BUSINESS PROCESS REENGINEERING
ARIZONA STATE UNIVERSITY
WPC 480 - STRATEGIC MANAGEMENT
WEEK 5
Business Process Reengineering (BPR) is a change management technique through a
revolutionary approach internationally since the early 1990s. In implementing the paradigm in BPR,
the company starts everything from scratch, meaning that the analysis process begins by reviewing
the vision and mission of the company in question (starting from scratch). The goal of
implementing BPR is to dramatically and significantly improve company performance.
The new business paradigm encouraged researchers to look at organizations from a process
rather than functional perspective. In the early 1990s, a new approach to organizational design was
introduced and consequently there was a change in the design of business processes and this has
attracted considerable attention from academics and practitioners.
This section will explain the meaning and purpose of BPR, BPR activities, business
processes, reengineering principles, reengineering processes, and when companies do BPR and the
success of BPR.
10.1 Meaning and Purpose of Business Process Reengineering:
Business process re-engineering is the process of rethinking and the process of redesigning
fundamentally to obtain satisfactory improvements in the company's performance that includes cost,
quality, delivery, service, and speed with careful or contemporary measurements.
According to Manganelli and Klein (1994: 7): Reengineering is the rapid and radical
redesign of strategic, value-added business processes and the systems, policies and organizational
structures that support them - to optimize the work flows and productivity in an organization.
This definition of re-engineering contains four key words,
That is:
1. Process, which is a series of activities that convert inputs into outputs. There are three
activities in the process, namely:
(a) Value-adding activities -> activities to generate added value,
(b) Hand-off activities -> Activities that move the flow of work by bypassing functional,
departmental or organizational barriers and
(c) Control activities -> activities that are created to control Hand-off activities.
2. Strategic and value added. The main targets of business process reengineering are strategy
and value added. To maximize the return on investment in reengineering, companies start
focusing on the most important processes in the company, i.e. not only strategy and value
added but the overall systems, policies and organizational structures that support the
processes.
3. Optimization of work flow and productivity in the organization, namely increasing
productivity, market share, revenue, return on investment and assets. Business process re-
engineering can be measured by the reduction of cost per unit.
4. Rapid, radical and redesign. Re-engineering should be implemented quickly and radically
and redesign business processes to eliminate unnecessary activities.
Business process reengineering tries to separate the old process from the new process of
how to organize and treat the business. It involves replacing old methods and finding new methods
to get the job done. Business process reengineering forces people to concentrate on certain
established processes, and is unable to come up with a strategy. This is a broader issue, so it must be
replaced with transformation. Transformation includes the 4Rs (Nasution, 2004: 217), namely
reframing, restructuring, revitalizing and renewing.
There are twelve chromosomes (concepts) of the 4R transformation in the organization,
namely :
(1) Mobilization Component
(2). Vision
(3). Target measurement system (reframing)
(4). Business economic model
(5). Infrastructure arrangement
(6). Improving the way of working (restructuring)
(7). Marketing focus
(8). Business expansion
(9). Information technology (revitalizing)
(10). Reward system
(11). Individual study habits and
(12). Organizational development (renewing).
In service organizations, there are three dimensions that must be improved, namely the
human dimension, work process dimension and technology dimension.Reengineering helps
companies to systematically overcome work barriers that occur when management tries to provide
the highest customer satisfaction. Business process reengineering involves redesigning business
processes to take advantage of the huge potential that companies have such as computers and
information technology.
The purpose of business process reengineering is process improvement to increase total
satisfaction for both internal and external customers. The objectives of business process
reengineering according to Andrews and Stalick (1994: 8) are as follows:
1) Improve the organization's ability to produce specialized goods or services and maintain mass
production.
2) Increase satisfaction with goods or services so that customers will choose the company's goods
or services over competing companies.
3) Make it easier and more enjoyable for customers to do business with the company
4) Breaking down organizational boundaries, bringing customers to information channels through
communication, networking and computer technology.
5) Speeds up response time to customers, eliminates errors and dissatisfaction, and reduces the
development of goods or services in the factory cycle time.
6) Processed more customer requests and increased volumes from each customer and set "value-
driven" prices for customers without compromising profitability.
7) Improving the quality of work and individual ability to contribute to the company and
8) Improve the sharing and use of organizational knowledge so that the organization is not
dependent on the expertise of a few.
The main focus in BPR is improvisation at the process level within the company.
(Hammer, 1993). The main step taken by BPR consultants is to analyze the processes that occur in
the company to be studied further.The output of the BPR project is the proposal or design of new
business processes that are better than before.The principle of "better-cheaper-faster" becomes the
main guideline in the activity of creating new processes.BPR affects information services (IS). IS
has created three techniques for applying BPR to CBIS, known as the 3-Rs:
1. Reverse engineering is the process of analyzing a system to identify its elements
interrelationships, and to create documentation at a higher level of abstraction than at
present.
2. Restructuring is the transformation of a system into another form without changing its
functionality.
3. Reengineering is a thorough and complete analysis of business processes and information
systems in order to achieve dramatic performance improvements. Re-engineering is a
revolutionary process that seeks to loosen overly traditional practices, such as overly
detailed job descriptions.
The main target in reengineering is the customer. The goal of re-engineering is to design a
process by simplifying the work process that can satisfy customers and increase customer values.
Based on Michael Hammer and James Champy (1995), the definition above has four keywords,
namely:
1. Fundamental is that in carrying out reengineering, employees must ask the most basic
questions about the tax revenue organizational unit and how it operates: why do we do what
we do, why do we do it the way we do it now? Asking these fundamental questions forces
people to look at the unwritten rules and assumptions that underlie the way they conduct
their business. Re-engineering first determines what the company should do, then how to do
it and not take it for granted by ignoring controls and concentrating on what it should be.
2. Radical, i.e. radical re-engineering is starting from the root of the problem, which means no
making superficial changes or sticking with what already exists but throwing away the old
by putting aside all existing structures and procedures and creating new ways of solving
problems.
3. Dramatic, i.e. re-engineering is not about achieving marginal improvement but about
achieving a big leap in terms of company performance. Marginal improvement requires
continuous adjustment efforts, dramatic improvement according to blowing up the old and
replacing it and something new.
4. A process is a set of activities that includes one or more types of inputs and creates an output
of value to the company. Most of the business people are not process-oriented, they pay
attention to tasks, jobs, people structures but not to processes.
According to Hammer and Champy (1995) there are three types of companies that are
suitable for reengineering, namely:
1) Organizational Units Companies that are experiencing complicated problems, where a
breakthrough development is needed if they want to survive.
Example: a company that experiences a drastic drop in performance in their competition due
to a new competitor.
2) Organizational units that are in a stable position but realize the need for re-engineering to
anticipate problems that will be faced in the future.
Example: a company that is sensitive to market developments where the emergence of new
competitors who have the ability to compete in the market potential in
competition.
3) Organizational units that are in a peak state where they do not have major problems now
and in the future such a state requires a re-engineering process as a way to expand their
competitive advantage and create boundaries for other competitors.
According to Hammer and Champy (1995), there are three criteria for determining a suitable
process to implement reengineering, namely:
1) Long bureaucracy: Which processes are the main problems?
