Introduction of Balanced Scorecard

         The balanced scorecard is a new and innovative approach in the Middle East. Companies working in the Middle East are following this approach to ensure improvement in the strategic corporate performances and improvement of overall performance outcomes. Balanced scorecard approach enables the managerial staff of the company's specifically Pharmaceutical companies to develop strategic plans and ensure battement in their performances and profitability (Bhagwat & Sharma, 2007). In the present work, National Pharmaceutical Industries (NPI) is taken to conduct analysis and show outcomes of balanced scorecard system in organizational improvement or increase in profitability. Present work is based on arguments and theories supported by the literature review regarding the use of balanced scorecards in pharmaceutical companies such as National Pharmaceutical Industries (NPI). In this work, the contextual framework, difference in traditional financial measures and BSC, features of BSC, and recommendations are presented in detail (Amaratunga, Haigh, Sarshar, & Baldry, 2002).        

Overview of National Pharmaceutical Industries (NPI) of Balanced Scorecard

            National Pharmaceutical Industries (NPI) is an Omni company working in the international market. Overall business operations of National Pharmaceutical Industries (NPI) are related to the development of drug compounds, manufacturing of drugs, and distribution of manufactured goods. Company execute its operation in Oman but sell out its products in different countries around the world (Cooper & Ezzamel, 2016). The key objective of National Pharmaceutical Industries (NPI) is to ensure all practices in the organization which are necessary to produce high quality products and ensure the improvement of performance outcomes. For this purpose, the company is having testing systems and monitoring patterns.        

1.      Balanced Score Card Need

          National Pharmaceutical Industries (NPI) is working in the international pharmaceutical industry which has high competition and industry rivalry. For sustainable development, survival in competitive market and accomplishment of organizational goals, the managerial staff of National Pharmaceutical Industries (NPI) are responsible to ensure appraisal practices and identify gaps for improvement in the organizational operations. Employee’s performance outcomes directly result in the increase or decrease of organizational performance efficiency overall organizational performance depends upon employee’s performance outcomes and level of efficiency (Kennerley & Neely, 2002).

            Considering this requirement, organizations working in a highly competitive environment and seeking opportunity for improvement such as National Pharmaceutical Industries (NPI) pay attention to the performance appraisal system. Thus profitability can be improved and enhanced which is the prime objective or mission of the National Pharmaceutical Industries (NPI). The balanced scorecard is a widely accepted and implemented approach for performance appraisal and employees performance measurement (Amaratunga, Haigh, Sarshar, & Baldry, 2002). Through this balanced scorecard, managerial staff at each department of National Pharmaceutical Industries (NPI) would be able to record and appraise employee’s performance related to the areas such as customer services, financial outcomes, employees learning and growth, and cost control measures at all organizational levels. Considering the requirement of improvement and importance of balanced scorecard National Pharmaceutical Industries (NPI) need to design a balanced scorecard for the performance system initiated in National Pharmaceutical Industries (NPI) by its corporate management (Gibbons & Kaplan, 2015; Madsen & Stenheim, 2014).

2.      Traditional Financial Measures of Balanced Scorecard

            Traditional financial measures specifically target financial areas and gaps in improvement related profit and cost. However, balanced scorecard concerns with improvement and performance measurement at each level of organization which also includes finance department and financial details of the company (Henderson, Young, & Mittl, 2019). Comparatively, the balanced score card is a better option as it also deals with the factors that can indirectly cause to increase the cost or decrease profitability. For instance, if manufacturing department has the capability to generate 2000 units of product per day (as calculated from average historical performance outcomes) and employees are only manufacturing 1800 units of product per day then balanced scorecard can show the inefficiency and poor performance of responsible employees (Bhagwat & Sharma, 2007). However, traditional financial measures such as cost and benefit analysis will only evaluate the total cost and its difference from historical cost recorded in the company. Traditional financial measures cannot evaluate subjective measures and employees attitudes as it concerns with numerical and quantitative information only. While on the other hand, balanced scorecard as a performance measurement tool will also focus on the qualitative and subjective measure in the performance appraisal system along with quantitative and numerical information (Kennerley & Neely, 2002). Balanced scorecard also supports in calculating the cost and analyzing possible ways to increase profit margin in the organization by reducing the cost of operations and cost of production in National Pharmaceutical Industries (NPI).               

