The Effect of Balanced Scorecards on Decision Making in the Oil and Gas Industry

The Effect of Balanced Scorecards on Decision
Making in the Oil and Gas Industry
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TABLE OF CONTENTS
CHAPTER- 1 INTRODUCTION ...................................................................................................4
1.1 Introduction............................................................................................................................4
1.2 Problem statement..................................................................................................................7
1.3 Research questions.................................................................................................................7
1.4 Research objectives................................................................................................................8
1.5 Research contribution............................................................................................................8
1.6 Limitation of the study...........................................................................................................8
1.7 Definition of terms.................................................................................................................9
1.8 Significance of the study......................................................................................................10
1.9 Research organizing.............................................................................................................11
CHAPTER- 2 LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT.....................12
2.1 Introduction..........................................................................................................................12
2.2 Previous Studies on Dependent Variable:............................................................................12
2.2.1 Decision Making...............................................................................................................12
2.2.2 The Decision Making Process..........................................................................................12
2.2.3 Types of Decisions............................................................................................................13
2.3 Previous Studies on Independent Variable (IV)..................................................................14
2.3.1 Balanced Scorecards:........................................................................................................15
2.3.2 The Need for Balanced Scorecards:..................................................................................17
2.3.3 Types of Balanced Scorecards Perspectives:....................................................................18
2.3.4 The Effect of Balanced Scorecards on Decision Making.................................................20
2.3.5 Benefits of balance scorecard...........................................................................................22
2.3.6 Challenges of using The balance scorecard......................................................................23
2.4 Research Framework:..........................................................................................................24
2.5 Hypothesis Development:....................................................................................................24
2.6 Summary:.............................................................................................................................25
CHAPTER- 3 RESEARCH METHODOLOGY...........................................................................26
3.1 Introduction..........................................................................................................................26
3.2 Research Design...................................................................................................................26
3.3 Population and Sampling.....................................................................................................28
3.4 Instrumentation....................................................................................................................28
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3.5 Data Collection....................................................................................................................30
3.6 Scale Reliability...................................................................................................................30
3.7 Data analysis........................................................................................................................31
3.8 Research approach...............................................................................................................31
3.9 Research philosophy............................................................................................................32
3.10 Research type.....................................................................................................................33
3.11 Ethical consideration..........................................................................................................34
3.12 Research limitation............................................................................................................35
3.13 Summary............................................................................................................................36
REFERENCES .............................................................................................................................37
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CHAPTER- 1 INTRODUCTION
1.1 Introduction
Effective decision making on employee resources can lend itself to the continued
progression and growth of a specific company. For those employees that have a great amount of
knowledge and potential, upward mobility and opportunity are vital to keeping those types of
employees within the company (Campbell, Ganco, Franco and Agarwal, 2012). These business
tools have helped business units in making informed business decisions which has enhanced the
overall growth and success aspects of the business units.
In every business, employees are considered as the firm's most valuable asset. It means
that firm's productivity and profitability depends upon ensuring that the worker's performance
needs to exceed to their full potential. That profitability and performance is often based upon the
knowledge of those specific employees. It is an instrumental part of a company’s survival to
maintain a knowledgeable and effective workforce (Willax P, 2007).
To survive and prosper in current economic times, businesses can no longer manage
using financial methods alone but should focus upon improving non-financial measures such as
product quality, customer satisfaction and learning in order to attain desired objectives. Using
Balanced Scorecards is a beneficial method in order to attain sustainable development of the firm
and it will lead business to the level of success which helps management to make effective
decision making (Khedr, Abdel-fattah & Solayman, 2015).
Balanced Scorecard (BSC) refers to a “strategic planning and management system”
which is used extensively in industries, businesses, Non-Governmental Organizations (NGOs)
and even in governments across the world in order to align business activities to their strategy
and vision. (Bhagwat and Sharma, 2007).The electronic BSC scheme aims to support e-business
managers during the business strategy making process (Wang, Mora and Raisinghani, 2015).
Balance scorecard is regarded as strategy performance tool- a semi standard structured report
which is assisted by design methods as well as automation tools that can be utilized by the
managers for keeping the track of execution of activities by the staff in their control. Further it
can be utilized towards monitoring the consequences that are arising from such actions. Several
business has made adoption of balance scorecard. The experience that is being gained by them
from using it is that it has assisted in meeting the various managerial requirements. Balance
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scorecard is effective in bringing together in a particular management report, many of the
seemingly disparate elements of a company’s competitive agenda: becoming customer oriented,
shortening response time, improving quality, emphasizing teamwork, reducing new product
launch times, and managing for the long term.
Second, the scorecard guards against suboptimization. By forcing senior managers to
consider all the important operational measures together, the balanced scorecard lets them see
whether improvement in one area may have been achieved at the expense of another. Even the
best objective can be achieved badly. (Bhushan and Rai, 2007). Companies can reduce time to
market, for example, in two very different ways: by improving the management of new product
introductions or by releasing only products that are incrementally different from existing
products. Spending on setups can be cut either by reducing setup times or by increasing batch
sizes. Similarly, production output and first-pass yields can rise, but the increases may be due to
a shift in the product mix to more standard, easy-to-produce but lower-margin products (Kaplan
and Norton, 2017).
The approach of Balance scorecard possess four perspectives. This is comprised of financial,
internal business processes, learning and growth as well as customer. Each one of the four
perspective is interdependent. Further the enhancement in single area is not important recipe for
the success within other fields.
Background of the study
During the last decade, most researchers and academics have devoted some of their time
to increase attention to not only the measurements of organizational performance, but also
towards the usage of the Balanced Scorecard (BSC) on it as well as on the strategic planning.
