions regarding any functional barriers thus resulting in enhancing problem solving and decision making in their organizations.

2.2.2 Types of Balanced Scorecards/Balanced Scorecards Perspectives

The four major BSC perspectives are:

Financial Perspective-This effectively helps in identifying how a business entity wishes to be regarded or viewed by its different stakeholders. Financial measures are actually the oldest and most commonly used tools of measurement in management (Nachtmann et al, 2015).

Customer Perspectives - This represents the association or relationship between customers and an organization. This is because the core of “any business strategy” lies in its customers.
“Internal Business Process Perspective”- this mainly focuses or places major attention on internal processes of an organization that will not only have a great impact on the satisfaction of customers, but also on an organization’s financial objectives (Haas & Yorio, 2016). There are seven major steps that are used when implementing balanced scorecards and these include:
The learning and Growth Perspective-this emanates from 3 principle sources namely systems, organizational procedures, and the people.

2.2.3 The Steps of Implementing Balanced Scorecards

A balanced scorecard is quite essential because it offers an effective platform for deployment of strategy through the alignment of both people and processes.
Step one-Training and Executive Commitment

It is important to note that for any BSC concept to be successfully implemented, then a clear comprehension of such concepts by the top management of companies in the oil and gas industries is required (Tong et al, 2015). Lack of effective understanding of such a concept implies that the concept will be implemented wrongly.

Step Two: Finalization of the Strategy Map

It is important to note that there is always a fixed structure that is used in the presentation of the balance sheet or financial structure but however, there is no specific structure that can be used in presenting strategy. Every methodology used in developing strategy by the oil and gas companies must always be validated.

Step Three: The Preparation of the Balanced Score card

Most of the strategies are usually stated in statements or words and so there is need to ensure they are translated into “operational language”. This is helpful in helping meet the organization’s targets and identification of initiatives.
Step Four: Departmental BSC preparation

It is important to ensure that each and every department is well aligned to its specific processes or strategies

Step 5: Preparation of Individual Score Cards

Individual score cards or ISCs should be prepared based on the activities or resposbilities of individuals (Stenström et al, 2015).

Step Six: Gap Analysis/ Stretching Targets

The individual score cards as well as the BSCs targets should be fixed in a systematic or logical manner.

Step 7: The Review Process 

Actual benefit or effectiveness of the BSC can only be achieved or attained using an effective review process.

2.3 Decision Making

2.3.1 Introduction

At organizational level, minor decisions that are embraced today are capable of having disproportionately and unforeseen major consequences on an organization. That is why it is important to ensure that viable decisions are made in order to avoid the organization in trouble in future (Grant, 2016). One major way through which executives are capable theoretically making life simple is through having a look at the process of decision making using a financial prism (Darvill & Lindo, 2016).

2.3.2 The Decision Making Process

Making decisions using a balanced scorecard is very important and beneficial for an organization (Crutzen et al, 2016. It is therefore important to ensure that decision makers of management in the oil and gas industry makes wise decisions regarding important issues that are prone to affect the company not only during the present periods but also in future to increase productivity and profitability.

2.3.3 Types of Decisions

There are various types of decisions that can be made in an organization and these include the non-programmed and programmed decisions, strategic and routine decisions, operational and tactical decisions, group and individual decisions, minor and major decisions, and personal and organizational decisions (Duncan & Natarajarathinam, 2016). It is important that decision makers opt for best decisions.

2.4 Balanced scorecards and its Effects on Decision Making

Balanced scorecards play a vital role on decision making in the oil and gas industry because it helps decision makers to have a tangible structure that can be used in guiding them during the measure selection process (Rahdari, 2016). It also helps decision makers in the gas and oil industry to be in a better position of indentifying and systematically considering the criteria that can be used as alternatives such as measures. Balanced scorecards have a significant impact or effect on the decision making process because they provide a support through which the use of “multi-criteria tools” can be applied thus leading to better quality decisions in the oil and gas industry (Heinzelmann, 2015).

