Introduction of Balanced Scorecard

2.      Overview of National Pharmaceutical Industries (NPI)

            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.

3.      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).

4.      Difference between Traditional Financial Measures and Balance Scorecard as a Performance Measurement Tool

         Analyzing the balanced scorecard; it can focus on traditional financial measures that 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. It can be noticed that balanced scorecard considering 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).

5.      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).   

6.      Key features present in Balanced Scorecard approach

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

The balanced scorecard is also considered a strategy map.  Balanced scorecard explicit that the organizational strategies and policies by representing measurement that is there in the scorecard. 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)      Innovation and Learning Perspective: 

3)  In this context, it will discuss the optimal level of product, inventory management, and per hour or day performance improvement or decline. Companies can learn through BSC that how strategies’ can be concerned for innovation. Balanced scorecard will record the performance of each employee in the production sector with assigned duties or responsibilities. BSC can continue to improve through cash short term analysis of the sales growth plus operating income, cash flow as well as through increasing the customer’s experiences (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.

8.  Literature Review of Balanced Scorecard

The balanced scorecard is probably one of the old and diffused methods that used on the “performance measurement system”. The system can enable top management and there is the presence of set of measures that and provides an extensive view for the businesses so that they implement effective strategies and it is also used for converting the strategy to the action. At the 1990s beginning; the Robert Kaplan and David Norton focused on the system that is related to the aspect of ‘performance measurement system’ that executes comprehensive framework to towards the company objectives and there is presence of performance set measurements. The indicators complements can be traditional financial that measure the presentation of internal processes, customers, improvement activities, and innovation (Cooper & Ezzamel, 2016). Johnson and Kaplan illustrated that balanced scorecard work for the management of accounting practices, rise and fall or relevance lost, in the accounting management. Thus, the research conducted by Lakhani & Bhardwaj (2011) BSC help to build the long-term as well as long- range competitive capabilities as well as there are permanent objects from the historical-cost financial accounting model that can help to progress the financial performance for future of the company synthesis. The BSC is a framework that helps for integrating measures from strategy. 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). 

9.  Balanced Scorecard Problems at National Pharmaceutical Industry

Pharmaceutical industry faces some issues and problems; therefore, balance score card can be implement as effective strategy. The issues that can cause the failure of balanced scoreboard include matrices that is poorly defined lack of efficient reporting as well as the data collection and there could be mismanagement in the structure of formal review no process for the improvement of internal focus methodology (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 can be concerned to achieve the sense of balance or stability of the company to review the competitors, shareholders, stakeholders, and employees (Lakhani & Bhardwaj, 2011).  

10.  Choice of the Current and Proposed Performance Measures

In Middle East pharmaceutical sales is increasing by 2%, which is around US$15 billion in 2015 (Bioplanassociates.com, 2019). In the balanced score card, there are four categories of measures net profit income; which 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. Financial perspective that is based on related to the balanced scorecard, there could be better analysis of the 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 pharmaceutical industry should invest in the BSC as companies in order to increase its financial measures. BSC forecasts future cash flows and discount by setting of strategies or objectives as well as measures that are related to retention of the customer, customer attainment, 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).    

11.  Data Analysis of Balanced Scorecard

The financial performance of the firm is indicated to the board of directors of National Pharmaceutical Industries (NPI).  Below is given the income statement of the company along with the data of the financial statement.

Capital Structure from the statement of financial position

                               Omani Rials

Shareholder’s equity              582,000

Long-term debts                    4,369,000

From the above given data, the B.O.D of the company are directed to formulate the strategies which better help the organization to increase the profitability by making the significant reduction to the costs. The company’s revenue is less the costs as well as the other operating costs. As the costs are higher than the profits/revenue of the firm so the gross profit is reduced. This is the case with both the gross profit as well as the operating profit of the organization. Also, the higher authorities need to consider about the tax rates applied on the income before tax. The tax rate is much greater than the amount of the profit before tax. The organizational sales need to be improved. By improving this parameter the company has the greater chances to have more profits along with the enhanced goodwill.

The long-term debts are better helping to evaluate the financial standing of the company. The long-term debts are much greater as compared to the shareholder’s equity. It means the company has less liquid assets as well as the running capital. This parameter needs to be considered on the first priority. The less the company has the long-term debts, the more the creditability of the company will be. The costs as well as the long-term debts need to be reduced to the possible extent.

12.  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 pharmaceutical industry should invest in the BSC as companies can effectively perform and there could reach targeted financial performance measures in t his way, however, there can a bottom-line improvement through efficiently selecting the company’s strategy, implementation. It is recommended that to reach financial goals in today’s business environment the company can achieve the financial measures that are short-term through evaluating the operating income based on quarterly sales and so companies should shortly, focus on the increase in the profit. Moreover, shareholder value analysis (SVA) is another benefit that could be obtained from the BSC as it forecasts future cash flows and discounts and also calculate the estimate of current value of the company for fundamental improvements It is recommended in to pharmaceutical industry that the company should focus to improve the employee motivation, customer satisfaction, quality, cycle time in order to increase the financial numbers.

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).        

13.  Evaluate the effect of different profit and capital measurements

BSC could effectively result profitability and there could be benefits in the Return on Capital Employed (ROCE) and Return on Equity (ROE). The industry could achieve the financial goals in order to survive, prosper and succeed. According to Harvard business review, the companies were shortlisted and the performance measures of them was focused, as noticed under the ECI scorecard that companies increased their financial performance, cash flow, sales growth, operating income etc. Shareholder value analysis (SVA) is the approach of BSC that increased market share or profit when comes to return on equity by segment (Kaplan & Norton, 2019).

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).

14.  Critical evaluation of balanced scorecard

BSC can be explained as strategy that can achieve the competitive advantage; the companies following the strategic management aspects and following the BSC strategies effectively focus on the superior firm’s performance and there is also the greatest variation in profitability through beneficial strategy implementation (Gomes & Romão, 2015). 

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).

15.  Current developments and emerging issues of balanced score card

Through innovation process in BSC there is growth in the operational process of the pharmaceuticals industry socially as the health of the people get better there is more on next level research on the cardiovascular disease, diabetes, sexually transmitted diseases, Parkinson's disease hepatitis, and cancer, etc. so that people in the society stay safe. Due to next level understanding in the innovation process of BSC; 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 post-sale service, innovation process, operational process etc. In the innovation process, the company analyze the development process and it is based on the results of services and product. Thus, the development in the operational process ensures that products reach the customers. However, the services related to the post-sale 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).

16.  Conclusion of Balanced Scorecard

8)      It is concluded that if pharmaceutical companies focus on the proposed BSC strategies then there could be increase in the profitability as discussed. The strategic management aspects and BSC strategies can help to effectively focus on the superior firm’s performance and companies increased their financial performance through it. The innovation in the process is based on the current and future needs. Company can transform its approach and vision that may include the comprehensive or detailed performance set through the balanced score card. The BSC strategies provide a framework to access the management system. Consequently, the balanced score card measures performance of the company on the basis of 4 viewpoint, which includes the customers, business that are internal, financial and potential. It also allows to monitor the financial system and improve the ability of the company to increase competitiveness.

17.  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.

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

Bioplanassociates.com. (2019). Healthcare and biotechnology in the Middle East. Retrieved from http://bioplanassociates.com/qg-middle-east/

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.

Gomes, J., & Romão, M. (2015). Gaining competitive advantage through the Balanced Scorecard. Encyclopedia of Information Science and Technology , 371-380.

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

Kaplan, R. S., & Norton, D. P. (2019). The Balanced Scorecard—Measures that Drive Performance. Retrieved from https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2

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.

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.