3.      Balance score card application in Pharmaceutical Industry

           A designed balanced scorecard application in Pharmaceutical industry can measure performance management system regarding Ratiopharm group strategy and strategy implementation. Balanced scorecard will measure how the company is developing compounds for medicines (Amaratunga, Haigh, Sarshar, & Baldry, 2002). How much time employees take in developing compound? What are the essential processes? Which process is taking extra time? Thus on the basis of this information further analysis can be made. For instance, the company can ensure this question "Is there any gap or possibility for improvement? If yes then how?” Similarly, balanced score card will enable managers to search answers for the questions linked with other processes and services such as customer services, distribution supply chain, employees training and development sessions, and financial analysis or planning process (Henderson, Young, & Mittl, 2019). In pharmaceutical industries, the balanced scorecard has commonly applied a strategy for performance measurement and evaluation. However, 4 processes of balanced scorecard in pharmaceutical industries are communication and linking, feedback and learning, business planning, and translating the vision (Bhagwat & Sharma, 2007). These processes are further integrated with each other in a sequence that is projected in the following figure 1.

Figure 1 Balanced Scorecard in Pharmaceutical Industries

In pharmaceutical industries organizations are usually required to provide medicines at reasonable prices. As socially responsible companies offer medicine and paramedical products with a very limited profit margin. Although, in the presence of balanced scorecards companies can identify factors contributing to the increase of cost that they can control with effective strategies and possible course of actions. In result the cost of operations decreases and profit margin increases. Thus companies working in pharmaceutical industries can satisfy their stakeholders including society as well as shareholders or investors (Amaratunga, Haigh, Sarshar, & Baldry, 2002).          

4.      Key features of a Balanced Scorecard approach

Key features of the balanced scorecard are presented below in the table:

5.      Contextual Framework of Balanced Scorecard

           The balanced scorecard is also considered a strategy map.  It explicit the organizational strategies and policies by representing every measure in the balanced scorecard as a chain of cause and effect logic. It integrates all the desired and required outcomes of the company with the strategies developed to ensure these outcomes (Gibbons & Kaplan, 2015). It converts the intangible organizational assets in the form of tangible financial outcomes and production outcomes. In National Pharmaceutical Industries (NPI) it will focus on the strategies which have a direct or indirect relationship with the organizational outcomes. In the contextual framework of National Pharmaceutical Industries (NPI), the balanced scorecard will discuss these areas (Amaratunga, Haigh, Sarshar, & Baldry, 2002; Kennerley & Neely, 2002):

1)      Internal Business processes:

In this context, the balanced scorecard will address improvement gaps concerning with testing system and innovativeness in ideas. The compound development process needs innovation and creativity somehow some factors can negatively influence innovation and creativity. Furthermore, sometimes employees don't show innovative behaviour because of lazy behaviour and focus on limited incentives and rewards. However, poor managerial practices are also a key reason behind the decrease in innovativeness in the organization. In National Pharmaceutical Industries (NPI), the balanced scorecard will focus on employee's innovativeness and creativity in the light of different scenarios to identify reasons for employee’s lack of interest in innovativeness (Henderson, Young, & Mittl, 2019).           

2)      Manufacturing:     

3)                  In this context, it will discuss the optimal level of product, inventory management, and per hour or day performance improvement or decline. Balanced scorecard will record the performance of each employee in the production sector with assigned duties or responsibilities. Then after appraisal process scores will be assigned to the employees which will bring into light the responsible persons having limited contribution to improvement or negative influence on manufacturing processes (Cooper & Ezzamel, 2016).     

4)      Customer:

5)                  Suppliers and companies focus on customer retention, loyalty and delivery of products meeting with customer requirements.   

6)      Financial:

7)                  In this context, the balanced scorecard will measure the change in sales of medicine, market responses, and cost control system outcomes.

6.      Literature Review of Balanced Scorecard

           The balanced scorecard is probably one of the old and diffused methods in the performance measurement system. The system consists of a set of measures that enables top management and provides a comprehensive view for business and it is also used for converting the strategy to the action. At the beginning of the 1990s, Robert Kaplan and David Norton introduced a performance measurement system as a balanced scorecard that executes comprehensive framework to translate the strategic objectives of the company into the coherent set of performance measurements. The complements are traditional financial indicators that measure the performance of internal processes, customers, improvement activities, and innovation (Cooper & Ezzamel, 2016). Johnson and Kaplan (1987) illustrated that balanced scorecard work for the management of accounting practices, relevance lost, rise and fall in the management accounting. Voelpel et al. (2004) defined that balanced scorecard can be used to meet the contemporary business. Alhn (2001) stated that the BSC framework is based on the premise of properties in the financial accounting system such as transaction emphasis, conservation, prevention, and monetary based unit measurement. Richardson (2004) concluded that the BSC framework can be created by stakeholder groups and the pharmaceutical company can produce a superior return for the investors for the longer period (Lakhani & Bhardwaj, 2011). 

