Masaryk University Faculty of Economics and Administration Field of study: Business Management
PERFORMANCE OF MULTINATIONAL COMPANY
Diploma thesis
Thesis Supervisor: Author: Ing. Bc. Sylva ŽAKOVA TALPOVA, Ph.D Lilia TUGULEA
Brno, 2016
Masaryk University Faculty of Economics and Administration
Department of Corporate Economy
Academic year 2015/2016
ASSIGNMENT OF DIPLOMA THESIS
For: TUGULEA, Lilia Field: Business management Title: Performance of Multinational Company
P r i n c i p l e s o f t h e s i s w r i t i n g:
Objective of the thesis:
The aim of the thesis is to thesis is to develop and analyze the balance scorecard in a subsidiary in order to measure performance.
Approach and methods used:
1. Literature review of relevant concepts for the purpose of the thesis 2. Practical part with the analysis and the steps for developing the framework 3. Discussions and conclusions.
Methods:
Analysis, deductive and exploratory.
The extent of graphical works: according to the supervisor's guidelines The thesis length without appendices: 60 – 80 pages
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List of specialist literature:
DERESKY, Helen. International management: managing across borders and cultures: text and cases. 8thed., Pearson Education Limited, 2014. 480 p., ISBN: 9780273787051.
KAPLAN, Robert and NORTON, David. The balanced scorecard: translating strategy into action. Boston: Harvard Business School Press, 1996, 322 p., ISBN: 0875846513.
NIVEN, Paul. Balanced Scorecard step-by-step: maximizing performance and maintaining results.2nd ed., John Wiley & Sons, Inc., 2006. 317 p., ISBN: 9780471780496.
Diploma thesis supervisor: Ing. Bc. Sylva Žáková Talpová, Ph.D.
Date of diploma thesis assignment: ...
Submission deadline for Diploma thesis and its entry in the IS MU is provided in the valid Time schedule of the academic year.
…………………………………… ………………………………………… Department Head Dean
In Brno on 13.05.2016
iii Abstract
The thesis investigates the balanced scorecard approach as a way of measuring subsidiary performance. The framework was envisioned as being a suitable change from the historically emphasized financial measures. The fundamental objective of the study is to describe how to develop and implement the balanced scorecard framework. The thesis consists of two main parts. First part reviews and summarizes the theory related to multinational companies, performance, and balanced scorecard approach. The second part develops a proposal for balanced scorecard implementation. A single case study was conducted. A wholly owned subsidiary of a multinational company was targeted and considered relevant for the purpose. The data was gathered through conducting semi-structured interviews, consulting internal documents and personal observations. We strongly believe that, if to put aside the complexity of the method, implementing it will result in a holistic overview of the subsidiary performance. However, we want to mention that since the approach has not been actually enforced, our work is limited to provide a proposal. The project could however be envisioned as a first step in applying the framework at a corporate level.
Keywords: multinational, subsidiary, performance, balanced scorecard, Orange Moldova
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Statement
I hereby declare that the master thesis Performance of Multinational Company is entirely my work under the supervision of Ing. Bc. Sylva Žáková Talpová, Ph.D., and that I stated in it all the literal resources and other scientific resources in accordance with legal regulations, internal regulations of Masaryk University and internal acts of management of Masaryk University and Faculty of Economics and Administration.
In Brno, ...... Lilia Tugulea
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Acknowledgements
I would like to express my gratitude to the people who supported and encouraged me during the writing the thesis. A special thank you for my supervisor, Sylva Žáková Talpová,, for guiding me towards the goal and for supporting me with her knowledge and advice throughout the entire process. Also, I would like to thank Orange Moldova employees for finding the time and providing valuable insights about the company. Finally, I am grateful to my friends and family for not abandoning me after having the thesis as the only topic of discussion for the last six months. Sorina, Vera, Aurelia, Svetlana, Corina, I love you all!
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vii TABLE OF CONTENTS
1. Introduction ...... 3 1.1 Background ...... 3 1.2 Research topic ...... 3 1.3 Purpose ...... 4 1.4 Limitations ...... 4 1.5 Disposition and clarifications...... 4 LITERATURE REVIEW ...... 6 2. Multinational companies (MNCs) ...... 6 2.1 MNC definition ...... 6 2.2 Entry choices for MNCs ...... 7 2.2.1 Non-equity ...... 8 2.2.2 Equity ...... 10 2.2.3 Other ...... 12 2.3 Organizational structures ...... 12 2.3.1 First steps ...... 13 2.3.2 Global Arrangements ...... 14 2.3.3 Emerging Structures ...... 16 2.4 Subsidiaries and MNC relationships ...... 17 2.4.1 Roles and strategy ...... 17 2.4.2 Autonomy vs control ...... 18 2.4.3 Environmental features ...... 19 3. Performance ...... 20 3.1 Definition and importance ...... 20 3.2 Process and difficulties ...... 23 3.3 Current approaches and Balanced Scorecard (BSC) ...... 25 3.3.1 BSC origins and evolution ...... 26 3.3.2 The strategy map ...... 26 3.3.3 The four perspectives ...... 27 3.3.4 Construction and implementation ...... 29 3.3.5 Criticism ...... 31 3.4 Performance of subsidiaries ...... 31
1 4. Methodology ...... 35 4.1 Research purpose and approach ...... 35 4.2 Research strategy ...... 35 4.3 Data collection and analysis ...... 35 4.4 The interview and interviewees ...... 36 4.5 Research quality ...... 37 4.6 Research ethics ...... 38 4.7 Research overview ...... 38 PRACTICAL PART ...... 39 5. Balanced Scorecard approach for Orange Moldova ...... 39 5.1 Company overview - the Group ...... 39 5.2 Company overview - the Subsidiary ...... 42 5.3 Subsidiary performance characteristics ...... 43 5.4 BSC application to Orange Moldova ...... 46 5.4.1 OMD Vision and strategy ...... 46 5.4.2 BSC design ...... 47 5.4.3 Strategy map ...... 49 5.4.4 BSC Perspectives ...... 50 5.4.5 BSC measurements ...... 59 5.4.6 Implementation and post implementation ...... 65 6. Discussions and conclusions ...... 67 References ...... 70 Abbreviations ...... 77 List of Tables ...... 78 List of Figures ...... 79 Appendices ...... 80
2 1. Introduction
1.1 Background There is a great deal of literature investigating how to measure the company’s performance. The reader gets instantaneously over saturated when analyzing the multitude of approaches. One of the reasons for the avid interest in the topic, according to Malinaa and Selto (2004), is the fact that the “right” measurement will create a synergy between the strategy and performance and will provide a guideline for employees’ behavior and reward. However, the leading rationale remains the fact that the organization and its management seek for guidance when making decisions (Verweire & Van den Berghe, 2004, p. 6). Still, even though performance measures are essential for the company, what explicitly has to be measured is ambiguous (Neely A. , 1999). As Neely perfectly summarizes it, performance measurements are further “exhibiting massive diversity” (2007, p. 4).
While researching the topic of performance and its measurement, a preference towards the financial measures can be observed. As pointed out by Otley (2007, p. 12) the company is forced to conduct its activity within a financial budget, in addition to that it has to create shareholder value. Not achieving these objectives, can lead the company into bankruptcy. On the other hand, financial measures are assessing the performance based on data from the “past” so that they are mainly suitable for short-term goals. Otley’s (2007, p. 11) opinion is that during the second half of the last century, researchers’ attention shifted from the financial approaches to the non-financial ones. Many frameworks incorporating the financial and non-financial indicators have been developed since then. However none of the methods gain as much attention from the academics and practitioners as did the balanced scorecard method. We can argue that the overemphasis of the financial perspective, it is not necessarily lacking causality. It might not offer a holistic overview, but without a doubt, it provides the basics. We consider that given how the technology evolves nowadays and the availability of enterprise resource planning (ERP) systems, the trap is not to fall into measuring a lot more indicators than necessary.