2) Importance: Which processes have the most impact on taxpayers?
3) Likely to be done: Which processes have a chance of successful redesign.
10.2 Reengineering Activities:
Re-engineering involves three activities with different approaches and seeks to re-engineer
in different ways, namely:
1. Process re-engineering prioritizes the design of an efficient process. The process starts from
the WP depositing to the bank to SSP reporting. The emphasis is on simplifying,
abbreviating activities so that they can work smoothly, reduce paperwork, improve quality
and use time well. Process re-engineering involves analyzing and designing systems and
work procedures controlled by information systems.
2. Business reengineering is expanding the scope of the reengineering effort subtly so that it
becomes a very different activity. Business re-engineering seeks to build re business entities
such as customers or taxpayers and bring processes and activities together. The emphasis
here is on integrating separate activities and processes according to the size of the
organization. Business re-engineering that needs to be done includes redesigning the
organization with a focus on the customer.
3. Organizational reengineering is the third type of reengineering. It involves the entire
organization by dividing it into different businesses that are not directly related to the main
functions of the company.
10.3 Business Process:
The definition of a business process is a set of activities that includes one or more types of
inputs and creates an output that is of value to the taxpayer. Reengineered business processes are
different from traditional business processes, have different forms but have characteristics that
symbolize that the process has been reengineered.
According to Hammer Champy (1995), it is stated that the characteristics of a re-engineered
business process are:
a. Workers make decisions
Vertical compaction means that matters that would normally be asked of workers by the
managerial hierarchy can now be decided by them. The assumption that the people actually
carrying out the work have neither the time nor the inclination to monitor and control it and that
they lack deep and broad knowledg that are needed for decision-making, but this is dismissed by
saying that accountants, auditors and supervisors check, record and monitor work. Managers
supervise workers and handle special matters.
b. Some jobs are merged into one
Process merging is where many different jobs or tasks are combined and condensed into one. For
example: Processes that involve a lot of hand-holding, errors and misunderstandings are
inevitable because no single person or group is responsible or has authority over the entire
process.
c. Processes have many versions
To meet the demands of today's environment, we need multiple versions of the same process,
each version tailored to different information needs, situations or inputs. Processes with multiple
versions or paths usually start with an initial step to determine which version is best for the
situation: version 1 for light cases, version 2 for moderately heavy cases and version 3 for
difficult cases.
d. Process re-engineering can free up processes such as person 1 having to complete task 1 before
giving the results to person 2 who is working on task 2. But what if task 1 can be performed
simultaneously with task 2. Straight-line shifts or tasks generate precedent precedent that slows
down the work. Traditionally the above should be implemented, but in a re-engineered version
where stage 2 starts immediately after stage 2. Stage 1, collecting enough information to start it,
then while stages 2,3,4, operate, stage 1 continues to search for the information needed for stage
5. As a result, the organization may have reduced the time for tax revenue processing by more
than 60 percent.
e. Work is done where it matters most The fifth theme that always emerges in re-engineered
business processes is the shifting of work across organizational boundaries.
The relationship between processes and organizations can be very different from before. Work is
shifted across organizational boundaries to improve the overall performance of the process.
Example: An electronic equipment manufacturer re-engineered its field service process by
shifting some of its repair work to customers, who now perform simple repairs
themselves without having to wait for a technician to arrive with the right parts. If a
problem arises, the customer calls the factory's field service hot line and describes the
symptoms to a computer-aided diagnostician. If the problem is one that the customer
can fix, the diagnostician tells the customer what parts to replace and how to install
them.
Then the factory takes the old computer and gives the new computer to the customer
The service technician takes over the call only if the problem is too difficult for the
customer.
f. Minimum referral
There is still one more type of non-value-adding work that is minimized by the re-engineered
process, namely reconciliation. This is done by cutting back the number of external contract
points that the process has, thereby reducing the chance of uncertainty in the data that requires
reconciliation.
g. Less inspection and control
Reengineered processes only use controls for things that make economic sense. Conventional
processes are full of checkpoints and controls that do not add value, but are involved to ensure
that people do not abuse the process. In certain expenditure processes, for example, the shopping
department checks the signature of the person making the request for goods to ensure that the
available budget is sufficient for the account. All these checks are to ensure that people in the
organization do not buy things that they should not buy.
While the goal is laudable, many companies fail to recognize the costs associated with tight
controls.
Reengineered processes show a more balanced approach. Instead of strict work checks, re-
engineered processes have comprehensive controls or other controls. These control systems, by
design, will tolerate reasonable and limited deviations, by delaying the point at which deviations
are detected or by examining overall patterns rather than individual events. However, outcome
control systems re-engineering, provides far more benefits than any possible increase in fraud by
dramatically lowering the costs and other burdens caused by the controls themselves.
h. Combined centralized/decentralized operations are flattening out Companies that have re-
engineered processes their processes have ability to combine the benefits of centralization and
decentralization in the same process.
i. Case managers create a single point contract
Hiring a person who we can call a The "case manager" is another recurring characteristic that we find in
re-engineered processes. This mechanism turns out to be useful when complex or dispersed stages of the
process in a way that integrating them becomes impossible for a single person or even a small team.
Acting as a buffer between the complex process and the customer, the case manager walks alongside the
customer as if he is responsible for the entire process, even though there is no case. To perform this task
of being able to answer customer questions and solve customer problems, the case manager needs access
to all the information systems used by the people performing the actual process and the ability to contact
these people with questions and requests for other systems if needed.
Nothing could be further from the truth. None of the reengineered business processes exhibit all
of the characteristics mentioned above, as some of them contradict each other.
10.4 Reengineering Principles:
According to Chase and Aquilano (1995). Re-engineering is a process of significant change
that will meet customer demands in quality speed and service can be achieved. All this requires
seven new rules of work proposed by Hammer that relate to Who works, where and when it is done
and shared information and integration.
These regulations are as follows:
1. Some specialized tasks previously performed by different people should be combined into a
single job.
2. Work should be done in accordance with its part. Example: Employees can make purchases
without having to go through the purchasing department. Reallocation of work eliminates the
need for coordination of actors and users of a process.
3. The people who collect the information are also responsible for processing the data.
4. Information Technology (IT) makes the concept of centralization and decentralization a reality.
5. The concept of integrating the results of activities that could have been done together in parallel
is the main cause of reprocessing activities, high costs and delays in the final result of the
overall process.
5. Decision-making should be part of the job and control part of the process.
6. Information should be collected by the company on line at the source.
10.5 Reengineering Process
According to Chase and Aquilano (1995), innovation is required in the re-engineering
process. For that There are six approaches to reengineering, as follows:
1. Determine the problem to solve.
2. Identify processes for re-engineering.
3. Evaluate things that can be re-engineered.
4. Understand the process that is now happening.
5. Design a new process.
6. Implement the re-engineered process. According to Victor Tan (1994) the stages in the re-
engineering process are:
1) Understand the ongoing process.
The first step is to document the ongoing process. For example, this step can be done by planning
the interaction of the units that carry out the production process in the organization. This process
describes the input-output relationship between suppliers, organizational units and consumers. A
thorough understanding of the ongoing process will provide the basis for designing new and
improved processes.
