Check out our new design. Click here to return to old version

Balanced Scorecard

Introduction

Al-Futtaim Group Real Estate (AFGRE) is a company that deals with the real estate development, while being the operations arm of Al-Futtaim Group. AFGRE develops multimillion portfolios of individual and corporate real estate and investments across the Middle East and South Africa. AFGRE is the real estate arm of Al-Futtaim that was originally established to run its own property portfolio, but which now offers a broad variety of services from the selection of site and feasibility studies to construction and property management.

Al-Futtaim was responsible for the development of Dubai Festival City, which is claimed to be the Middle East’s largest privately funded, mixed-use development opened in September 2006.  The two widely recognized mixed urban projects under the AFGRE’s aegis are Dubai Festival City , the first fully integrated mega project, and Cairo Festival City.

Al–Futtaim Group, established in the 1930s, is one of the most progressive business houses with its headquarters in Dubai with 70 companies under the Al-Futtaim flagship. As AFGRE is rapidly expanding both nationally and internationally, it is a substantial challenge to measure the performance and direct the efforts towards a single process with a standard that has a minimum bare of deviation. This challenge exists due to the AFGRE’s nature of the business, which involves the construction of new projects and development of real estate properties.

The AFGRE’s nature of the business builds an assumption in the work environment “we build someone else will fix”. As AFGRE is achieving considerable and unexpected financial results, the management is not concentrating on crucial elements of the business, such as placing systems and the automation of processes with control measures, in order to ensure the performance is maintained, whereas many of their processes are manual and paper–base, which allows the variation.

In AFGRE, the strategic goals are defined, and they are always communicated to different levels of organizations. These intensive workshops are carried as an orientation to the strategic goals and how it will be incorporated in each division goals, but many managers relay on the financial method to evaluate the performance, and other departments without the financial measure seem like a gray area sometimes.

Despite the success of AFGRE, the company needs to translate its various business unit’s mission and strategy into a linked set of measures that define both the long-term strategic objectives, as well as the mechanisms for achieving those objectives. There is also a need for AFGRE to incorporate a balance between external measures relating to customers and internal measures relating to critical business processes as well as innovation and learning. The management of AFGRE needs to incorporate a balance between outcome measures and measures that drive the future performance.

The need for AFGRE to bring a strategy and vision as the center of management focus calls for the implementation of a balanced scorecard (BSC). In this context, the balanced scorecard will allow the organization to evaluate its overall performance and focus on bringing about an improvement to the operational process, while enabling the management of the company to contribute towards the emergence of better plans for the improvements’ implementation. AFGRE needs a balanced scorecard in order to bring together in a single management report various aspects like customer orientation, shortening of the customer response time and improving the quality.

AFGRE operates in an environment, where the change is rapid. Products and processes are constantly being redesigned and improved, and stiff national and internal competitors are currently present. Hansen, Mowen and Guan (2009) emphasize that the competitive environment, in which AFGRE operates, demands that the organization must offer customized products and services in the real estate business to make customer segments diverse. This, in turn, means that AFGRE must find efficient ways of producing high variety, low-volume housing products. This means that AFGRE must pay more attention to the linkages between the company and its suppliers and customers with the goal of improving the cost, quality and response times for all parties in the value chain (Hansen, Mowen & Guan, 2009).

In order to meet all these business requirements, AFGRE must implement a balanced scorecard to improve its performance. A balanced scorecard will enable AFGRE to create a strategic focus by translating its strategy into operational objectives and performance measures for four different perspectives, which include financial, customer, internal business process and learning and growth perspectives. The balanced scorecard is, therefore, an effective way of implementing and managing the AFGRE’s strategy.  

Brief Methodology

The methodology is predominantly aimed at introducing and operating an approach regarding the balanced scorecard, which includes the first definition of the scorecard’s elements. Armstrong (2001) notes that this step involves establishing of the components of the BSC, as well as perspectives, in terms of which requirements of the performance will be identified and measured in order to serve as the foundation for future improvements. During this step, it is also essential to clearly determine the purpose of the BSC approach.

The second step involves identifying of drivers for the performance in each category. This entails establishing a linkage between the abovementioned spheres, hence leading to their mutual reinforcement (Armstrong, 2001). The identification of performance measures is the third step in the methodology. Performance measures allow identifying how the performance of each category will be assessed. The fourth step of the methodology is concentrated on communicating to all employees the essence and significance of the balanced scorecard, as well as its proper application. The fifth step in the methodology is to ensure that the system is operational (Armstrong, 2001).

The operational step can be focused on defining of performance requirements in relation to the primary objective and introduction of new processes, communication of the abovementioned requirements, adjustment and application of processes for assessing the results and amending the outcome when necessary. This means developing policies, procedures and processes that ensure that it is applied at all levels of the organization. It is essential to note that objectives, competences and standards of performance that correspond to corporate aims are agreed for each of the elements. Furthermore, reviews of the performance are aimed at assessing the progress, hence leading to crucial improvement and personal development plans in the organization (Armstrong, 2001).

The sixth step deals with offering a specific training regarding the operation of the BSC, as well as diverse levels of employees as they are expected to implement and manage the process within the organization (Armstrong, 2001). The seventh step involves developing the ongoing balanced scorecard implementation plan. Cascading the accountability for results to lower levels of the organization, linking budgeting and planning of strategic aims and aligning reward systems are all vital operations that can be positively impacted by the presence of an effective balanced scorecard.      

Literature on Balanced Scorecard

The balanced scorecard can be defined as a strategic system that aims at managing and measuring the performance of an organization, while linking its strategic purposes with comprehensive indicators.  The BSC allows translating the mission statement and strategy of the abovementioned an organization into a complex set of performance assessment that contributes towards the emergence of the specific framework for the strategic management as well as measurement system. Armstrong (2001) highlights that the BSC evaluates the performance of the organization in terms of four aspects, namely financial, customer, internal business process, as well as learning and growth perspectives. Armstrong (2001) noted that the balanced scorecard allows companies to assess the short-term outcome, while, at the same time, monitoring their progress in terms of generating the growth for the future financial performance by developing capabilities of employees and acquiring intangible assets.. The aim of the balanced scorecard at AFGRE is to ensure that a broader and more balanced view is taken to assess the factors affecting the business performance. According to Armstrong (2001), it will replace the focus on financial indicators alone, which can lead to short-term decisions, over-investment in assets that are easily valued in terms of acquisitions and mergers with returns that can be readily measurable. The balanced scorecard prevents underinvestment in intangible assets, namely skills and motivation of employees, customer satisfaction and product and process innovation, returns of which can be substantially difficult to evaluate and measure (Armstrong, 2001).