1.2 Research topic The balanced scorecard method is one of the most well-known and practiced performance measurements. However, the theory and the results from the practical use of the method are still confusing. While the research firm, Gartner from United States (US), implies that 70% of the companies will adopt the framework by the end of 2000 (Neely A. , 2007, p. 1), other researchers (Voelpel, Leibold, & Eckhoff, 2006) call it the “tyranny of the balanced scorecard” and urge to rethink the performance measurements, but see beyond the framework (Meyer, 2003, p. 2). Linking the strategy to performance is what differentiates the framework. Four perspectives are analyzed in to provide a balanced approach towards performance. The four perspectives are: financial, internal business process, learning and growth, and customer. The balance is not only reflected in these perspectives, but also about short and long term goals (Striteska, 2010, as cited in Striteska & Spickova, 2012). Kaplan and Norton (1996) specify that the balanced scorecard framework is not a template that can be applied to any organization. It is compulsory to adapt the method in order to maximize the benefits of implementing it due to the unique and distinct company characteristics.
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This confusion around the balanced scorecard method drawn our attention and simulated us to take a deeper look into the topic. By the work in our thesis, both theoretical and practical, we consider that we increased the understanding of the framework. The research approach is based on a single embedded case study. As it will be further explained in more details in the chapter for methodology, the reasoning behind this choice is the fact that a better understanding of the situation was needed. We made use of primary data from interviews, discussions, and own observations, and also we used secondary data from company’s internal magazine, website, group presentations, and some reports. Our attention for the empirical part is focused on Orange Moldova. The company is one of the subsidiaries of Orange, world's leading telecommunications operator.
1.3 Purpose The purpose of our study is to offer the subsidiary a proposal of how the balanced scorecard method could be implemented in order to reflect performance while being linked to its strategy. We consider the balanced scorecard as being a more suitable approach for evaluating subsidiary performance and we advocate its implementation. In our opinion, the framework will allow the subsidiary to have a comprehensive view on the performance due to the balanced use of indicators from four different perspectives. So, in the thesis, the following question will be targeted to fulfill the thesis purpose:
How to develop and implement the balanced scorecard framework at Orange Moldova?
1.4 Limitations The work in the thesis is limited to outline a suggestion on how the balanced scorecard approach could be implemented in the company. We also limited the study to a single subsidiary of the multinational company. Nevertheless, our work may be considered as a starting point in the implementation of the balanced scorecard framework in the multinational. Even though we concluded our work by making some suggestions, no results from the actual implementation of the framework and its maintenance were provided. Nor the potential risks related to the BSC approach were identified. The actual implementation was not a subject of discussion of the thesis. Due to constraints such as: access, time, money, and relevance, we limited the number of persons to discuss with to key persons working in the subsidiary.
1.5 Disposition and clarifications The first chapter is an introductory one and it lays out the problem background, it analyzes the issues and explains the purpose of the thesis. The next two chapters cover concepts such as multinational, subsidiary, performance, performance measurement and the balanced scorecard approach. This part represented our theoretical foundation which relied on a thorough literature review. Chapter four accounts for the methodology employed in the research. The reasons for the case study approach are indicated, and the way the study was conducted is explained. Also, insight into how the data was collected is outlined, and the quality of the thesis is scrutinized based on its validity and reliability. Subsequently, the theoretical part is followed by the practical one. Chapter five begins by introducing briefly the multinational and its strategical plan. The peculiarities of the subsidiary performance are exemplified and related to our case.
4 Further, we deepened the study by describing the balanced scorecard design and steps for implementations. We investigated the four perspectives and based on their objectives, advised indicators to be calculated. Finally, the last chapter presents the conclusions that we have reached based on the theoretical and empirical parts.
We need to mention that in the thesis the terms “performance measurement” and “performance measures” are used interchangeable; likewise for the “Group” and “Orange”.
5 LITERATURE REVIEW
2. Multinational companies (MNCs)
2.1 MNC definition Globalization allowed companies to do more and more foreign investments and by that transforming the world into being more integrated and interconnected. In the created situation the MNCs are the business institutions that developed significantly in the last century. Although the MNC position is the result of development over several centuries, MNCs obtained most of their power during the last couple of decades in the process of economic liberalization and growing globalization. According to (Forsgren, Holm, & Johanson, 2005) MNC is “one of the most significant institutions of modern societies”. While the importance of MNCs is undeniable in today’s environment, it is surprising to discover that there is no single universal accepted definition. Many definitions have been recommended, but none has eventually become standard. Aggarwal, R., et al. (2010) analyzed 393 papers from 14 most important international business and management journals between 1987 and 2007 and observed that in explaining the concept of MNC researchers have turned to data availability and past usage. At the same time, the predominant features for MNC definition varied from firm’s number of foreign subsidiaries, the percentage of foreign sales till number of foreign employees and patents. Most of the studies used only one characteristic, while in the rest of the studies a multi characteristics approach was applied. Throughout the one characteristic studies prevailed the number of foreign subsidiaries, followed by foreign sales. Whereas in the studies that used multi characteristics the situation is the other way around with foreign sales being the most common. So among the underlying criteria used is the number of subsidiaries and based on that Vernon (1966) required having affiliates in at least six foreign countries, whereas a majority of other authors required only one. Dunning (1971) defines MNC as “an enterprise which owns or controls producing facilities in more than one country.” According to Spero and Hart (2003) “a MNC is a business enterprise that maintains direct investments overseas and that upholds value-added holdings in more than one country.” Shapiro (2006) supports the same point of view for MNC definition stating that it is “a company with production and distribution facilities in more than one country.”
All these definitions may differ slightly, but there is nevertheless consensus, as it is stated in the report of the International Labor Organization (ILO) we can conclude that “the essential of the MNCs lies in the fact that the managerial headquarters are located in the home country, while the enterprise carries out operations in a number of other countries.” However, the common definition has recently been questioned. Forsgren et al. (2005) point out that it is too narrow to focus only on ownership. They urge to draw more attention to the company’s international character of relationships. Hennart (2001) takes a different approach and defines MNC as being “a privately owned institution devised to organize, through employment contracts, interdependencies between individuals located in more than one country.” Mattes (2010) keeps the host countries criteria, but also adds the international factor and MNCs are defined as being “groups of legally conjoint sub-entities allocated in several countries” mentioning that MNCs “are no uniform construction, but vary in regard to their degree of internationalization.” On the other side, the advocates of the multi characteristics approach established complex ways in defining the MNCs. Aharoni's (1971, as cited in Aggarwal, R., et al., 2010) was the first who initiated the discussions about the degree of multinationalism of a company by analyzing and defining it according to three criteria: the structural, performance and behavioral. Each criteria has its own indicators to measure the multinational
6 degree of the company. Based on Aharoni’s definition Sullivan (1994, as cited in Aggarwal, R., et al., 2010) developed an index to measure the multinationality. The attempts to establish a universal index are not without drawbacks and essential information can be lost (Aggarwal, R., et al., 2010). The same conclusion is reached by Rugman and Oh (2011). In their paper they differentiate between scale and scope metrics of multinationalism. Scale measures include foreign to total sales and foreign to total assets while the scope measures encompass counts based on the number of foreign countries, number of foreign subsidiaries, ratio of foreign countries to total countries in which a firm has a subsidiary, and the ratio of foreign subsidiaries to total subsidiaries. After testing the metrics with new measures the authors reveal that the scope metrics provide “simplistic and potentially misleading information” plus overestimate some of the other ratios. Also, they mention that Sullivan’s composite index formed as a sum of scale and scope metrics, even though it is preferred due to its simplicity, it is not helpful and scatters things even more, thus the recommendation is to stop using scope metrics.
Despite all these important contributions and developments there is still no agreement on one single definition. Different aspects result from different theoretical perspectives about MNC as an organization and of its relationships with the surrounding society. Researchers are defining the term differently, the convenient definition of MNC depending “to a large extent on the problems discussed.”(Aharoni,1971: 36 as cited in Aharoni, 2011). Given the variety of studies and approaches, it is not unanticipated the fact that the research is overwhelming, inconsistent, confusing and sometimes even conflicting. In addition, Aharoni (2011) reminds that major changes occurred during the last years. New technologies developed, communication improved, new products led to the emergence of new markets so MNCs had to adapt too. Nowadays MNCs are considerably different from what they used to be. Many of the previous established theories “became obsolete because context and circumstances changed”. In summarizing the findings and implications we can conclude that it is crucial to pave the way into fresh research that will agree on a single definition of MNC in order to be able to study how MNC operate.