2) Search for critical processes.
This stage is the critical stage where the questions and assumptions in the previous process will
be tested. remove all constraints in the search for a better process. In the real world, in order to
come up with a creative solution, a set of questions need to be answered: why is the performance
for the current process just not improving, are there activities missing in the process that could
add value, which organizational units should be involved or not involved in the process?
3) Search for redesign alternatives
This stage looks for alternative solutions that can provide meaningful improvements with a
creative approach, which means ignoring the existing modules, rules and regulations. Unless the
old paradigm is ignored, the new process will be easier to improve. In considering process
alternatives, it would be good if the process The new process is designed to be different from the
current process. The effect of the new process must provide alternative solutions to the problems
that occur.
4) Search for information needed to support the new process
Information is key to the functioning of the new process. It is therefore important to test the
changes in information required to support the new process. An assessment must be made as to
the information available between organizational units, so that the best channel for
communicating this information must be considered.
5) Conduct feasibility tests on the new process design. Step Final in stage engineering reengineering
is to identify sources additional resources such as human, financial and physical resources
needed to ensure the success of the new process. While the formulation of the new process
should not be hampered or affected by the lack of existing resources. The reality is that
organizations will be more concerned with the feasibility of implementation than the availability
of resources.
The provision of feasibility checks is a vital tool of the new process before it is submitted for
implementation.
Taking into account the characteristics of business process reengineering mentioned above,
then in conducting business process reengineering must be based on several principles of business
process reengineering, which consist of:
1. Organize the results of all steps in the process, not just one step;
2. The person who proposes the new process design must be able to do it properly;
3. The work of processing information is turned into real work that produces the accurate
information needed;
4. Production sources that are spread out should be made to look as if they are centralized;
5. More connect activities parallel rather than integrating the results;
6. Laying out the decision points at which the work is done, and determining control over the
process and
7. Receiving information once rather than receiving information repeatedly.
The basic stages in business process reengineering consist of the 3Rs, namely:
1. Rethink, Rethink the goals to be achieved now with the assumptions needed to determine
whether these goals can still be used in the new commitment to meet customer satisfaction in
the future.
2. Redesign, involves an analysis of the way the organization produces goods or services, how it is
structured, who completes a particular task and what results are achieved from each procedure.
3. Retool, involves evaluating the advantages or benefits gained from the latest technology used,
especially in electronic word and data processing systems, to determine the possibility of
changing the technology to improve quality.
If the company has determined that a process is not effective and efficient, the company
must redesign a new process with the following steps:
a) define business objectives and processes;
b) determine which processes to change/improve;
c) understand and measure the old process;
d) determine the level of information technology required and;
e) design and model a new process.
According to Manganelli and Klein (1994: 30) the business process reengineering
methodology includes five stages, namely:
1. Preparation. This stage begins with the development of a joint executive agreement on
breakthrough goals and objectives, which represent the intent for the organization's
existence and the reengineering project. Preparation establishes the key link between
business objectives and the performance of the reengineering process, and defines the
project parameters concerning schedule, cost, risk and organizational change. At this stage,
management techniques identify: goal setting, facilitation, group building, motivation,
change management, self-assessment, environmental assessment and project management.
2. Identification. This stage develops a customer-oriented business model, identifies strategic
value-added processes, and organizational, resource and volume maps for specific and
priority processes, and recommends specific processes as the highest reengineering targets.
The management techniques used are customer models, performance measurement and
cycle time analysis, process models, supplier integration and cooperation programs,
workflow analysis, organizational maps, activity-based cost analysis, change management
and facilitation.
3. Vision. See business breakthrough opportunities, analyze and structure as a vision of radical
change. Management techniques used are: workflow analysis, value process analysis,
benchmarking, change management, project management and facilitation.
4. Solving. This stage is divided into two, namely:
(a) Technical Design: The purpose of this stage is to specify the technical dimensions of the
new process. This specification will result in a description of the technology, standard
procedures, systems and controls for employees, design of the interaction of social and
technical elements, preparation of plans for development, acquisition, facilities, testing,
conversion and deployment. The management techniques used are workflow analysis,
information engineering, work measurement, strategic automation, change management,
project management and facilitation;
(b) Social Design: The aim is to establish the social dimension of the new business process.
This stage results in a description of the organization, staff, jobs, career paths, incentives
for employees, design of the interaction of technical and social elements, and initial
planning for recruitment, education and training, re-organization and redeployment. The
management techniques used are employee power, skill reference, group building,
organizational reorganization, and organizational mapping, production work,
broadbanding, change management, project management, facilitation, employee rewards
and incentives.
5. Transformation. This stage aims to realize the vision of the reengineering process. This
stage is the final stage to implement the process planning. The management techniques used
are process modeling, engineering information, reference expertise, group building,
continuous improvement,
performance measurement, change management, project management and facilitation.
Here is a summary of the twenty-seven management techniques used in each stage of
business process reengineering, as presented in the following table:
10.6 When Doing BPR and BPR Success:
1. If the Company Conducts BPR
According to Peppard and Rowland (1995:40), the right time to decide when to conduct
BPR for an organization, depends on a number of factors and uses the framework developed by
Nolan Norton and Company.
Description:
Quadrant I: Survived
Indicates criticism to improve business performance immediately.
Quadrant II: Launch
Indicates criticism to improve performance. The company will benefit from investing to
BPR's capability development and conducting business as soon as possible.
Quadrant III: Reconsider (Reconsider) Indicates that company healthy and requires little dramatic
improvement in the future. Some companies should consider BPR and focus on
continuous improvement.
Quadrant IV: Advantage
Indicates that although there is no urgency for dramatic improvement, it is a strategic
advantage to take the initiative to implement BPR.
From each quadrant mentioned above, it turns out that BPR is still needed in each quadrant,
especially in the Survival and Launch squadrons.
2. Key success factors in BPR:
Hammer and Champy (1995: 198) say that the key to success in re-engineering lies in the
knowledge and ability to carry it out, not luck. If you know the rules and avoid making mistakes,
you are more likely to succeed. The first step towards successful re-engineering is to recognize
common failures and learn to prevent them. To achieve success in BPR, there are several key
factors: vision, skills, incentives, resources and action plan.
a. Vision. A vision is a picture of what is desired in terms of people, products, services, processes,
facilities, culture and customers: people, products, services, processes, facilities, culture and
customers. Everyone in the organization must be able to understand, understand, animate and
describe the vision so that all actions and decisions always bring the company closer to the
predetermined vision. Activities related to vision include:
(1) Determine the right strategy
(2) Explains the reasons why BPR is done
(3) Develop an ideal of the future that everyone understands.
(4) Define targets to be achieved
(5) Explain the relationship between BPR's efforts and those already undertaken and
(6) Map the changes to the final stage.
b. Skills. Both interpersonal skills and technical skills are needed so that employees are able to
carry out tasks in the new process. Activities undertaken in skills improvement include:
(1) Educate top management on BPR concepts and implications.
(2) Inventory the type of leadership required for the new process.