7.      Balanced Scorecard Problems at National Pharmaceutical Industry

            The implementation of balanced scorecard metrics in the national pharmaceutical industry faces some issues and problems. The issues that can cause the failure of balanced scoreboard include poorly defined matrices, lack of efficient data collection and reporting, lack of the formal review structure, no process for the improvement of methodology, and too much internal focus (Cooper & Ezzamel, 2016). The matrices should be relevant and it can depict the visual indicators. The metrics become vulnerable for criticism in case of the poor accounting process. The performance indicators can be used to determine investment matrices and it can improve the organizational performance. The problems of BSC are related to measuring the financial results with management accounting practices. Some of the issues are about the central parameter of development of strategy drivers (Zizlavsky, 2014). Another problem is that there is no time dimension that represents the time lag between the stages and the casual chain. BSC framework relies on the premises of performance and effective methods to diagnose the root causes. There is no an improvement methodology in the BSC, and the time-tested process methodologies can be used to alleviate the problem. One of the major criticisms faced by the balanced scorecard is to emphasize the internal focus. The goal of pharmaceutical industries is to achieve the balance of the company to asses the competitors, shareholders, stakeholders, and employees (Lakhani & Bhardwaj, 2011).  

8.      Choice of the current performance measures of Balanced Scorecard

In the balanced score card, there are four categories of measures that can be identified to achieve the balance between non-financial and financial measures. The pharmaceutical industries identify the internal and external measures. There are four perspective and pillars of balanced scorecard including customer, financial, learning and growth, and processes. From the financial perspective of the balanced scorecard, it measures the current financial performance of pharmaceutical industries. It can be used for ultimate financial measure for the return on marketing investment (Cooper & Ezzamel, 2016). From this perspective, the measures and objectives relate to the operational efficiencies and revenue growth. According to the customer perspective, the set of objectives and measures are related to customer retention, customer acquisition, and growth. From this perspective, the focus of objectives and measures is to consider the logic of balanced scorecard. The internal process perspective is to measure and understand potential customers and to communicate the prospects of customers. In pharmaceutical industries, the internal process considers operational processes for marketing function that affect productivity and efficiency. The learning and growth perspective is to measure the intangible assets of the company and to perform internal processes at a high level of competence. The pharmaceutical industries contain measures and objectives of three types of intangible assets including organizational and cultural attributes, human capabilities, and technology capabilities (Lakhani & Bhardwaj, 2011).    

9.      Recommendations of Balanced Scorecard

             The implementation of balanced scorecard in the pharmaceutical industry is based on a number of steps. The aim is to identify the input of critical measurements and strategic objectives. The balanced scorecard facilitator identifies the external consultant and executives are recommended to organize the implementation process. All the internal and external consultants of the company are recommended to design the scorecard and consider subsidiaries (Cooper & Ezzamel, 2016). The subsidiaries are used to develop a tool that can be associated with the recommended external consulting team. The scorecard can be used to design and implement new strategies of development in the pharmaceutical industries. In previous literature, the recommendations are provided for the development of balanced score card for risk management and logistics. From the perspective of risk management, the risk related objectives are operationalized and displayed by targets and measures (Janota, 2008). The logistic function contributes to the financial success of the enterprise. The integration of supplier’s objectives and the measures from the perspective of customers are not recommended for the pharmaceutical companies. The enterprise sometimes pursues different objectives on the basis of upstream and downstream. In the scorecard, the logistical sub-functions are required to be considered and suppliers can be upstream whose service capability has a high impact on the service level. The smooth flow of services, products, and goods is important to be considered in the company (Henderson, Young, & Mittl, 2019).        

10.  Evaluate the effect of different profit and capital measurements

The adapters included in the pharmaceutical industry are from all around the world including service oriented, large and small, and industrial companies for the profit and non for profit. The financial perspective reflects the measures and traditional consideration. The financial measures are valuable to convey the economic consequences of actions in the company (Henderson, Young, & Mittl, 2019). The typical focus of financial measures is profitability related measures on the basis of shareholders, and it can gauge the success of investment for return on sales, return on equity, and return on capital. These measures are necessary for the estimation of performance. From the customer perspective, BSC includes general measures and core measures and well-informed strategies are required to be implemented. The measures related to customers include sales, survey analysis, and customer profitability (B2bmarketingdirections. Blogspot. com, 2013). 