2.2 Entry choices for MNCs The topic of MNCs entry strategies is relatively developed. Werner (2002) conducted an analysis of the studies that have been published in the top US journals in the field of international management from 1996 till 2000 and identified the 12 most researched topics. According to his research, entry mode decisions are the third most discussed topic after global business environment and internationalization. Root (1994, p. 5) defines the entry mode as “an institutional arrangement that makes possible the entry of a company's products, technology, human skills, management or other resources into a foreign country". While Hill (2011, p. 398) considers entry modes as simply being ways of “serving foreign markets”.
Cannabal and White III (2008) provided a comprehensive review of entry mode research focusing on the theories which led to choose a specific strategy. They analyzed 126 articles published in the period between 1980 and 2006. The authors identified and ranked the 10 most used theories in justifying the entry mode strategies. They concluded that the transaction cost theory has been applied the most, twice as many appearances as the second most used theory, Dunning’s eclectic paradigm. Also they pointed out that starting the late 1990s new theories emerged, theories that were treating the entry mode from different perspectives like sociology (e.g. institutional theory), while before the 1990s, the theories were focused on economic aspects (e.g. transaction cost theory). They reached the conclusion that the theories
7 concerning the entry choice are not as homogenous as they used to be, nowadays the approach became more complex and integrates different viewpoints in order to provide a better understanding of the phenomenon. Researchers focusing on distinct aspects identified different numbers of entry mode strategies. For example, Brouthers and Hennart (2007) identified 16 different entry modes in earlier studies. Anderson and Gatignon (1986, as cited in Brouthers & Hennart, 2007) listed 17 that vary from wholly owned subsidiaries (WOS) to small shareholder organizations, whereas Erramilli and Rao (1990, as cited in Brouthers & Hennart, 2007) tabulate 11, from greenfield to licensing and franchising. Hence, expansion into new markets can be achieved through numerous ways. Gooderham and Nordhaug, (2003, p. 15), also Pan and Tse (2000) firstly differentiate between two categories of entry modes: equity and non-equity. The authors agree that the choice vary in terms of necessary investment and control. Halliburton, Couturier and Sola (2010) distinguish three main methods: organic growth, strategic partnerships and acquisitions. Gooderham and Nordhaug, (2003, p. 15) and Deresky (2014, p. 215) specify that entry modes choices are not mutually exclusive and can be used few of them at the same time. If we sum it up, we can conclude that there is a spectrum of entry strategies that companies can use. Different entry choices are correlated with different level of necessary resource commitment, desired level of control and profits, and the degree of risk that the company is ready to undertake. Also it is important to mention that there is no one perfect method and each of the alternatives has benefits and drawbacks that can be exploited or diminished under different circumstances. An entry mode can be perfect for one situation and detrimental for another.
Still, according to Luthans and Doh (2012, p. 305) the prevailing entry strategies used are wholly owned subsidiaries, mergers and acquisitions, alliances and joint ventures, licensing agreements, franchising, and basic export and import operations. If we apply Gooderham and Nordhaug (2003, p. 15) division, then the first four strategies fall into equity category while the next three into the non-equity. Nevertheless there are some other entry modes that are used such as turnkey projects, contract manufacturing, offshoring, service sector outsourcing, management contracts, e-business (2014, p. 221). Further we are going into providing details about the specifics of some of these types.
2.2.1 Non-equity Exporting
Export is the most common strategy for initial entry into international markets. Many companies began their international expansion as exporters. This is considered a natural outcome of company’s growth. After reaching the maximum of its capabilities in the home market, the company’s purpose will be to expand overseas in pursuance of new profits. Exporting can be done in different ways like directly, indirectly or other specific forms (Wach, 2014, p. 136). So, with export entry mode a firm’s products are manufactured in the domestic market or a third country and then transferred either directly or indirectly to the host market (Hollensen, 2007, p. 310). Exporting is characterized by low risk, little investment, easy access to overseas and exit unproblematic (Gooderham & Nordhaug, 2003, p. 15). The main advantage is that it avoids high costs of establishing an entity overseas. Grant (2010, p. 372) even points out that manufacturing and exporting from a sole location is the most efficient way among entry strategies when the product is standardized and transportable. Economies of scale are effortlessly reached in this case.
8 Nevertheless, tariffs and quotas together with high transportation costs can make export strategies inefficient. The selection of the distributor can be an advantage, because there is no need to handle directly the processes but at the same time it can be a disadvantage. Because of countries with strict regulation changing a distributor can be problematic. The company has little or no control at all over this issue (Deresky, 2014, p. 215). However, exporting is not considered a permanent strategy, if the company seeks to attain international level it has to get more involved in terms of risks and investments (Luthans & Doh, 2012, p. 305).
Licensing
Licensing is a business arrangement that grants a party with proprietary rights over certain technology, trademarks, copyrights, patents, etc., in return for specified royalties or other payments. The party giving the rights (the licensor) will receive from the licensee a fee that it is most often based on sales. (Luthans & Doh, 2012, p. 312). Licensing is appropriate to use during the maturity phase of a product’s life cycle, when the transferred production is old and standardized. (Deresky, 2014, p. 216), also it is a recommended entry mode when big cultural differences exist between the home and the host country (Gooderham & Nordhaug, 2003, p. 16). Another situation when licensing is a viable option is the case when the host country requires significant amount of direct investment. The company can exploit its technology and avoid the high cost entry requirements by implementing licensing as entry mode choice. (Luthans & Doh, 2012, p. 312). Among the advantages offered by licensing the most significant is the necessity for an initial low investment. Due to this, companies without financial or managerial capacity may undertake actions to access foreign markets. It is worth mentioning that licensing also offers the possibility to bypass trade barriers and avoid the transportation expenses that exist in the case of exporting. A major drawback of licensing is the licensor’s lack of control over the quality standards in the host country, so there is always a risk of losing competitive advantage. Creating a new competitor is another disadvantage. The licensee can use the licensor’s know how after the contract has expired and by that causing potential profit loss for the licensor. (Shapiro, 2006, p. 19). We can summarize that licensing is a low risk, low investment entry mode that uses companies from the host country in order to exploit the know how during a limited period of time in a specific geographic area.
Franchising
A franchise is a settlement between two parties. The franchisor is the party that allows the franchisee to practice business under its trademark, logo, product line and methods of operation (Luthans & Doh, 2012, p. 313). Franchising is similar to licensing, but more strict. The franchisee has to follow the rules and procedures imposed by franchisor on how to manage the business. Just like in case of a license, the franchisor penetrates foreign markets without major investments. Even more the franchisor receives a fee payed in advance and monthly fees that represent a percentage of franchisee revenues. If done properly, franchising can be highly profitable for both parts involved. The franchisee gains access to well-known products or services, a trademark, working processes and principle by this generating an image of a worldwide company. The franchisor has access to new markets and new profits. (Luthans & Doh, 2012, p. 315). Even though franchising offers the possibility for a brand to become global with low investment and low risk, the quality control remains a sensible issue and more difficult to be managed with global
9 expansion (Deresky, 2014, p. 216). A poor experience in one franchise may be detrimental to the entire brand.
2.2.2 Equity
Alliances and Joint ventures
An alliance is any type of partnership that involves two or more firms cooperating for specific purposes. The cooperation can be only for a short period of time or more permanent. A joint venture (JV) is considered to be a type of alliance arrangement between two or more partners that jointly own and operate a business. And finally an international joint venture (IJV) is a JV consisting of companies from different countries (Luthans & Doh, 2012, p. 310). The typical JV is an alliance with equity proportion of 50/50, each partner sharing equally both the risk and the business’s profit. Some companies, however, can have a majority share and by that establish a tighter control in the alliance. Still many other variations exist including JV with more than two partners; also the partners can be silent or active, local or international (Gooderham & Nordhaug, 2003, p. 17). An IJV provides a rapid access to new markets by engaging in a venture with firms that already reside in those markets. By gaining access to the knowledge and experience of the local partner, IJV as an entry mode diminishes the investment risk by removing some of the entry barriers. Barriers concerning the lack of access to local distribution and supply channels, also the shortage of information related to the specific of the industry in the new environment (Martinez & Lopez, 2009). In emerging markets alliances and JV proved to be a favored way of doing business. In some other cases, political conditions make a JV to be the only feasible mean to entry the market. A local partner can help in handling political factors like restrictive legislation when local participation is mandatory. Another benefit is the fact that a JV allows the partners to reach economies of scale. In addition to these, by creating an alliance with a local partner the company gets to be perceived as an “insider” and not outsider or foreigner (Luthans & Doh, 2012, p. 310). Despite the numerous benefits, around sixty percent of IJVs end up failing, due to the lack of a thorough preparation and conflicting objectives and expectations concerning the alliance (Deresky, 2014, p. 220). But even if, the JVs have not been a preferred entry mode for some years, plenty of companies will require an ally for the sake of gaining access to new markets and new profits (Bremmer, 2014). Nevertheless a JV will have a good probability to succeed if the partner is chosen correctly. Even before the coalition is formed the partner has to be well-known and analyzed. Afterwards, the companies have to build a relationship based on commitment, trust and respect for each other’s work culture. An explicit awareness of each one's responsibilities it is also a must. A worthwhile JV will be one in which the strengths and weaknesses of one partner will complement those of the other partner (Luthans & Doh, 2012, p. 312).