(3) Think big about the future
(4) Change the design and develop things from outside to inside the company
(5) Gaining the support of labor unions and
(6) Manage differences or conflicts well and constructively.
c. Incentives. If employees can understand and feel that drastic changes bring improvements for
employees, then they can make changes better. Some of the things that concern incentives
include:
(1) Change must be led, socialized and set specific targets by company leaders.
(2) Team management team responsible responsible for its success
(3) Eliminate fear
(4) Rewarding and recognizing the success and achievements of employees and
(5) Changes in attitude and culture with the system and role models from the company
leadership.
d. Resources. Some of the things and activities in allocating resources include:
(1) Top management commitment to implementing change
(2) At least 25% of the time top management implements change
(3) Organize training and guidance in implementing changes
(4) Conduct benchmarking and
(5) Utilize resources resources as effectively as possible and efficient as possible.
e. Action plan. An action plan is the planning of a set of activities, responsible persons and
detailed timelines and targets.
BENCHMARKING:
Benchmarking emerged in the early 1980s, but it was not until the 1990s that it became
popular as a tool for improving company performance. Benchmarking is a systematic and
continuous learning process to analyze the best work procedures to create and achieve goals with
world-class achievements, by comparing each part of a company with the most superior competing
companies in the world class. Benchmarking is also defined as a productive approach that enables
company management to understand the business it does, the markets it serves, and can motivate
management to focus attention on continuous improvement efforts and implement change
management.
This section will explain the definition of benchmarking, the rationale for the need for
benchmarking, the evolution of the benchmarking concept, the types of benchmarking, the role of
management in benchmarking, the prerequisites of benchmarking, the rules and ethics of
benchmarking and the obstacles to benchmarking success.
11.1.
Definition of Benchmarking:
There are several definitions of a benchmark. Some of them are:
a. Gregory H. Watson defines benchmarking as the continuous search for and actual
implementation of better practices that lead to superior competitive performance.
b. David Kearns (CEO of Xerox) defines benchmarking as a process of constantly measuring our
products, services and procedures against our strongest competitors or other business entities
known to be the best.
c. Teddy Pawitra defines patok duga as a learning process that takes place systematically and
continuously where every part of a company compared to the best company or the most superior
competitor.
d. Goetsch and Davis define benchmarking as the process of comparing and measuring an
organization's internal operations or processes against those of its best-in-class, both from
within and outside the industry.
From the above definition, it can be said that benchmarking requires "Physical" and
"Mental" readiness. "Physically" because it requires the readiness of human resources and mature
technology to benchmark accurately. Meanwhile, "Mentally" is that the company management must
be prepared if after being compared with competitors, it turns out that they find a high enough gap.
From the various definitions above, several conclusions can be drawn (Pawitra, 1994; 12),
namely:
a. Benchmarking is a trick to find out how and why a company that leads in an industry can
perform its tasks better than others.
b. The focus of benchmarking activities is directed towards the best practices of other companies.
The scope has broadened from products and services to processes, functions, organizational
performance, logistics, marketing, etc. Benchmarking also takes the form of a continuous, long-
term comparison of the best practices and results of companies everywhere.
c. The practice of benchmarking takes place systematically and is integrated with other
management practices, such as TQM, corporate reengineering, competitor analysis, etc.
d. Benchmarking activities need involvement from all interested parties, proper selection of what to
benchmark, understanding of the organization itself, selection of suitable partners and the ability
to implement what is found in business practices.
Benchmarking is actually a standard test or evaluation of a product based on certain
criteria.Benchmarking is done to measure the performance of a product system so as to produce a
criterion that can be used as a basis for determining a final assessment.
Benchmarking was originally carried out by the industry to determine the final quality of the
products they produce. Testing is carried out using a variety of methods, generally in the form of
synthetic tools that are considered capable of representing the actual use of the product being tested.
This step was later followed by some media circles by utilizing a variety of adaptive synthesis tools
issued by third parties.
The desire to describe the performance of a product based on a certain unit forced the media
to do the same. Gradually, this was realized to be a mistake because the needs of the industry and
consumers are clearly two different things.
Benchmarking is based on the most common needs of users. Testing is done by utilizing the
features and applications that are most often used and then compared to how long it takes to
complete everything. This model is called the drag race model.
For a long time, this was the benchmark for determining whether a product performed perfectly or
not. Until finally testing with this method can no longer accommodate the most basic demands of
real users. This is exacerbated by numbers that cannot describe the product as a whole.
It is undeniable that the needs of one user to another are different, some want speed, some
want stability and some want both.
11.2.
Rationale for the Need for Stakes:
The urge to do benchmarking is largely determined by customer satisfaction factors. The
existence of increasingly competitive suppliers has made customers know Customer satisfaction is
increasingly difficult to fulfill by the existence of wants and needs that instinctively increase, so that
efforts to satisfy customers are not merely satisfying but have become a complex effort.Every
company is required to be able to provide the best to its customers.
One rationale for the need for benchmarking is that there is no point in secluding oneself in a
specialized laboratory to try to find a new process that can improve quality or reduce costs, if the
process itself already exists.
11.3.
Evolution of the Benchmarking Concept:
According to Watson (in Widayanto, 1994), the concept of benchmarking has actually
undergone at least five generations, namely:
1. Reverse Engineering
In this stage, a comparison is made of product characteristics, product functions and performance
against similar products from competitors.
2. Competitive Benchmarking
In addition to benchmarking product characteristics, it also benchmarks the process that allows
the resulting product to be a superior product.
3. Process Benchmarking
Has a broader scope with the basic assumption that some of the business processes of leading
successful companies are similar to those of the company to be benchmarked.
4. Strategic Benchmarking
It is a systematic process to evaluate alternatives, implement business strategies and improve
performance by understanding and adapting strategies that have been successfully carried out by
external partners who have participated in business alliances. Discusses matters relating to long-
term strategic direction.
5. Global Benchmarking
Includes all previous generations with the addition that the geographical scope is globalized by
comparing against global partners and global competitors.
11.4.
Types of Stakes:
In general practice, there are four basic types of stakes, namely:
a. Internal guesstimates
This approach is done by comparing the operations of a section with other internal sections
within an organization. What is compared can be the performance of each department, division,
branch in the same company that is geographically largest.
b. Competitive benchmarks
The approach is taken by making comparisons with various competitors. The factors to be
compared can be the product characteristics, performance, and functions of the same product
produced by competitors in the same market.
c. Functional benchmarks
In functional benchmarking, a comparison of the functions or processes of companies in various
industries is made.
d. Generic benchmark
A generic benchmark is a comparison of fundamental business processes that tend to be the same
across industries. Since the processes are the same in every company, such as order taking,
customer service, and strategy development, a benchmark can be established even if the
company is in a different industry.
In addition to these four basic types, there are also special types, such as strategic
benchmarks (application of benchmarks at the strategic level), operational benchmarks (only the
scope differs from strategic benchmarks), global benchmarks (expansion of strategic benchmarks,
including global benchmark partners), and others.
11.5.