11.  Critical evaluation of balanced scorecard

The critical evaluation of the balanced score card is to examine the core assumptions and the effect of the proper managing and organization that combine social and technical understanding. The critical analysis distinguished traditional consideration for social science, practices, and systems for the management (Zizlavsky, 2014). The critical analysis of balanced scorecard emphasis on the complex interactions between management and people techniques. The measurement system induces impact on the modes of thinking. The new measurement system offers the employee to define the work environment, interests and identities. The distinction is between social and technical view and balanced scorecard measure the impact of investment in the business (Lakhani & Bhardwaj, 2011).

12.  Current developments and emerging issues of balanced score card

The innovation process is making the business models stronger and more related to the system to measure performance. The system of innovation management can be used to classify the scoreboard process (Cooper & Ezzamel, 2016). The current development in the balanced score card can be categorized into three processes including innovation process, operational process, and post-sale service. In the innovation process, the company analyze the development process and it is based on the results of services and product. The development in the operational process ensures the supply of products to the customers. The post-sale services represent the advantages in business competition. The fast services are expensive systems and sophisticated system of the programs that support the efficient use of products (Nazim, 2014).

13.  Conclusion of Balanced Scorecard

8)                  The present report discusses about the advantages of using a balanced scorecard in the pharmaceutical company. The advantage of using the method is the transition from the strategic to the process level and it achieves process perspective through a straight forward method. The innovation in the process is based on the current and future needs. The balanced score card concept transforms the company strategy and vision into a comprehensive set of performance. The indicators provide a framework to access the management system. The balanced score card measures the performance of the company on the basis of four perspectives including customers, financial, internal business process, and potential. It also allows to monitor the financial system and improve the ability of the company to increase competitiveness.  

14.  References of Balanced Scorecard

Amaratunga, D., Haigh, R. P., Sarshar, M., & Baldry, D. (2002). Application of the balanced score-card concept to develop a conceptual framework to measure facilities management performance within NHS facilities. International Journal of Health Care Quality Assurance, 15(4), 141-151.

B2bmarketingdirections. blogspot. com. (2013). How a Balanced Scorecard Measures Current and Future Marketing Performance. Retrieved from b2bmarketingdirections.blogspot.com: http://b2bmarketingdirections.blogspot.com/2013/11/how-balanced-scorecard-measures-current.html

Bhagwat, R., & Sharma, M. K. (2007). Performance measurement of supply chain management: A balanced scorecard approach. Computers & Industrial Engineering, 53, 43-62.

Cooper, D., & Ezzamel, M. (2016). A Critical Analysis of the Balanced Scorecard: Towards a More Dialogic Approach. Pioneers of Critical Accounting, 01(01), 201-230.

Gibbons, R., & Kaplan, R. S. (2015). Formal Measures in Informal Management: Can a Balanced Scorecard Change a Culture?†. American Economic Review, 105(5), 447-451. Retrieved 10 12, 2018

Henderson, D., Young, G., & Mittl, R. (2019). Balanced Scorecards: The Integration Point between Enterprise Information and Performance Monitoring. Data Warehousing and Enterprise Solutions, 01(01), 157-160.

Janota, R. M. (2008). THE BALANCED SCORECARD IN A PHARMACEUTICAL COMPANY. Retrieved from repositorio.iscte-iul.p: https://repositorio.iscte-iul.pt/bitstream/10071/1148/1/TESE%20RMGJ.pdf

Kennerley, M., & Neely, A. (2002). A framework of the factors affecting the evolution of performance measurement systems. InternationalJournal of Operations & Production Management,, 22(11), 1222-1245.

Lakhani, D., & Bhardwaj, P. (2011). Trends in Balanced Scorecard Practices. Innovative Industrial Practices, 01(01), 01-10.

Madsen, D. Ø., & Stenheim, T. (2014). Perceived benefits of balanced scorecard implementation: some preliminary evidence. Problems and Perspectives in Management, 12(03), 81-90. Retrieved 10 12, 2018

Nazim, T. (2014). “A critical analysis of Balanced Scorecard as a performance measurement tool: an overview of its usage and sustainability”. Tahsin's Publication.

Zizlavsky, O. (2014). The Balanced Scorecard: Innovative Performance Measurement and Management Control System. Journal of technology management & innovation, 09(03), 01-10.