Wholly owned subsidiary
A wholly owned subsidiary (WOS) is a business operation in a foreign location in which the investing company has the full ownership and total control. Building its own product or service business from scratch, in IB literature, is cited as “greenfield” investment (Luthans & Doh, 2012, p. 305). A WOS as an entry strategy offers the highest level of control and the lowest level of technology risk but these advantages are counterweighted by the fact that the WOS also involves the highest level of resource
10 commitment. Large investments can significantly diminish the probability of entering multiple markets. However due to exclusive ownership, profits above average can be obtained. Besides this, building a business from the ground up excludes the possibility of inheriting any previous problems and offers a way to an easier communication and spread of values and vision, coordinated global actions as well as greater flexibility (Luthans & Doh, 2012, p. 306). It is also worth mentioning that local governments will most probably welcome a greenfield investment by offering incentives due to the possibility of employment opportunities and increased competition. For the MNC, a facility built from scratch means that the most modern technology and management techniques can be installed by this granting the company with the possibility of shaping the local subsidiary according to its own model (Hollensen, 2007, p. 364). A multitude of high-tech companies choose WOS, because of the possibility to diminish the costs related to knowledge transfer. (Gooderham & Nordhaug, 2003, p. 19). In addition, Madura (2015, p. 12) points out that the amount of necessary investment is lower than in case of acquisition, but the company should be aware of the fact that it will not register any profits until the operation is fully set and a customer base established. The obvious drawback of a WOS is the fact that it is the most costly method and the slowest. Besides there is the risk of political instability that can be very damaging to the WOS, but even so MNC still tend to choose the WOS as an entry mode as a way of protecting themselves from potentially manipulative JV partners (Henisz, 2000, as cited in Teixera & Grande, 2012). Also WOS are vulnerable to a whole range of environmental aspects. When the country has nationalistic attitude toward foreign ownership or there is currency instability and the hazard of expropriation, the WOS entry mode must be thoroughly analyzed (Deresky, 2014, p. 221). Fatica (2010) claims that in case of very high entry costs, MNC will choose acquisition over greenfield, whereas the situation is completely opposite in case of intermediate level of entry costs.
Mergers and acquisition (M&A)
Luthans and Doh (2012, p. 306) define mergers/acquisition as ”cross-border purchase or exchange of equity involving two or more companies”. The authors mention that during the last years an increased number of MNCs established this way a subsidiary. Mergers generally are the results of a friendly agreement amongst two relative equal companies, whereas acquisitions are unequal partnerships, occurring when a larger company takes over a smaller one (Couturier & Sola, 2010). Among the benefits of this strategy, Hill (2011, p. 414) enumerates the following. Mergers notably permit to establish a rapid market entrance. Besides, in saturated or hostile markets, it may be the only possible way of entry (Hollensen, 2007, p. 364). The company can start exploiting the new market faster and producing income right away. The company is granted with the opportunity to eliminate a competitor by acquiring an already settled business. In cases of rapidly globalizing markets, the need for preemption is prevailing. “Feeding frenzy” is a term used in telecommunication industry; the companies pursue each other’s market share via acquisition with the purpose of reaching a global presence. Last but not least advantage is that through mergers/acquisitions strategic tangible and intangible assets are procured. By this, the risk of creating cultural, legal and managerial problems is diminished. As Hollensen (2007, p. 364) points out for companies with limited international dexterity, inheriting the existing management, is particularly beneficial. With all the quoted benefits it is surprising to find out that acquisitions have frustrating outcomes. Among the studies mentioned in Hill’s book (p. 415) related to domestic mergers and acquisitions, one that analyzed 150 acquisitions concluded that 50 percent eroded shareholder value, another similar study revealed that around 70 percent failed to reach the anticipated revenue. To begin
11 with, investors risk paying too high of a price, often because the management overestimates company’s value, or just because finding a proper partner is difficult. Another major problem is the cultural difference. Obtaining synergy between the investor’s style of management and the local team is often problematic. Finally, harmonize with the company’s standards can be costly and take too much time. So because mergers/acquisitions are an expensive entry mode, a meticulous screening of the acquired company has to be done in order to increase the chances of success (Hill, 2011, p. 416).
2.2.3 Other
Turnkey Operation
In a turnkey project, a contractor establishes a facility in a foreign country. When the facility is fully operational along with trained personnel, the facility is handed over to the client.. The contracts are usually for extensive infrastructure projects in industries like chemical, pharmaceutical, petroleum and metal refining. The main advantage is that through a turnkey strategy the beneficiary can gain economic welfare from the transferred know how. In case of hostile countries, this entry mode proves to be less risky and particular useful. The drawbacks related to this entry mode are the fact that the investing company might not have long term interest in the country and in case when technology represents a competitive advantage, the company risks losing or selling it to competition (Hill, 2011, p. 406). Essential factors for the success of such a strategy are company’s specialized expertise, reliable local suppliers and labor (Deresky, 2014, p. 218).
E-Business
Internet is one of the leading drivers of internationalization, it not only affected the way companies do business, but even created new entry strategy. Basically e-business it is an online way of doing business. It is a relatively low- risk approach, which offers a rapid entry. The success of this method depends on the country where it is implemented (Deresky, 2014, p. 221).
Management Contracts
Management contracts offer the possibility of personnel transfer from one company to another in order to assist it in a specific matter. So, one company benefits of assistance without the need to make specific investments and the other company receives a fee (Paul & Kapoor, 2008, p. 162). Management contracts are most of the time supplementary for another agreement. It is considered a low-risk strategy and short term solution (Deresky, 2014, p. 218).
2.3 Organizational structures
Nowadays, in a continuous changing world, designing the appropriate organizational structure can be very challenging and every company needs a structure whether it is a small enterprise or a transnational. The multitude of theoretical approaches must be in compliance with the company’s strategy and
12 environment. “Old” ways of organizational structures are challenged by the “new” ones. The new forms are the result of fierce competition, brand-new technology, and environmental changes. However “a closer inspection of the literature reveals that many of the new forms are not entirely new but reminiscent of earlier typologies” (Fenton and Pettigrew, 2000, as cited in Burton, Obel, & DeSanctis, 2011, p.3). The main functions of an organization structure are to design the path for decision making and also a clear system of communication and reporting (Czinkota & Ronkainen, 2013, p. 310). According to the contingency theory there is not one best way to organize the company, each alternative possesses strengths and weaknesses. Also not all of the structures are equally effective. As Scott (1981, cited in Forsgreen, 2008, p. 74) points out the best way of organizational structure must reflect the company’s environment. Based on this theory, performance can be achieved only when exists a fit between compnay’s environment and structure. Stopford and Wells in their study reached the conclusion that organizational structure is constraint to adjust to handle the transitional challenges from one phase to the next one. In the model, the strategy – structure relationship was analyzed in terms of two variables: foreign sales as percentage of total sales and foreign product diversity. Different alternatives of structure can be chosen by the MNC at different stage of international expansion. (Forsgreen, 2008, p. 74). Organizational structures that are further presented are divided into three categories: first stage, global organization and emerging structures. The division depicts the process of internationalization within the MNC.