The Role of Management in Benchmarking:
Management plays an important role in the benchmarking process; without the support,
involvement, and commitment of top management, benchmarking is not possible. The various
benchmarking considerations that require management support before the process can begin are
commitment to change, funding, personnel, disclosure, and engagement.
a. Commitment to Change
Benchmarking is an endeavor that requires a genuine commitment to radical change in a
company's processes to become best-in-class. In the absence of this commitment, there will only
be a waste of money and effort, and disappointment for every employee who wants it.
b. Funding
Only management is authorized to spend funds on benchmarking. These funds will support
travel for the team to visit organizations that have best-in-class processes.
c. Human Resources
Management is also the only party that can decide and assign available human resources to
conduct the benchmarking. Although human resource costs are usually much higher than travel
costs, personnel availability is rarely an issue except for the target company.
d. Disclosure
Each party involved in benchmarking must disclose its processes and practices. It is
understandable that management would be reluctant or hesitant to disclose such information to a
competitor, but what if the counterparty is not a competitor? There is no guarantee that such
information will not leak out. However, if the organization has a unique process that gives it a
competitive advantage, then the process should be treated as confidential and not made an
aspect to be pegged. In this case, only the management authorized to make the decision to
disclose information.
e. Engagement
Management must be actively and visibly involved in every aspect of the staking process.
Management should be involved in determining the processes to be benchmarked and the
benchmarking partners. Management has an easy time establishing communication channels
between companies, as top managers are usually involved in professional organizations.
Dialogue between top management should be periodic.
Active involvement from management can lead to more productive activities at each level.
In addition, subordinates will understand the importance of the benchmarking effort based on the
extent of their involvement in the process. Important things related to the role of management in
benchmarking are:
1. For benchmarking to be productive, management must have a high commitment to change.
2. Management must provide the necessary funds.
3. Management must allocate the right human resources.
4. The information that can be disclosed to the stakeholder partners can only be prepared and
determined by management.
5. Top management should be directly involved in the staking activities.
11.6.
Benchmark Prerequisites:
Before carrying out the benchmarking, the organization must meet the following requirements:
a. Will and Commitment
Without willingness and commitment to the benchmarks, the organization cannot progress.
b. Strategic Objective Linkage
Benchmarking requires a strong focus. Benchmarking objectives should be linked to the
company's strategic goals, and provide specific guidance and focus for each effort which is done.
c. Aim for Excellence, Not Just for Improvement
Incremental improvement is a good effort to improve company performance, but it is not enough
if the company's current performance lags far behind world-class companies. In such conditions,
a benchmark is needed to achieve radical change and achieve a huge increase in performance, not
just a few percent increase from previous performance.
d. Openness to Ideas
The essence of benchmarking is to absorb and adapt the work and ideas of others. The company
should therefore be open to new ideas for benchmarking that provide new value. A new idea with
proven success will be easier to accept.
e. Understanding Existing Processes, Products, and Services It is imperative for an organization to
understand its processes, products, services, and practices as a whole so that the organization can
determine what what guess need to pegged. In addition to In addition understanding process
process in depth so that to be able to make meaningful comparisons to the counterpart of the
benchmark.
f. Documented Process
Understanding the processes is not enough, but the processes must be documented. This is
because:
1) Everyone who comes into contact with a process must have the same understanding of the
process in question. This understanding can only be obtained from documentation.
2) Documentation of previous changes is useful in measuring performance improvements
following the implementation of the benchmarks.
3) Partners are not necessarily familiar with the processes that an organization has. With an
understanding obtained from the documentation, then the partner can provide the necessary
assistance.
g. Process Analysis Skills
The company needs someone with skills in classifying and documenting processes. This person
can be a company employee, but can also be a consultant. Such skills are needed to analyze the
processes, products, and services of the company and its benchmark partners, and to help adapt
those processes to the needs of the organization.
h. Research, Communication, and Team Building Skills Additional skills are also needed, such as
research, communication, and team building skills. Research is needed to identify best-in-class
process owners. Communication and team building are needed to implement benchmarking.
10.7. Rules of the Game and Code of Conduct:
There are rules of the game that apply in gathering complete data on how a company turns
its business wheels. Here are some sourced from the International Benchmarking Clearinghouse
(IBC) regarding the steps taken on the company to be benchmarked.
The first explanation, a good ledge to the stakes, is to pay attention to the following points:
a. Utilize secondary research to obtain general data about the company to be pegged.
b. Purchasing a competitor's product at a public sale point and then reverse engineering it.
c. Conduct market research and customer satisfaction surveys.
d. Wherever possible, collect information or data at the time of the transaction.
e. Ask other companies to directly share information about their processes.
f. Motivate employees to build data database of what they know about competitors.
The second explanation concerns missteps, among other things:
a. Silently enter a company's system to gather information.
b. Bribing someone to be an informant.
c. Tapping into the secrets of the company to be pegged or its communication activities.
d. Recklessly studying competitors' pricing measures.
e. Exchange information before it is widely publicized to the public.
The third explanation concerns steps that still need to be considered, for example:
a. Recruit employees from other companies with the intention of gathering information about the
company.
b. Asking questions without mentioning the name and origin of the company in a technical
meeting of the stakes.
c. Become a customer of a juranl published by a competitor or attend a meeting held by a
competitor as an individual, without mentioning the origin of the company.
The fourth explanation is some things to avoid, such as:
a. Talking about information gained from one company when visiting another.
b. Disseminating information to the public about suspected partner's stakes without obtaining prior
authorization.
c. Asking for something that we don't necessarily utilize ourselves.
d. Visiting and requesting information from our counterparts without first mastering the processes
of the companies we belong to.
e. While on the visit, propose changes in time or plans to gain additional benefits for their own
company.
In addition, there is a code of conduct from the International Benchmarking Clearinghouse
that must be followed, among other things:
1. Principle of Legality
Parties involved in the stipulation should refrain from discussions or actions that may
constitute trade obstruction, price rigging, bid-rigging or possession of trade secrets.
2. Exchange Principle
Each party is willing to provide comparable information, which requires preliminary
discussions to clarify expectations and prevent misunderstandings.
3. Principle of Confidentiality
Companies that obtain information from the stakes are required to keep it confidential. It is
not allowed to provide information to other parties without the consent of both parties.
4. Usage Principle
The information obtained from the benchmarks should be used to improve operational
processes within the company carrying them out. The material should in no way be used for
advertising or marketing.
5. First Party Contact Principle
When approaching a potential staking partner, it is best not to contact the operating unit to
be staked. Instead, contact one of the senior managers, quality control or human resources
managers for assistance.
6. Third Party Contact Principle
Unless there is permission from both parties or the official appointed to handle the legal
issues of patok duga, it is not allowed to disclose the names of patok duga participants to
third parties.
11.8. Barriers to Successful Benchmarking:
Some of the inhibiting factors that can lead to the failure of the implementation of guessing
stakes are:
a. Internal Focus
For benchmarking to deliver the expected results, the organization must understand that there are
other organizations that have much better processes. If the organization is too internally focused
and ignores the fact that best-in-class processes can produce much higher efficiency, then the
vision of the organization becomes very narrow. This self-satisfaction can lead to the
organization's demise.
b. The purpose of the pegs is too broad
Overly broad benchmark objectives such as "increase profits" may result in failure.
