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Amanco Developing The Sustainability Scorecard Case Solution

Solution Id Length Case Author Case Publisher
493 1492 Words (5 Pages) Robert S. Kaplan, Ricardo Reisen de Pinho Harvard Business School :107038
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Balanced Scorecard is an approach to performance metric that transforms the strategy of an organization into flawless objectives and measures. Based on the strategy, the balanced scorecard combines the short term and long term performance measures used across the organization. Amanco, the largest manufacturer of plastic pipes in Latin America, has a triple bottom line strategy i.e.Generate value through economic sustainability, social responsibility and environmental management. Amanco has translated this triple bottom line strategy into goals and measures, organized into five different perspectives that are Finance, Customers, Process and Technology, Human Resources, and Social and Environmental Management. The initial sustainability scorecard just classified different measures into five blocks. It does not link these goals and measures that are consistent and mutually reinforcing. On the whole, the previous scorecard cannot be viewed as an instrument of a triple bottom line strategy.  

A practical balanced scorecard identifies linkages among objectives in different measures perspectives. The recent sustainability scorecard of Amanco Co. identifies linkages among essential elements of the organization’s strategy. Moreover, as the strategic management committee had also been created which met quarterly to manage and learn from the balanced scorecard. The company had decided to focus on its main intangible asset i.e. Customer loyalty, hence, stressing more on customer relations than transactions. In addition, one of the main dimensions of five perspectives is to be a leader in corporate social and environmental responsibility. Amanco’s new balanced scorecard connects scorecard to value creating performance measures and incentives. The company is using Economic Value Added (EVA) to summarize the interaction among different variables and to balance conflicting objectives; for example, the performance of extrusion machines is measured by contribution/minute produced per dollar invested. Hence, a better way is used to measure different contributions to EVA performance. EVA is calculated by measuring profits after subtracting the expected return to shareholders. Moreover, in order to create a direct connection between the individual performances contribution and overall corporate value creation, company linked balanced scorecard with compensation. Similarly, Economic Value Added is used as the key financial measure to create this linkage. One of the main measure perspectives of Amanco’s balanced scorecard is environmental and social perspective. With the passage of time, Amanco is extending its understanding and definition. Initially the scope of environmental and social objective is very limited; it encompassed only employees and some communities surrounding the company’s manufacturing plant. With time company included customers and suppliers and broadened its definition further to take on issues such an eliminating corruption in the bidding, conducting trade with low income customers, leading the debate on water issues, and catching value in the brand. Focusing on key metrics of social and environmental objectives of Amanco, health and safety performance was measured by time lost due to injuries, and environmental performance is measured by reductions in per unit inputs and wastes from its products and processes.

Amanco Developing the Sustainability Scorecard Case Analysis

The balanced scorecard is a method of communicating the multiple and linked objectives that companies must gain to compete based on their intangible capabilities and innovations. It is a phenomenon of translating missions and strategy into well-defined and logical goals and measures. According to balanced scorecard theory, these goals and measures are basically organized into four major perspectives: financial, customers, internal business process, and learning and growth. These four step sequence is followed by managers to build a balanced scorecard. The performance of the company in these objectives is measured by different key metrics. Operating profit, ROCE and EVA are used to evaluate the performance of financial objectives. The performance of the objective related to customers can be measured by market research tools such as customer response cards and questionnaires and by measuring the average duration of the customer relationship. Customer loyalty can be measured by calculating the number of new customers referred by existing customers. Similarly, the performance in internal business process and learning and growth perspectives can be measured through a variety of ways. The balanced scorecard should make the relationship between the critical variables that describe the trajectory of the company’s mission. In other words, the integrated system of balanced scorecard measures should include the complex set of cause and effect relationship between goals and measures explicit so they can be managed and validated. A good balanced scorecard should have a mix of performance drivers and result measures Performance drivers are based on inputs and processes alone that enable the units to get a midterm operational goal. However, these performance measures are failing to reveal whether these operational improvements have been translated into value creation of the firm. Thus, a good balanced scorecard should have an appropriate mix of outcome measures and performance measures.

The Amanco is applying the balanced scorecard theory in a quite similar way. Main strategy or mission for Amanco is to gain economic, social and environmental sustainability. However, this strategy is translated into five main perspectives of measures as mentioned earlier. First two perspectives related to financial and customer dimension are same. Three perspectives in Amanco’s balanced scorecard; process and technology, human resource, social and environmental management, seem to cover last two measure perspective of balanced scorecard theory. In order to evaluate the performance of these objectives, Amanco Co. has used different key metrics. The financial performance of the company is evaluated through EVA (economic value added) and ROCE. Amanco’s goal is to link all the elements in the integrated balanced scorecard to balance conflicting objectives. With the intention of linking all the variables or objectives, Amanco is creating a direct connection between the corporate value creation and individual performance and contribution of different variables. Amanco Company is using EVA to create this connection. Within the process and technology dimension the performance of extrusion machines is measured by contribution/minute produced per dollar invested. This is a better way of evaluating a performance that clearly linked the individual performance to value creation. Under the social and environmental perspective, a key metric for health and safety performance was time lost due to injuries and environmental performance is measured by a reduction in per-unit's inputs and wastes from its products and processes.

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