2.3.1 First steps
Initial Division
In the very early stages companies commence their international involvement by exporting and an export department appears on the organizational structure. The company can appoint an outside firm or can establish its own export unit. At the beginning, the unit will subordinate to the marketing or sales department (Czinkota & Ronkainen, 2013, p. 311). The structure is a viable option, but only as long as the international sales are complementing the domestic ones. The arrangement allows the company to test the capacity of the market, while avoiding the need of investing in a special facility (Luthans & Doh, 2012, p. 317). However, if overseas sales continue to increase, the export department won’t be able to cope with the requirements from the market or from the company and this structure is surpassed (Rugman & Collinson, 2012, p. 275).
International Division
When international operations reflect a continuous growth, a special division is created to manage the subsidiaries. In other words, an additional unit is added to oversee the units, while the company’s organization structure is kept the same. Also a responsible for this division is appointed that reports directly to the chief executive officer (Luthans & Doh, 2012, p. 317).
This arrangement allows to concentrate and supervise efficiently all the international operations and encourages the development of internationally experienced managers (Rugman & Collinson, 2012, p. 278). But the production remains under the supervision of domestic division in with the aim of benefiting
13 from economies of scale (Czinkota & Ronkainen, 2013, p. 312). The prime disadvantage is that the structure differentiates between domestic and international divisions, resulting in conflict and even rivalry among the units (Luthans & Doh, 2012, p. 318). This situation can be prevented by the existence of a close cooperation and coordination. Interaction between the subsidiaries for solving common problems is emphasized (Czinkota & Ronkainen, 2013, p. 312). When domestic sales and profits are prevailing compared to international, the company’s products are not in need of specific environmental adjustment, and the company only starts its international development, this structure is the optimal solution (Czinkota & Ronkainen, 2013, p. 312).
2.3.2 Global Arrangements Function
Many companies at the beginning of their international expansion use the functional structure. It is one of the simplest among the possible structures and the concept of it is that the division is made based upon the main company functions. Managers end up having widespread responsibilities (Hollensen, 2007, p. 643). This type of structure is beneficial for companies with a narrow product line, relatively few customers and a stable position on the international market (Rugman & Collinson, 2012, p. 282). The leading advantage of the functional structure is that a rather small number of managers succeed in maintaining the control over an extensive organization (Rugman & Collinson, 2012, p. 282). Conversely coordination of production and marketing is the key problem and the advantages resulting from economies of scale might be jeopardized when managers and the system are too emphasized and narrowly outlined (Deresky, 2014, p. 265). An adaptation of the functional structure is the one that uses processes as criteria for the division (Czinkota & Ronkainen, 2013, p. 315). Even further Grant (2010, p. 426) argues that companies started to organize their structure less around functions and more around projects. The teams are self- managed and more likely to achieve innovation, flexibility, employee motivation and rapid learning, but only when the objectives are clear and completion date is set.
Product/Division
A product/ division structure is “an arrangement in which domestic divisions are given worldwide responsibility for product groups” (Rugman & Collinson, 2012, p. 279). The structure consists of units created according to the line of products. It is a structure appropriate for companies with extended international business experience and diversified products. (Hollensen, 2007, p. 644). The products require a careful promotion, because usually are in the growth stage (Luthans & Doh, 2012, p. 319). Each division is generally a strategic business unit (SBU), representing a single product line with its own accounting system (Deresky, 2014, p. 265). This autonomy can also be seen as a disadvantage; because of it there is a need to duplicate facilities and personnel. Each SBU will have its production, marketing, sales, etc. (Hollensen, 2007, p. 645). Due to this the expertise within the firm is divided per SBU (Czinkota & Ronkainen, 2013, p. 314). The units are perceived as “profit centers”, and as long as the performance targets are reached, except for budget constraints, the local managers have full autonomy on how to run the business. On the other hand, because each unit is a distinct profit center, cooperation among units is kept at a minimum level. Important information and knowledge is not shared with other divisions. Consequently, the company may risk potential losses in sales (Rugman & Collinson, 2012, p.
14 279). Nevertheless, the major benefit is that the manufacturing facilities are centralized per product line so that cost efficiency can be improved (Czinkota & Ronkainen, 2013, p. 313). But then the lack of local responsiveness is the main shortcoming with the division structure. It is the result of the fact that the critical decision are not made by area or country managers, but by the product manager (Hill, 2003, p. 444). In addition, the product managers may fall into the trap of staying focused mainly on the local markets rather than pursue the long-term view on the international dimension (Luthans & Doh, 2012, p. 319). Finally, the product structure is prone to encounter difficulties in coordinating the activities of different product units, that’s why endorsing a geographic structure will be advisable (Deresky, 2014, p. 265).
Area/geographic
Area structure is the second most used approach after the product one. In this case the units are organized based on geographic areas rather than product lines. Some other criteria are cultural similarity or historic connection between countries (Czinkota & Ronkainen, 2013, p. 314). The difference is that the area structure offers personalized products adjusted to regional tastes and requirements. Selecting this approach usually implies a change in the company’s strategy. International operations turn into being as important as the domestic ones, thus the quota of foreign sales out of total sales will increase. However this alternative is mainly suitable for companies that have a homogenous, wide spread product line. (Luthans & Doh, 2012, p. 320). The major advantage of this structure is that it enhances local responsiveness. The company can rapidly and easily adapt to market demands of a specific area. By seeking to satisfy the local customers, a complex knowledge of its needs is developed, knowledge that in time can lead the company to gain a competitive advantage. Moreover, economies of scale can be reached through producing and shipping from a specific area to an entire region (Hollensen, 2007, p. 645). Each division is in charge for all functions in its area such as production, marketing, personnel, and finance. Because every region requires this, duplication is unavoidable and even inefficiency may result. The lack of centralized management and of a rigorous staff control and coordination can result in duplication of efforts on a region-by-region basis. Sometimes competition between different areas is encountered leading to company’s fragmentation (Rugman & Collinson, 2012, p. 280). Regardless, this is an optimal structure for reinforcing the local expertise and also for companies that are market oriented (Deresky, 2014, p. 267).
Matrix
Some companies find that none of the structures mentioned before are satisfying. For example, the product structure offers cost efficiencies while the geographical structure is more sensitive to local market. But, in case the company wants to develop multiple capabilities, the only solution will be to implement the matrix structure. The international matrix structure integrates two or even more organizational structures into a hybrid one (Hollensen, 2007, p. 647). The original two-dimensional perspective is in the past recently a five-dimensional matrix structure has been developed. Companies should presumably benefit from the opportunities presented by “big data” matrix structure (e.g. data from strategy, structure, process, reward, and people) (Galbraith, 2014).Nevertheless, the typical is a two- dimensional structure focusing on product and geography. It is a proper structure for companies that are geographically spread and with diversified products (Hollensen, 2007, p. 647). So, the major advantage of
15 the matrix structure is that it allows the company to focus on more than its primary area and facilitates the achievement of globally oriented management attitude (Rugman & Collinson, 2012, p. 283). In spite of all the benefits, the matrix structure possesses a few shortcomings that are not effortlessly overcome. The major problem is that it easily generates confusions that lead to miscommunication and conflict. Instead of managers solving the minor urgencies themselves, due to the inherited complexity of the structure, all the problems from less to more important, are solved through committee discussions (Czinkota & Ronkainen, 2013, p. 317) . Rugman and Collinson (2012, p. 283) point out that in an attempt to coordinate the personnel, a great number of meetings and discussion is necessary. A matrix structure demands well-trained middle managers which can rapidly learn how the structure operates and can handle reporting to two bosses (Czinkota & Ronkainen, 2013, p. 316). As a result, many MNC avoid implementing the matrix structure and choose a “simpler” one (Luthans & Doh, 2012, p. 322).