Benchmarking requires goals that are more specific and oriented towards how (process, rather
than what results). The goal can be narrowed, for example, to "improve or replace the invoicing
process so as to reduce errors by 50 percent".
c. Unrealistic Schedules
Benchmarking requires patience, as it is an engagement process that takes time. If it is done in a
hurry in a very short period of time, then the possibility of failure is very high. Too long a
timeline is also not good, as something may have gone wrong.
d. Inappropriate Team Composition
When a process is set to be pegged to a guess, then people
- People who come into contact with a process and run the process on a daily basis should be
involved. They are the ones who best understand the operating processes being implemented, and
they are also the ones best equipped to detect discrepancies between the organization's processes
and its benchmark partners. If they are not involved, then the expected results are unlikely to be
achieved.
e. Willing to Accept "OK - in - Class"
Often organizations are willing to choose a partner that is not best-in-class. This is due to the
following 3 considerations:
1) Best in class is not interested in participating
2) Research identifies the wrong partner
3) Stake companies suspected of being lazy and only choosing partners with close locations
f. Improper Emphasis
One of the reasons for failure that often arises is that teams put too much emphasis on data
collection and numbers. While the most important aspect is the process itself, data and numbers
are just supporting factors.
g. Insensitivity to Partners
Sensitivity to the partner is the most important factor in the partnership relationship. The staking
partner provides access to the staking organization to observe the process. In addition, these
partners also provide valuable time and key personnel to assist in the staking process. They
should therefore be respected and valued. At the very least, they would like to be treated the
same way.
h. Limited Top Management Support
Top management support is critical to the success of each stage of the benchmarking activity.
Continuous support from top management is needed to initiate the benchmarking, assist with the
preparation phase, and also ensure the promised benefits are achieved.
BALANCED SCORECARD AS PERFORMANCE MEASUREMENT
In strategic management studies, measuring results (performance) plays a very important
role, because this is not only related to determining success but also a measure of whether the
strategy is successful or not. This means that results will be used as a measure of whether the
strategy is working or not; if the organization cannot achieve results, the first diagnosis shows that
the strategy is not working. In a measure that is considered traditional, Whelen (2006) points out
that ROI (Return Investment) contains various weaknesses. These weaknesses however force
practitioners to think of more comprehensive measures that can be used. In America, for example,
the Malcolm Baldrige National Quality is known, which annually awards awards through a very
prestigious event. However, programs such as the above affect business performance. A number of
corporations participate in the assessment and the results of the assessment of an independent team
using the principles of Malcom Baldrige National Quality where the results are announced annually.
So far this program is believed to have increased the competitiveness of American businesses in the
global market, because this program has improved business quality. The business perspectives
developed in this program are:
1. Focus on customer outcomes,
2. Outcomes of goods and services
3. Financial and market results
4. Human resource outcomes
5. Interest in organizational results, including company performance measurement
6. Governance and social responsibility.
From the 6 focuses above, the program further describes 11 components that must be demonstrated
in order for a company to deliver value.
However, businesses or organizations are increasingly developing, rapidly so that the ROI
measure is considered not only insufficient but is considered not to describe the real and future
conditions that are adequate as a measure of the company that uses it. Kaplan and Norton (1992)
first published about the Balance scorecard (BSC) which then developed rapidly, and to this end
Kaplan has institutionalized BSC and publishes his observations every year. Kaplan and Norton's
various publications related to BSC are basically intended to build understanding and experience of
using BSC. These publications such as those related to Alligment (2004), Strategy (1996),
StrategyMaps (2006) and as part of Strategic Management (2007). Their efforts have convinced us
that BSC is more than just a measurement tool, but a part of strategy.
By searching for related publications, it is hoped that the common threads, practices, and
recent advances related to BSC can be used as lessons both academically and practically.
12.1 BSC Objectives:
The objectives of BSC are:
1. Explain the development of the BSC concept as part of corporate strategy
2. Explain the link between BSC and Strategy in the company so that there is a guarantee that BSC
can work well.
3. Describe the company's experiences and lessons learned in implementing BSC as part of
strategy.
Business is understood as a system, where the results obtained are the result of the
company's actions in a planned manner. In business, "cause and effect relations" are recognized, the
results obtained are the result of the company's actions. Indeed, it must be recognized that there is a
concept of win fall that shows that one company gets an advantage outside the strategy designed by
the company itself. Accordingly, in the modern business teaching model, one of the stages known is
"result measurement". ROI is a very "favored" result measurement tool because it is considered
simple and easy to implement. However, ROI has its weaknesses as it is highly influenced by; 1)
depreciation policy, 2) sensitivity to book value, 3) transfer pricing practices, 4) attention is often
focused on the short term, 5) cannot be compared between different companies, 6) is highly
influenced by the general economic situation, and 7) is influenced by inventory management (LIFO
and FIFO).
Such weaknesses force business practitioners and academics to formulate measures that can
be used but at the same time can meet demands. In this regard, it should be underlined, for example,
Total Quality Management, which emphasizes a commitment to quality improvement. Quality in
this regard is recognized as the soul of the company, a company that does not have quality will
somehow collapse. Therefore, in addition to gaining profits (high ROI) companies are also expected
to apply the principle of quality improvement. All units of the company or organization are required
to be able to apply quality improvement.
One of the needs for measurement tools is the need for comprehensive measurement tools,
which do not necessarily pit one perspective against another. For example, customer orientation will
result in attention to revenue. This should be noted, because various schools of management such as
Total Quality, Team Approach, etc. before the emergence of BSC were intended as measurement
tools. This means that measurement tools are a necessity not only as an evaluation tool, but as part
of the strategy. What Kaplan and norton (1992) said "What you measure is what you get" is a sign
that what is used as a business measurement tool is also what will be achieved. If so, then the
strategy has a strategic position to achieve the measure. The measures to be achieved must meet the
following criteria: represent the vision and mission of the organization, answer the needs of
stakeholders, therefore must be flexible, can be measured properly without requiring a long time,
and answer the needs of the company in the midst of the industry.
The importance of measurement tools is not only to measure performance, but to ensure that
BSC organizations use the right strategy. Thus, what Kaplan said that performance will determine
the strategy used is true. The experience of FMC Corporation using BSC can be noted as a solution
in using BSC.FMC Corporation is a company with more than 300 types of products, with the
phenomenon of conflict between divisions. The slogan for various initiatives was a headache and
signs were mixed. What Kaplan notes about this company is that with the implementation of BSC
there is no longer confusion between divisions, but each division uses initiatives to achieve
predetermined goals or performance. For this company, the formulation of performance and targets
has turned into a strategy that must be implemented by the company in an integrative manner. That
is, the application of BSC turns into part of the organization's strategy. It can be concluded that the
impact of BSC implementation is a change in the overall management system.
12.2 Get to know the Balance Scorecard Concept:
Kaplan and Norton in their paper that initiated the importance of the BSC concept.
Anonymous (2005) defines BSC as a strategic management and measurement system that links
strategic goals to comprehensive indicators. For this reason, it is also clarified that the indicators
used must be the activities and processes of the core activities of the organization's operating
environment.
