Maintaining Manufacturing Viability in Difficult Times with the Balanced Scorecard

Abstract

In today’s competitive global environment it is becoming increasingly difficult for small and medium size manufacturers to survive. In the past, low labor and overhead costs coupled with more favorable currency exchange rates have allowed quality Chinese manufacturers to dominate word markets. In time, Chinese manufacturing grew into a dominant player in various markets cross the globe. But things are changing making it more difficult for Chinese manufacturers to maintain their growth, and in fact, have caused plant closings for some companies that were quite successful in the past. These changes have included higher labor costs, higher raw materials costs, and an exchange rate that makes Chinese goods more expensive in the world marketplace. To help their companies to prosper or at least survive, many manufactures have focused on the financial aspects of their businesses. This is not uncommon in the world, as it makes sense to focus on finances first and foremost because businesses cannot survive without the financial resources. A focus on the financial aspect of business, however, has caused some manufacturers to do the wrong things. For example, some companies have gone on cost-cutting campaigns aimed at reducing costs whenever and wherever possible. Unfortunately, such cost cutting measures often result in lower product quality and loosing other important company resources, such as experience managers and staff. When faced with difficult times, in order to maintain long-term health and viability manufacturing business leaders must broaden their focus beyond the financial statements. A sharp focus on the financial aspect of a company may do more to harm the company’s prospects for a bright and successful future than to help. The balanced scorecard is a management technique developed by Harvard professor Robert Kaplan and consultant David Norton that, instead of focusing solely on financial objectives, broadens management attention by providing an integrated set of performance measures organized around four distinct perspectives – financial, customer, internal, and innovation and learning. [1] The balanced scorecard helps business leaders maintain successful operations by managing their businesses and achieve full execution of their strategies through the use of objectives, measures, targets, and initiatives. The balanced scorecard is a way to help manufacturing firms survive even in a difficult changing global marketplace. This paper presents an introduction to the balanced scorecard so manufacturing managers or their consultants are able to understand how the balanced scorecard works. Finally, the paper presents a basic example that can be used as a starting point for a simple balanced scorecard implementation in a small or medium size manufacturer.