2.3.3 Emerging Structures Transnational
The transnational network structure emerged only recently with the sole purpose of taking advantage of economies of scale while at the same time remain responsive to local demands. This type of organizational design incorporates elements from all the other structures such as product, function and area and uses a network arrangement to glue together all the worldwide spread subsidiaries. Each unit has a specific structure that suits it best and allows it based on resources and skills to maximize its potential. Transnational structure is characterized by dispersed units, specialized operations and interdependent relationships (Rugman & Collinson, 2012, p. 285). The structure might seem very much like the matrix one, but it is not. While the matrix is a centralized structure with a decision process balanced between headquarter and subsidiary, the transnational is a complex network of business units, with decision taken at the local level while informing the headquarter (Luthans & Doh, 2012, p. 322). It is the perfect design for a company with contrasting strategies and diversified business environments. If mastered, the structure leads to high efficiency and effectiveness for the company (Burton, Obel, & DeSanctis, 2011, p. 94). However Grant’s opinion (2010, p. 396) is that the transnational structure is more of a concept than a distinct organizational model.
T-shape
Kumar and Puranam (2011) claim that transnational structures “just don’t cut it anymore”. Given the size of emerging markets such as China and India, companies are compelled to optimize their structure. With one dissimilarity, the T-shape can be considered a variation of the transnational structure. The research and development will be segmented both vertically and horizontally, allowing each country to have its own department of expertise. The main shortcoming however is the management ability to regulate the integration across countries.
E-Corporation
The e-corporation can be perceived as a network of alliances, using the Internet as a path for communication. The structure is a mixture of electronic and physical stages; nevertheless final stage must
16 be custom fit. This structure insures cost effectiveness along the entire network of suppliers, subcontractors, manufacturers, distributors, buyers, and sellers (Deresky, 2014, p. 273).
2.4 Subsidiaries and MNC relationships
As mention previously in this chapter, there are different ways for a MNC to enter a foreign market; however one of the most analyzed forms of entry is the foreign subsidiary (Schmid & Hefter, Evaluating the performance of foreign subsidiaries: and extension of Gupta/Govindarajan's role typology, 2014). According to Birkinshaw and Morrison (1995) when discussing the management of the MNC, the relationships between headquarter and its subsidiaries is a topic of great importance. Birkinshaw and Hood (1998) defined the subsidiary as “a value-adding entity in a host country”. The reasons for creating a subsidiary according to the authors are resource seeking, market seeking and efficiency seeking. It has to be mentioned that MNC and subsidiary interactions are very complex. For example, when the flow of information is not compromised, the subsidiary can absorb more knowledge and its strategic role within the MNC will be more significant. Further, more in detail information is provided about the most prominent factors affecting the relation.
2.4.1 Roles and strategy
Over the last decade a considerable attention and research was dedicated to managing the subsidiary and in particular to the different roles played by subsidiaries (Taggart & Hood, 1999). Gupta and Govindarajan were among the first ones to reveal subsidiary’s importance in creating knowledge. They argued that knowledge is not created only at headquarter level, but also subsidiary and for the MNC to maintain the competitive advantage the knowledge should easily flow between all the units. They introduced concepts such as knowledge inflow and outflow. Based on them the subsidiaries can be classified into: local or global innovators; implementer and integrated player (Schmid & Hefter, 2014). In the extensive literature concerning subsidiary’s roles, even though Gupta and Govindarajan’s typology is widely recognized and accepted, there are several other typologies from different authors.
Bartlett and Ghoshal (1986), based on subsidiary capabilities and strategic importance, distinguished between four different roles: strategic leader, contributors, implementer, and black holes. Strategic leader actively participates in developing its strategy; the location is a key factor for its competitiveness. Contributors due to their expertise are mainly developing internal knowledge. The implementers are making the most out of the received knowledge. In the case, due to environment and market conditions, the black holes are lacking the possibility to exploit the transferred knowledge.
Birkinshaw and Morrison (1995) also emphasized the fact that each subsidiary has a specific strategic role within the MNC and the authors distinguish between world mandate, specialized contributor, and local implementer. An important factor to be mention, according to the authors, is the fact that the subsidiary role is changing over time. New capabilities are developed and due to that more autonomy and responsibility.
17 Enright and Subramanian (2007) developed a general subsidiary typology by differentiating between the high or low degree of subsidiary: capability creation and utilization and product and geographic scope. According to this classification the authors identified 24 subsidiaries types. The four dimensional typology offers a more detailed approach with the purpose to a better insight into the subsidiary importance.
From the literature we can conclude that subsidiaries must be given different roles so that the overall efficiency of MNC would be increased. However in an attempt to classify the subsidiaries, in order to make headquarter-subsidiary relations manageable, many typologies emerged and that lead to the fact that the multitude of typologies is more confusing than simplifying and yet no consensus in results was yet achieved (Enright & Subramanian, 2007). In addition, as expressed by Hood and Taggart (1999), the problem remains the fact that not much research is treating how the subsidiary role might change over time. Enright and Subramanian (2007) also bring up that another issue is that the typology is deduced from the strategy and not from focusing on the subsidiary.
2.4.2 Autonomy vs control
Basically MNC applies control because of the advantages from a global integration. It should be distinguished between two types of control: formal centralization and informal control (Young & Tavares, 2004). However, Martinez and Jarillo (1991) classify control into five groups: centralization, formalization, planning, output control and behavioral control. On the other hand, Prahalad and Doz (1981, as cited in Taggart and Hood, 1999) point out towards two autonomy approaches: process and roles and strategy. But how to balance control and autonomy in a way that will not inhibit subsidiary’s initiatives and at the same time keep it in line with the corporate strategy while at the same time exploiting subsidiary’s full capacity? It is acknowledged in the IB literature that not all subsidiaries develop and grow. Taggart and Hood (1999) observed in their comparison study between German and Japanese subsidiaries that in more autonomous subsidiaries the management is more ambitious and possibility of growth is increased. Autonomy however does not guarantee innovation (Taggart, 1997; as cited in Young and Tavares, 2004). While it might be expected that autonomy will be greater in bigger subsidiaries, Young and Tavares (2004) state that the relation is inconclusive. In their review of studies, they also found that the majority of research argues for a positive relation between subsidiary’s age and autonomy.
Ghoshal and Nohria (1989) point out that MNC is a complex and not homogenous structure. So, when implementing control and coordination, headquarter must take into account the element of foreignness from the subsidiary host country. Andersson et al., (2005) indicate that a direct control from headquarter, might jeopardize the subsidiary performance. This is mainly due to asymmetry of information. The subsidiary has the advantage of better understanding the local environment. So, some decisions are deemed to be taken at local level in order to be successful. Andersson and Forsgren (1996, as cited in Young and Tavares, 2004) also showed that subsidiaries in leading edge industry are more autonomous. Homburg and Prigge (2014) mention also that headquarter subsidiary relation can be significantly damaged when headquarters are not offering to subsidiaries the desired level of autonomy. That’s why it is recommended that headquarters involve subsidiaries in the process of taking decision as much as
18 possible. Autonomy according to the authors represents the freedom from headquarter control. O’Donnell (2000, as cited in Young and Tavares, 2004) deduced that an increase in subsidiary atonomy will imply less bureaucratic monitoring and less supervision from headquarter.
2.4.3 Environmental features
It is superfluous to mention the obvious fact that subsidiaries are engaged in international environments. In this situation the main issue is to understand and manage the “socio-political-relational hazards of foreignness” (Perez-Batres & Eden, 2008). According to the authors, Hymer (1960/1967, as cited in Perez-Batres & Eden, 2008) was the first to mention that when moving abroad, the foreign companies will be in a disadvantage compared to local companies. Over the last years, the situation got more complicated when a trend of MNCs from mature economies investing in emerging markets was observed. The new markets from developing countries bring new challenges for the MNC, because the differences between the mature and emerging markets are considerable (Dunning J. H., 2009). Ghemawat (2001) sums it up by stating that the attractiveness of global expansion must be carefully analyzed, otherwise it could compel the MNC into making expensive mistakes. He further explains in the CAGE: distance framework, that the distance between countries can be: cultural, administrative, geographic, and economic.
The cultural feature of the subsidiary, leads to the fact that the interaction among individuals and individuals and the company or other institutions is based on cultural values and beliefs. One of the most obvious cultural specifics is the language barrier; but social norms, even though are not easily identified, should not be neglected (Ghemawat, 2001). A common corporate language has to be established in order to ease up the communication flow among subsidiaries (Luo & Shenkar, 2006). However, Thomas (2008) points out that MNC is a “multilingual organization” and it uses three types of languages: parent company language, a common corporate language, and multiple local (foreign) languages. The use of different type of languages, even though it is beneficial at some levels, sometimes it can create knowledge “gaps”. To overcome this gap and to improve communication and knowledge transfer, English was adopted as the language for business communication. The features creating administrative distance according to the CAGE approach are the political hostility and government regulations. The economic distance encompasses differences in terms of consumer’s income, availability of resources, infrastructure. The geographic distance refers to country size, climate differences, no common borders (Ghemawat, 2001).