In a study conducted by Kaplan and Norton (1992) on 12 corporations, it was found that
these corporations had actually adopted the scorecard. Kapalan and Norton saw a weakness in
performance measurement that could accentuate the achievement of goals separately, even tending
to be competitive, which ultimately resulted in corporate conflict. Therefore, a reason is needed to
use the scorecard concept because: 1) the scorecard unifies the tools in a complete management
report, the weakness of the view of the various areas being assessed competitiveness: becoming a
customer-oriented company, shortening response time, improving quality to the team, reducing
product launch time, and managing for the long term; 2) the scorecard becomes a guideline to
optimize goal achievement. Since 1992, the concept has continued to be developed not only by
Kaplan and Norton but even by other authors. Karathonous, D., and P. Karathonous (2005), used
BSC for education, Kocakulah, M.C. and Austill, A.D. (2007) in healthcare.
In the field of education, it is worth noting a study reported by Beard (2009) that identified
the application of BSC to two schools that received awards from the Malcolm Baldrige National
Quality Award Program, concluding that the awardee companies were more in line with the vision
and mission of the organization after applying BSC. The Malcolm award focuses more on the
success of achieving 11 goals, but the application of BSC provides a clearer position for the
company. Because the application of BSC can explain the consistency of achievements with the
organization's vision and mission, core values and improvements implemented by the organization.
The nature of BSC then, which emphasizes the management system, not only enables the
organization but also helps the company clarify its vision and translate it into operational goals,
measures and actions that are clear and in line with the mission and core values of the organization.
Mutasowifin (2002), Purwanto, A.T. (2003) respectively initiated the application of BSC in
cooperatives and natural resource management. That is, because it is considered that this concept is
good, many organizations adopt it. Whatever the translation in Bahasa Indonesia, the main idea of
BSC is the existence of a balanced scoreboard that can be used as a measuring tool to determine
whether an organization is considered successful or not. From this definition, the simple definition
of Balanced Scorecard is a value card used to measure performance by paying attention to the
balance between financial and non-financial sides, between short-term and long-term and involving
internal and external factors. This concept was born from observations by the author which provides
an answer that successful companies are based on a balance of 4 things, namely: finance, customers,
business processes / internal, and learning-growth. From an academic view, Kaplan and Norton
together with a number of companies conducted experiments. From the beginning of the year,
observations were made on the success or performance of the company, until it was decided that the
4 perspectives could indeed be used as a measure of company success. Until now, Kaplan and
Norton have joint projects with a number of companies to determine how the company is
successful. Based on this balanced scorecard concept, financial performance is actually a result of
non-financial performance (customer, business process, and learning). The work of this author is
not only in such a formulation, but up to the effort to include a group of companies. Until now, this
work is still ongoing, so there are companies or consultants who make programs for a group of
companies to follow the program. From the results of observations, it is recognized that the
companies that are in it have progressed because every policy decision still considers this
perspective.
The development of BSC implementation is getting longer The BSC system is becoming
more and more prevalent, because it is followed by advances such as wage determination using the
BSC system. Even BSC users are setting up software to determine how a business can succeed.
From early developments it can be underlined that the role of BSC is as a results
measurement tool, intended for evaluation, far from a strategic position. However, from the series
of books and research offered by Kaplan and Norton, it was finally recognized that the problem of
BSC is not at the evaluation level alone, but must start from strategy development. Because in the
series of books and experiments released by Kaplan and Norton, the BSC problem must be an
agreement (commitment) of top management from the beginning.
BSC is becoming popular among practitioners and academics in the areas of outcome
measurement and strategic problem solving.Pandey (2005) explains the various reasons why BSC is
used in organizations.
BSC is a comprehensive tool for understanding customers and their needs, and performance
gaps.
BSC sets up the logic for creating intangible and intellectual capital where traditional
measurement in performance systems is difficult.
BSC is able to articulate growth strategies into business reliability that focuses on non-
financial efforts.
BSC enables employees to understand the strategy and link goals to the company's day-to-
day operations.
The BSC interprets performance review feedback from the time to time.
How is the balanced scorecard viewed from the company's strategic management system? In
the strategic management system, there are two important stages, namely the planning and
implementation stages. The position of the balanced scorecard is initially in the implementation
stage. The function of the balanced scorecard here is only as a comprehensive performance
measurement tool for executives and provides feedback on management performance.
The impact of the successful implementation of the balanced scorecard triggered executives
to use the balanced scorecard at the strategic planning stage. From then on, the balanced scorecard
was no longer used as a performance measurement tool but developed into a strategic management
system.
12.3 Balanced Scorecard is a strategy:
Corporate strategy is derived from Vision and Mission. Such is the important role of
strategy, that if corporate goals are not achieved, then the wrong strategy. Whelen (2006) explains
the various causes of strategy implementation failure, namely: 1) difficult communication between
staff, 2) weak operational management commitment, 3) failure to receive feedback and its
mechanisms, 4) invalid planning basis, invalid strategy formulation, 5) inconsistent functional
planning, and 6) inconsistent resource assessment.
In the application of BSC, there is an implicit premise that BSC is a strategy. Considering
BSC as a performance measurement is probably the easiest thing to recognize, because each
perspective that is then derived into objectives functions as a performance measurement. However,
if you look at how When we consider the relationship between vision, mission and strategy as the
beginning of perspective setting, it can be seen that the link between each perspective and strategy
is very strong.
Kaplan and Norton (1992) explain that The balanced scorecard puts strategy - not control -
at the center. The meaning is that the essence of BSC implementation is not the control of divisions,
but each division of a corporation in such a way that it will initiate, determine performance
measures and link them to the vision, mission and strategy of the corporation. In this case, the
advantage of BSC is the identification of the structure or framework that exists in the corporation to
achieve - realize the vision and mission of the corporation. This explanation confirms that before
BSC was introduced, there were many measurement programs that led to improvements: integration
between functions, global scale, continuous improvement, team responsibility that replaced
individual roles. Kaplan himself notes that the application of BSC is in line with these principles.
However, what distinguishes BSC from these concepts is that in BSC managers understand, at least
implicitly, the linkages between functions. More than that, BSC also directs managers forward
rather than backward. This is easy to understand because 4 perspectives: financial, customer,
internal business processes and learning and growth which Kaplan describes as perspectives that are
related to one another. It is even summarized in a "cause and effect relationship". The relationship
between each perspective can be explained as follows:
1. Customer perspective. This perspective shows what the company looks like in the eyes of the
customer. Customers have the technical ability to see corporations from various sides: time,
quality, performance and services, and the costs incurred by customers to obtain services. Such
dimensions of customer needs will ultimately determine how the company is seen by customers.
The better the customer's perception, the better the value of the corporation in the eyes of the
customer.
2. Financial perspective. The question the corporation must answer here is how we are seen by
shareholders both in the short and long term. The corporation can lose money at a certain time,
but shareholders realize that after that the corporation will make a profit, so dividends will be
obtained. The better the corporation is in the eyes of shareholders, the more secure the
corporation will be in obtaining capital resources.
3. Internal business process perspective. This measure shows in what kind of production process
the corporation is better. Customer orientation is absolute, but the problem for management is
how to prepare competencies that can meet customer needs.
4. Learning and growth perspective. This perspective shows how the corporation can survive and
change according to external demands.