The use of balanced scorecards should never be underscored in the decision making processes of the gas and oil industries because it will help decision makers to have a better comprehension of various issues that are associated with organizational problems at hands.

2.5 Theory of the Study

The Balanced scorecards were based on the Early Metric Driven Incentives or MDIs which were heavily focused on an organization’s financial aspects through either claimed to increase their profits margins or minimize the costs (Harpe et al, 2015). However, they were not always successful since they could drive the costs down at the expense of quality. Two very eminent doctors known as David Norton and Robert Kaplan evolved the “Balanced Scorecard system” from the early metric driven incentives and thus jointly led to the production of a groundbreaking book during the year 1996 (Idemudia, 2016). It is quite crucial to note that other notable gurus have also jumped on the band wagon of the issue of the Balanced Scorecards and thus produced various books that are purported to be definitive books regarding the issue of balanced scorecards (Kumar, 2016).

2.6 Studied Companies’ Profile

Exxon Mobil

Exxon Mobil is one of the largest publicly traded companies in the world that deals with both oil and gas. The company provides energy which is fundamental in underpinning the growing economies and enhancing the living standards of people around the world. By revenue, ExxonMobil is actually the largest company and largest corporation based on its capitalization market.

The major aim of the company was to ensure that it increased its return on the capital and through market research, the company realized that the price sensitive consumers indeed represented about only 20 percent of the gasoline purchases while the consumer segments were represented by approximately 60% of the total market (Valmohammadi & Sofiyabadi, 2015). Having got such information, the company realized that it had to embrace a differentiated value proposition in order to succeed. As a result, it executed a new strategy which was aimed reconstructing the company from a “centrally controlled manufacture’ of goods products towards a customer driven and decentralized organization. 

“The Gachsaran Oil and Gas Exploitation Company”

The balanced scorecard was used in measuring the performance of this company through ascertaining the attitudes of the shareholders and also through measuring the internal perspectives of the company. It was also used in measuring the extent at which the customers saw the company and how best they can continue enhancing and creating their values through innovation and learning. This was done through the use of financial measures and indicators such as the dividends, market value, debts, the average credit sales that were made daily, and the stock price of the company’s shareholders.

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2.7 Summary

Based on the above information, it is quite apparent that the issue of balanced scorecards started a long time ago and that it has been undergoing tremendous changes to what it is today. It is quite apparent that any organization which exists in the contemporary society cannot underestimate the importance associated with the implementation of balanced scorecards in ensuring organizational success (Antarkar, 2015). Based on this chapter, it can also be truly asserted that decision making is a critical process in any organizational because it affects how the organization will be in present and in its future form.

It is therefore important that decision makers in the oil and gas industry embrace the best balanced scorecards that will help them achieve their set objectives. It is an obvious fact that balanced scorecards play a vital role in ensuring organizational success and therefore it is important for all decision makers and relevant people to ensure that they embrace the best tools that can be used in decision making processes.

Bibliography

  • Ahmadi, S. and Bagheri, M., 2016. Identifying and Giving Priority to safety, Health and Environment Indexes: In the framework of balanced Scorecards and indicating their relations in Zagros Oil Company. Journal of Current Research in Science
  • Akhtar, M. and Mittal, R.K., 2015. Implementation issues and their impact on strategic performance management system effectiveness–an empirical study of Indian oil industry.
  • Al Sahi AL Zaabi, M.S., Ahmad, K.Z. and Hossan, C., 2016. Authentic leadership, work engagement and organizational citizenship behaviors in petroleum company. International Journal of Productivity and Performance Management
  • Arthur, D., Schoenmaker, R., Hodkiewicz, M. and Muruvan, S., 2016. Asset Planning Performance Measurement. In Proceedings of the 10th World Congress on Engineering Asset Management (WCEAM 2015)
  • Badiru, A.B. and Osisanya, S.O., 2016. Project management for the oil and gas industry: a world system approach. CRC Press.
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