BSC is used not only for decision making, but also for managers motivation (Agostino, Deborah
& Arnaboldi, 2012). Since it was developed by Kaplan Norton in the year 1992, the use of the
BSC has been adopted widely by various organizations across the world. It has greatly evolved
from a tool that is used in measuring performance to an instrument used in the implementation of
strategy. Norton & Kaplan published “The Balanced Scorecard: Measures that drive
performance”. This thesis described how BSC can assess the activities of both tangible and
intangible assets of an organization (Kaplan & Norton, 1992).
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Over the past 25 years there has been a revolution of performance measurement
techniques and frameworks. The BSC can be considered one of the most popular tools to be used
(Sun, Weihan, 2013). The use of the Balanced Scorecards has a significant effect on most of the
decision makers. The tool is available to managers for use in facilitating strategic decision
making and enhancing the strategy development process in their organizations (Tapinos,
Efstathios, Dyson & Meadows, 2011). This is attributed to the fact that BSC is used in respect to
the achievement of target strategic goals of operation and development by decision makers in the
oil and gas industry.
The use of BSC helps in the promotion of an organization’s strategy realization and also
helps organizations to select the most preferred strategies that can effectively be applied in their
specific organizations (Fill, Busa & Puskás, 2015). BSC is an example of such one instrument
that is used by decision makers in the oil and gas industry. It is important to note that the BSC is
capable of transforming the strategic plan of organizations in the oil and gas industry from an
attractive and passive document to provision of orders for such organizations. This is because it
provides an effective framework for the performance measurements and also helps decision
makers to identify what needs to be done as well as what needs to be measured. In Addition,
BSC is being used: to manage the strategy or to provide information for decision-making
(Banchieri, Planas & Rebull, 2011).
The balanced scorecard has evolved from its early use as a simple performance
measurement framework to a full strategic planning and management system. The “new”
balanced scorecard transforms an organization’s strategic plan from an attractive but passive
document into the "marching orders" for the organization on a daily basis. It provides a
framework that not only provides performance measurements, but helps planners identify what
should be done and measured. It enables executives to truly execute their strategies (Balanced
Scorecard Basics,2017).
The balanced scorecard revolutionized conventional thinking about performance metrics.
When Kaplan and Norton first introduced the concept, in 1992, companies were busy
transforming themselves to compete in the world of information; their ability to exploit
intangible assets was becoming more decisive than their ability to manage physical assets. The
scorecard allowed companies to track financial results while monitoring progress in building the
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capabilities needed for growth. The tool was not intended to be a replacement for financial
measures but rather a complement—and that’s just how most companies treated it (Kaplan and
Norton, 2007).
1.2 Problem statement
One of the problem statements is that some of the decision makers are not satisfied with
the end results from decision making solutions and this leads in the failure in having a clear
understanding regarding what should be measured. This has made such decision makers to
become unable to effectively clarify both the strategy and mission of their industries (Wiersma,
Eelke, 2009).
One of the tools used to improve decision making is using the application of BSC has
actually emerged as one of the most critical issues facing most of the organizations across the
world. In fact that most of the organizations across the world have adopted the use of BSC. In
addition to that, the BSC was established with the aim of helping executives and managers to
have an additional strategic “non-financial measures” to the traditional financial metrics. BSC as
being the fifth on the top ten management tools that were widely applied across the world. It is
found that some of the organizations have not yet realized the importance of a BSC (Sun,
Weihan, 2013).
1.3 Research questions
The study is to find the effect of Balanced Scorecard on Decision Making. The dependent
variable is here is the Decision Making (DM) and the Independent Variable is the Balanced
Scorecard (BSC). The study will answer the following main question: To what extend does BSC affect decision making in the oil & gas industry.
Sub questions:
1a. To what extend does the Financial Perspective of BSC affect decision making in the oil &
gas industry.
1b. To what extend does the Customer Perspective of BSC affect decision making in the oil &
gas industry.
1c. To what extend does the Internal Processes Perspective of BSC affect decision making in
the oil & gas industry.
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1d. To what extend does the Learning & Growth Perspective of BSC affect decision making in
the oil & gas industry.
1.4 Research objectives
The main aim of carrying out this thesis study is to: To examine the effect of Balanced Scorecard on Decision Making in the Oil & Gas
Industry.
Sub objectives:
 To examine the effect of the Financial Perspective of BSC on Decision Making in the Oil
& Gas Industry.
 To examine the effect of the Customer Perspective of BSC on Decision Making in the Oil
& Gas Industry.
 To examine the effect of the Internal Processes Perspective of BSC on Decision Making
in the Oil & Gas Industry.
 To examine the effect of the Learning & Growth Perspective of BSC on Decision Making
in the Oil & Gas Industry.
1.5 Research contribution
It can be said that this is the first study conducted in oil & gas industry. It focuses upon
identifying the effects of BSC so that it helps decision makers to enhance the performance of
employees and make crucial decision to attain success. As mentioned above, this study would
contributed to the body of the knowledge since this is the first study to be conducted in oil & gas.
Also, the quality and significance of research will highly depend upon the contribution that
research will help in adding it as a value. A research work could be justified thoroughly through
assessing the results and importance of study based on these considerations.
Through carrying out the present research it results in helping different individuals such
as companies, people and other related parties. The research study assists in helping the decision
makers of different sectors to identify the significance of BSC in order to implement that results
that can be attained. Also the finding of this study would contributed to the field by influencing
the regulators and policy makers to implement BSC as enhancements of decision making.
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