Note well that the scorecard is derived from the vision and strategy. This is a key reminder
that the company is actually driven by the vision and mission. When the vision and mission are well
stated, they become the "engine" that drives all activities.
The vision and mission formulated by Kaplan are expressed in 4 perspectives as above.
According to Kaplan, the translation of the vision for each of the above perspectives must be tested
against each of the criteria, namely: 1) goals, 2) measures, 3) objectives, and 4) initiatives. These
four perspectives are characterized as follows. The translation of the vision and mission into the
above four perspectives shows a cycle: the company's profits can only grow if the company has a
position in the minds of customers (share value), while the position in the minds of customers is
only possible if the company has a learning process. One thing that is very clear from the
relationships shown by Kaplan is that one is interconnected with the other. In his last book (Strategy
Map) Kaplan shows various empirical ways. Furthermore, Kaplan clearly explains how important
intangible assets are as a series of goal achievement. Of the four perspectives as stated above,
Kaplan (1992) also explains that the perspective position as above is forward-oriented, not
backward. This can be seen in the determination of goals that are implemented through the
formulation of initiatives that will be used.
From the experience of corporations using BSC, it is known that BSC provides many
benefits compared to other performance measurements. Frigo (2002) reported corporations that use
BSC such as ABB Sitzerland, AT&T Canada, Chemical Bank, Hilton Hotels, Sears, UPD, Wells
Fargo Online Fiancial Service, and Wendy's International show the advantages of BSC showing a
hierarchical or framework that can be used as a guideline that can be accepted by all divisions.
Furthermore, from the results of the IMA survey reported by Frigo (2002) that the benefits of BSC
implementation can be accepted in terms of: 1) BSC users can better support corporate strategy, 2)
strong relationships in performance measurement, 3) use of new measurement tools, 4) strong links
between performance indicators and company performance due to communication of strategy to
staff and employees.
The same results were also reported by Hendrik (2004) in the utilization of BSC, namely:
1) Good management understanding of the relationship between strategic decisions and actions
and the chosen strategy;
2) Redefining the customer relationship;
3) Fundamental engineering of business processes; and
4) The emergence of a corporate culture that emphasizes team efforts among organizational
functions to implement corporate strategy.
12.4 Strategy Map:
The concepts and steps taken by Kaplan are well known in the measurement of company
performance, because they are considered to be able to solve the weaknesses of traditional
measurement concepts which are characterized by single and separate measurements. However,
from various experiences, various researchers have shown difficulties in operational terms,
translating the concept of perspective, which of course differs from one company to another. This
difficulty is related to the need for It is technical to organize or translate concepts into operational
parts. Being operational means considering: its need for the organization in order to support the
achievement of goals, implementable and measurable. It is not surprising that before implementing
this, a training is needed, which is intended to make internal parties understand adequately how to
apply the concept into something operational.
The superiority of BSC in this regard is recognized by researchers that BSC presents a
structured logical framework that results in each division of the company can actively initiate to
determine performance. However, this performance determination must be followed by determining
the strategies needed to achieve the predetermined goals. In this regard, Kaplan in his interview
with Lagace (2008) explains the challenges of implementing strategy into operations: 1) many
companies implement various programs such as TQM, Six Sigma, etc., but fail to record how
organizational improvements occur along with such programs; 2) budget planning and financing are
separated from strategy, so what is obtained is always not an acceptable measure.
When Kaplan and Norton came up with the concept, the two authors were relentless in
making clear the connection of each perspective in supporting the achievement of goals. Therefore,
the perspectives presented are part of the strategy. It is worth noting the results of research
conducted by Sandy Richardson in Hendricks who explained that:
1. Understand that BSC is part of a process that starts with strategy. It is therefore
recommended to include the BSC from the start of the strategy, with the strategy defined
from the beginning.
2. Senior management involvement is critical, as internal support is needed to determine the
success of the organization in implementing BSC.
In their book, Kaplan and Norton (2005) further clarify that each perspective must be related
to each other in such a way that its realization is a series. If this series can be explained, a strategy
map will be obtained that clearly shows how the vision and mission are translated into operational
parts, namely goals and strategies to achieve these goals. If this is organized then what Kaplan said
that BSC is not merely a performance measurement tool but becomes part of the strategy because it
provides feedback and correction of the results obtained.
12.5 Scorecard Determination:
It is not easy to agree on what measures are used as the success of a company, because there
is always an element of conflict between parts. The 4 perspectives put forward by Kaplan must
actually be followed by a deep understanding when strategic planning begins. This understanding
must start from the appropriate identification so that it can be determined what goals and activities
and measures will be applied. In this case, the concept of performance measurement becomes
useful, because the strategist will be able to determine.
Hendrick (2004) points out the constraints of BSC implementation
(1) there is little examination of the factors related to BSC adoption, and (2) there is still a need for
confidence that BSC adoption will have an impact on performance financial performance.
Furthermore, reported that the key to BSC implementation is :
1) Senior leadership engagement
2) Articulate the company's vision and strategy
3) Identify performance categories that link vision and strategy to outcomes
4) Translate the value board to teams, divisions, and function levels
5) Develop effective measurements and meaningful standards (short and long term, leading and
lagging)
6) Enforce appropriate budgeting, Information Technology, Communication, and reward systems.
7) View BSC as a continuous process, requiring refinement, reassessment, and updating, and ;
8) Believes that BSC is a facilitator of cultural and organizational change.
Top management commitment remains the key word, because it is only with commitment
that the organization can move. One thing that management can do is to accommodate things that
are common in an industry, but however a company must be able to accommodate things that they
think are specific to the industry or company where they are. In this regard, please remember the
four perspectives put forward by Kaplan, such perspectives do not necessarily position the company
to adopt them. Determining goals and targets is not an easy job because this must be included in a
plan both short and long term. This means that such determination must be accompanied by
alligment. Alligment is the clear allocation of resources to the efforts of the company goal
achievement. Without allocating resources, there is no guarantee that the organization will achieve
the benefits of the BSC.
Measured is very important in the implementation of strategy, because a company will not
be able to manage what can be measured.
12.6 Scorecard Implementation:
The implementation of BSC is initially a value board that is considered balanced between
various perspectives to determine the success of an organization or company. This issue is crucial
not only because it involves many things, but because with a balanced measure it is expected that
the achievements and performance of an organization can be sustainable. What should be noted
from Kaplan and Norton's various publications is that even to implement BSC requires a strategy.
Thus, it can be noted that in BSC it is strongly stated that the design of an implementation strategy
is absolutely necessary, which is a correction to the weakness of strategy in general.
From the above, the following important conclusions can be drawn.
1. Comprehensive commitment. Commitment starts from top management. The formulation of
vision and mission is absolute for a company, in relation to which the formulation of the
vision must be translated into the form of 4 perspectives that are operational in a company.
Thus, the goals of each perspective are also translated. Different companies will have
different goals, although it must be noted that the mechanism remains.
2. Determining the scorecard of a business however requires internal and external agreement.
As an internal agreement means that the company must have a commitment to realize it, as
an external agreement is intended to accommodate the demands of stakeholders.
3. The experience of companies implementing BSC shows that BSC is not just a measure of
performance but is part of a strategy to achieve goals.