19 3. Performance
3.1 Definition and importance Nowadays performance became an “in vogue” topic. Companies are struggling to adapt to changes and to keep up or even better to improve their performance. The existence of a methodology for performance evaluation is a necessity for each organization that strives for more profits and competitiveness. Further we will define the terms such as performance, performance measurement and performance management.
The concept of performance was constantly emphasized by researchers and practitioners. Academics from fields as diverse as accounting, economics, human resource management, marketing, operations management, psychology and sociology are persevering in studying this topic. The multitude and the diversity of approaches is appealing but at the same time baffling. It might be considered beneficial because it covers a large span of areas; however it is detrimental because no consensus can be achieved. Researchers are writing about performance in their own preferred way and in relation to their expertise, so the number of papers dedicated to the subject of performance is continually increasing but no agreement is reached in defining the basic concepts (Neely A. , 2007). Furthermore, many definitions grasp the idea of performance only partially. Due to that, the possibility of researchers to continue or to build on each other’s work is limited (Franco-Santos, et al., 2007). Some researchers even expressed annoyance and urged the scientists to focus on other more important topics (Venkatraman & Ramanujam, 1986). For certain performance will continue to be a thorny and complex concept that will gradually evolve.
The authors of the book Organizational assessment (2002, p. 107) identify how the definition of performance changed over the years. In the 1950s the focus was on how the organization achieves its objectives. In the 1960s and 1970s, the attention was switched towards the ability of exploiting the environment in order to gain access to scarce resources. In the 1980s and 1990s, researchers realized that the concept of performance is more convoluted than first thought and it should integrate the perspective of all the participants such as stakeholders, employees. Nowadays, as Otley (2001) brings it up the concept of performance is used everywhere and it means different things to different people. According to Lebas (1995) performance can imply anything from efficiency, to return on investment. Still in his paper he defines it as being more about the future and not so much about the past successes. His perspective is that the ability to create a future for the organization involves performance. In Otley’s paper (2001) performance is defined only in the business context and from the perspective of the three “E’s”: effectiveness, efficiency and economy. In order to be performant a business should deliver the expected results, purchase inputs as cheap as possible and use as few of those inputs as it can. Verweire and Van den Berghe (2004, p. 6) treat organizational performance in terms of created value out of its productive assets in contrast to the value that the owners of the assets expected to gain. A more specific definition of the concept is provided by Keller and Price (2011, p. 5). They consider performance what the company conveys to its stakeholders in financial and operational terms and also it should be measured through net operating profit, return on capital employed, total returns to shareholders, net operating costs, and stock turn. Combs et al. (2005) after analyzing studies dedicated to performance concluded that it is a multidimensional concept. They identified the most important three dimensions such us as accounting returns, the stock market, and growth. Besides the myriad of approaches related to the concept of performance, there is also a lack of compromise about the appropriate performance measures. Parmenter (2010, p. ix) even argues that some of the practiced performance measures “were dreamed up one day
20 without any linkage to the critical success factors of the organizations”. Further he points out that the purpose of the measures should be to provide a coordination and cooperation between daily activities and company’s strategic objectives. According to his point of view, performance measures are indicators used to “measure, report, and improve performance”. He distinguishes between key result indicators, result and performance indicators and key performance indicators, the last ones being the most important (p. 24). Malinaa and Selto (2004) also recognize that appropriate performance measures will not only effectively implement strategy but also evaluate managerial effectiveness and provide a guide for employees’ behavior and reward. In Verweire and Van den Berghe (2004, p. 6) opinion measures should help the management in their decision making. Still, even though it is universally accepted that performance measurement influences the efficiency and effectiveness of the organization what exactly should be measured and how is still controversial (Neely A. , 1999).
For Bitici, Cariie and Mcdevitt (1997, as cited in Franco-Santos, et al., 2007) a performance measurement system is at the core of the performance management process. As Lebas (1995) concluded in his paper the definition of performance is “case specific”.In addition he mentions that performance measurement and performance management are inseparable, there is no one without the other. The measurements support the philosophy of management and create the context for its existence. However, in the IB literature sometimes the terms performance measurement and performance management are used interchangeably. In his book, Axons (2010, p. 25) elects to provide a rather broad definition. According to him “business performance management encompasses all the processes, information, and systems used by managers to set strategy, develop plans, monitor execution, forecast performance, report results, and make decisions”. He proceeds further by stating that for organizations to attain continuous success, constant adaptability should be a key feature. Cokins (2009, p. 9) also adhered to the idea of a simple definition; he indicates that performance management is about improvement and about transforming company’s strategy and plans into desired results. As Verweire and Van den Berghe (2004, p. 8) formulate it bluntly, performance management is about “running the business”. As it can be observed from the definitions, performance is a broad concept that developed considerable during the last four decades. The interest in the topic and its usage in so many different areas even lead to the emergence of the new concept - performance management; used for the first time in the 1970.The bottom line is that every company strives to be performant; in this context the measures and the performance management play a key role. Effective measurement implies an effective organization. “Why do we want to measure and what do we want to measure?” are the two inseparable and most important questions for the managers to answer. According to Lebas (1995) there are at least five reasons for a company to measure its performance. In order to understand the reasons there are five more questions that have to be answered: Where have we been? Where are we now? Where do we want to go? How are we going to get there? How will we know we got there? It is critical to start with acknowledging the past and the path the company took to get to the current state. Afterwards the company has to envision the final destination and to describe and design the way to reach it. By encouraging feedback the company will know either it reached the target or not and if any improvements are needed. Franco-Santos, et al. (2007) after reviewing more than three hundreds documents, derived seventeen definitions from which they deducted the features and the roles of business process measurement. From the seventeen definitions, seventeen different roles have been identified. The authors however argue that some of the roles are implicit and they further narrowed down to five main roles. Each role is then explained: measure implies monitoring and evaluating the performance; strategy management comprises the planning, formulation, implementation, and lining up with the strategy stages;
21 communication covers the internal and external communication; influence behavior involves rewarding and relationship management; learning and improvement incorporates the feedback into the process. Marr (2005) on the other hand, after collecting data from five thousands largest organizations in the US determined that the main reasons for companies to adopt performance measures are: controlling (30%), strategic planning (19%), decision making (18 %) and strategy validation (12%).
Spitzer (2007, p. 15) provides a more thorough analysis and describes seventeen leading roles. The performance measures should direct behavior, increase the visibility of performance, focus attention, clarify expectations, enable accountability, increase objectivity, provide the basis for goal-setting, improve execution, promote consistency, facilitate feedback, increase alignment, improve decision making, improve problem-solving, provide early warning signals, enhance understanding, enable prediction, motivate. Spitzer concludes by stating that the appropriate measures will revolutionize the company. Contrary to Spitzer, Pavlov and Bourne (2007) are keeping it simple and indicate that measurements have two functions: to provide information and guidance. Ex-post function evaluates the performance of an executed project and ex-ante creates the goals which the organization strives to achieve. Similar two functions were identified by Veen-Dirks (2010). The functions encompass decision- facilitating as in improving the outcomes and decision-influencing for motivating and problem solving. Behn (2003) on the other hand provides eight reasons for applying performance measurements. To evaluate how the company is operating, control , budget advocate for the right projects and their costs, motivate the employees, promote the cause, celebrate accomplishments, learn what is or not working, and improve by implementing the feedback loop. Thaker (2011) concluded on a philosophical note and stated that the three roles of performance measurements are “to illuminate, inspire and integrate, people and parts of the organization to the rightful goals and purposes”.
