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CASE MEMO VERIZON COMMUNICATIONS INC: IMPLEMENTING A BALANCED SCORECARD

By : Pallabi Roy (35) Pranjal Yadav (37) Rudra Prasad Banerjee (43) Sherin S Mathews (49) Sohini Banerjee (52) Srijan Sinha (53) Supratim Datta (55)

CASE SUMMARY

Company profile: Verizon is a global leader in delivering innovation in communications, information and entertainment. It has close to 90.0 million customers. 130 million customer connections (wireless, wireline, broadband and TV) are served every day by them. It has its headquarters in New York City and Operations Center in Basking Ridge, N.J. Its key products and services are: Wireline voice and data services Wireless services Publishing of print and electronic directories

Company Evolution: Originally, before the passage of the Act, Bell Atlantic, NYNEX, and other baby bell companies were formed. Then in 1996, Congress passed the Telecommunications Act which aimed at deregulation in the telecommunications industry. The total value of mergers and acquisitions had increased considerably after the passage of the act. Soon after this, Bell Atlantic / GTE merger was announced. The entity thus created was named as Verizon. Verizon had more than $22 billion in cash flow. It had $6 billion revenues and 260,000 employees It was the largest local phone company in the US It was also the largest wireless phone company

Management Problem: The management needed to determine whether the investments in the HR department were effective and valuable. Some of the questions specific to this problem are: What is the most effective use of training dollars? How to reduce customer turnover? In 1993 about 23% of all long distance telephone customers in the US changed their service provider at least once: about 35% of wireless phone customers did and this rate was poised to increase significantly over the next few years

A major reason for this might have been the declining quality of customer service Employee turnover averaged 20% to 25% a year Do the current investments in employees match the strategic objectives of the business? Is the HR organisation a partner with the business to manage our employees as assets?

WHAT WAS THE NEED FOR A BALANCED SCORECARD? The smaller companies used customer service aspect as their competitive advantage in the changed business scenario. This means that the employee skills of Verizon would have to be improved a lot so that they can compete in the fiercely competitive environment. But for that the quantification of the performance of the HR department was needed. So far the HR department was considered only to be a cost driver, not a profit centre. The company incurred costs for activities like hiring, training etc. $75 million were incurred per annum for training alone. But, no internal or external benchmarking was available to quantify the returns. So, Macdonald decided to implement the Balanced Score Card model.

The Balanced Scorecard: The Balanced Scorecard was developed by Kaplan & Norton, 1996 and provided the ideal system that leverages the traditional financial and efficiency measures that were available for Human Resources with metrics of performance from three additional perspectives namely, customers, internal business processes, and learning and growth. Some of the challenges which need to be addressed in this case are The Human Resource Challenge was to translate the new business strategies and targeted business results into human capital needs The HR department needed a real system for measuring its performance Recognizing the GTEs employees and identifying the critical people imperatives. GTE required a quantitative model that showed the performance of the HR dept in relation to the overall business strategy of the company GTEs HR dept needed to come up with supporting strategies for the companys overall strategy of to profitably offer a complete bundle of high-growth telecommunications services in a rapidly changing environment

Five HR Strategic Thrusts followed by GTE were as follows: Talent Enlarge the talent pool Invest in employees development Ensure diversity

Leadership Establish a system to assess high-potential employees Provide coaching and development Establish accountability and rewards for leadership behavior Customer Service and Support Create an environment that fosters employee engagement Increase business intelligence within the workforce Provide solutions to retention issues

Organizational Integration Create better systems for knowledge management Enhance union partnerships

HR Capability Develop core HR competencies Identify key talent for growth and development Invest in technology Invest in employee self-service Better understand the relationship of HR actions to business outcomes

BALANCED SCORECARD

MEASURES Group formed within the HR dept to translate strategic thrusts into meaningful measurement model. Groups was called Planning, Measurement, Analysis(PMA) Consisted of 4people, supported by an HR measurement core team. Scorecard went live at the beginning of 1999 Measures were in place Performance recorded in a systematic way Methodology for communicating the results of HR employees established.

INDEXING Scorecard was designed to enable the HR dept to combine the performance of dissimilar measures into Summary and Quantitative Results Establishing a target for each measure Weighting the measures

COMMUNICATION: The way that the scorecard was communicated to the employees of the company was in the following manner: PbViews: Report , online quarterly results in a visually appealing way. Material shared with all 2000 employees . Includes easy-to-read charts Color coding signaled performance status on individual and composite measures. Linked Data: Contains layers of hierarchical linked data. Other Computer Files: Video and Audio materials combined to make essential purpose and workings of balanced scorecard easy to grasp .

FINANCIAL PAYOFFS: The financial payoffs which can be got from the implementation of the scorecard are: Reducing the Separation Rate Reducing the Absence Rate Other Linkages

LINKAGE MODEL

PROBLEMS AFTER IMPLEMENTATION OF THE SCORECARD Reluctance of people to quantify the so presumed intuitive issues. Reluctance towards compensation link to performance

BENEFITS Served as a catalyst to pull together the two HR leadership teams during the merger integration planning. The process of defining the role and strategy of HR in the new company provided a common objective for integrating the HR leadership team. Articulating a common strategy and business alignment for HR services provided a positive perspectivea clear focus on the customer and a shared sense of the enormous potential to deliver world-class programs. The newly merged company faces a highly competitive environment where a competitive cost structure, consistent revenue growth, controlled expense, and excellent investment management are critical to win in the market place. The Verizon HR Scorecard continues to provide the forum for HR leaders to actively discuss performance and future targets. HR leaders now have a tool, which supports a focus on tactical excellence while ensuring alignment with business strategy.

FUTURE USES OF BALANCED CARD AS A MANAGEMENT TOOL The balanced scorecard gives an insight into the financial, operational, strategic and customer aspects of the business. Although it is a powerful tool but the financial insight gets limited by the fact that it is related to company cost and revenue structure rather than being employee centric and to what extent an employee can aid in increasing revenue or limiting cost. Time, which is a critical aspect of management, is not included in balanced scorecard, thereby reducing the usefulness of the tool. There is no timeline for the scorecard, giving correlation between employee performance and production. The key disadvantage of using balanced scorecard is its dependence on inputs from the employee which leads to imperfect or distorted information. Employee resistance is yet another key disadvantage limiting the benefits of balanced scorecard.