Concerning the features, Malinaa and Selto (2004) in their research identified eight preferred ones. The measure should be: diverse and complementary, objective and accurate, informative, more beneficial than costly, causally related, strategic communication devices, incentives for improvement, supportive of improved decisions. Besides, Al-Turki and Duffuaa (2003) state that it is imperative for the measures to be clearly defined, linked to the goal, and broadcasted to all involved members. The characteristics of performance measures according to them include relevance, interpretability, timeliness, reliability and validity. First of all, only data which is essential and relevant to the goal should be included; measures must be communicated succinctly but comprehensively. Also, the reports ought to be accessible in a timely manner, presented periodically, and ultimately asses the planned indicators. According to Meyer (2003, p. 6) when rethinking the measurements the key question should be related to desired features that the measures should possess. The author indicates that the ideal features are the following: parsimony, predictive ability, pervasiveness, stability, and applicability to compensation. The measures should be neither too many nor too few, because too many measurement can be confusing and not sufficient will not depict the real situation. The same measures should be spread into the organization. Stability refers to the fact that the change has to be progressive and not rushed into it; and of course the reward system should be applied. Different functions and features are proposed by researchers depending on the endorsed perspective of performance. There are some common characteristics and some more specific. Still, after summarizing all of them, we can conclude that measurements are designed to accomplish various functions in organization and represent a key element in the performance management. Nevertheless the fundamental function is to measure either the organization is in line with its strategic goals. It is also
22 important to point out that measures are not only stating the past, but also forecasting the future of the company. We can wrap it up by stating that measures are a prerequisite in decision making and a driver for company’s performance. Marr (2005) sums it up perfectly by stating that performance measurement “encompass methodologies, frameworks and indicators that are used to help organization in the formulation and assessment of strategy, motivate people and to communicate or report performance”.
3.2 Process and difficulties
Various authors in the literature outlined different processes for performance measurement. Designing a successful performance measurement is not an easy assignment although it benefited from the contribution of academics and practitioners. Still, some of the designed models remained only in theory, while other models were assiduously applied in practice (Bourne, Neely, Mills, & Platts, 2003).
Bourne, et al. (2003) claim that a performance methodology can be created by dividing the company‘s strategy into specific objectives. This in turn can be managed by finding the answers for the questions: “What is the objective to be achieved? How do we achieve this?” The questions must be asked again and again at each level until the objectives are clear and a performance model can be generated. The division of the entire process into phases is beneficial. First, because it denotes that different stages require different approaches. Second, it reveals a lack of studies concerning the actual phases of implementation and use of performance measurements (Bourne, Mills, Wilcox, Neely, & Platts, 2000). In their study, after reviewing the definitions Franco-Santos, et al. (2007) identified twelve different processes, out of which they considered that only three are essential: : “information provision”, “measure design and selection” and “data capture”. Nevertheless they envisioned the process of measurement as a cascading model out of five steps: selection and design of measures, collection and manipulation of data, information management, performance evaluation and rewards, system review. The first step is the most complex. During this phase the stakeholders needs are identified, the targets are set and in addition the strategic objectives are determined and communicated; the second step is about compiling and analyzing data; during the third, decisions are taken based on the collected information; of course every system needs evaluation to control if targets were achieved and this is done during the fourth phase; the final stage is for examining the process and sustaining the feedback.
In Figure 3.1. are depicted the three main phases to be followed in the implementation of a performance measurement system. The phases are: the design, the implementation, and the use. During the first phase, company’s management purpose is to establish the goals and to actually design the measures. The measures have to be derived from the company’s strategy. Data is gathered and procedures are enforced during the implementation phase. The data will be used in preparing regular reports. The last phase is subdivided into two stages: measuring the result of strategy implementation and providing feedback for strategy validation. According to the authors the sequence of phases is not rigid and sometimes phases can overlap specifically during the implementation and use stages. Also they mention that it is not a linear process, reviewing and adapting to current situations can interfere with the phases (Bourne, Mills, Wilcox, Neely, & Platts, 2000). Taken together, all these studies point toward the unsurprising fact that performance measurement is an essential tool for the managers in decision making and control. As it can be observed minor semantic divergences exist among authors about the process; nevertheless the predominant idea is that the process consists of design, implementation and evaluation. However Neely,
23 et al. (2000) also signal that “refreshing” should be taken under consideration and added as the final step that will complete the framework. In addition it has to be highlighted the fact that to be successful the design of the performance measurement are not necessarily to be complicated; simpler, more understandable, and easier to apply methods can be used at the same time.
Figure 3.1: Phases in development a performance measurement system
Source: (Bourne, Mills, Wilcox, Neely, & Platts, 2000)
From previous experiences it is apparent that the design and the implementation of performance measures are not without difficulties, some of which are just being discovered. Nowadays, the current focus of literature is divided between either the performance measures have a positive impact on the actual performance and what are the pitfalls to be avoided for a successful implementation (Bourne, Neely, Mills, & Platts, 2003). Concerning the first issue, after a national survey of manufacturing companies, Jean-Francois (2006, as cited in Thaker, 2011) deduced that a periodical review is indispensable in order for the measurements to improve the organizational performance. He further indicated that implementing is only the minor step compared to the real challenge of achieving the full potential of the envisioned process. In regard to the second matter, as Neely et al. specified “Performance Measurement is a topic often discussed but rarely defined” (1995, as cited in Bourne et al., 2000). So that the indisputable problem with performance measurements is first of all terminology related. Concepts such as productivity, efficiency and performance are used interchangeable. And unless the academics will reach a consensus and define the basic terms or provide the necessary characteristics, it is difficult to assert with
24 certainty about what processes improve or not company’s performance (Tangen, 2002). Another obstacle is choosing what framework to implement. The company’s management is overwhelmed with possibilities. A huge number of performance measurements approaches exist, each with strength and weaknesses, and no clear directives on how to select the right one (Medori & Steeple, 2000). Bourne et al., compiled a list of difficulties encountered by other researchers and practitioners: (Lewy and Du Mee (1998); Schneiderman, A. (1999); McCunn, P. (1998); Bierbusse, P. and Siesfeld, T. (1997); Sedecon Consulting (1999) as cited in Bourne, Neely, Mills, & Platts, 2003): difficulties in weighting the importance of measures trouble with the identifying of the true ‘drivers’ the applied metrics are poorly defined goals are negotiated rather than based on stakeholder requirements it is a task that require time and money the need to quantify results in areas that are more qualitative in nature difficulty in decomposing goals for lower levels of the organization the necessity for an information system while looking for the right measurement companies are striving for perfection
Additionally Bourne et al. (2000) identify the other main difficulties encountered such as: resistance to measurement, problems with computer systems, and the lack of focus at top management level. Design phase is exposed to confront with resistance and lack of management’s commitment. During the implementation phase the complications are the result of issues with the IS (Information System) and management’s bad priorities. The influence of resistance will be also sensed during the last phase, the actual use of the performance measurement system. The consequences of these issues are delays or even stoppage of measures implementation. As a conclusion, it is imperative to keep in mind that each company has its specific strategy, organizational structure, competitiveness, environment, etc. so there is no one universal framework that if applied will satisfy all management requirements about the performance.
3.3 Current approaches and Balanced Scorecard (BSC) While reviewing the literature, it is impossible not to notice the endless number of approaches that have been developed since the 1980s. As unanimously is stated by researchers progress has been made, nevertheless there are still companies that rely mainly on financial performances (Tangen, 2004). The recent frameworks focused on offering a more balanced approach. Certainly each model has benefits and limitations and based on studies some of them are industry or “configuration” specific and do not yield identical results (Kurien & Qureshi, 2011). Yadav and Sagar (2013) did a tremendous work in studying and reviewing the performance measurement models designed in the last two decades. They ended up classifying the frameworks into five categories: classical and dominant holistic and integrated frameworks updating the balanced scorecard approach context-specific models recently developed
25 The first category encompasses the popular frameworks in literature and in practice. The main features of these models are the integration of nonfinancial measures and most of the stakeholders. The second group of measurements portrays the approaches that mainly are concerned with aligning performance with the future. Then there are the frameworks trying to improve the balanced scorecard approach and to add the missing perspectives. The fourth kind takes a narrower view and analyzes performance under specific context. The last division is for performance methods developed only recently, last seven years. The main topics of the recent models are sustainability and flexible strategy game-card (analyzing performance from the perspective of company and customer). However in this thesis, we will restrict the literature review to the classical and dominant frameworks and in particular the Balanced Scorecard approach (Yadav & Sagar, 2013).
3.3.1 BSC origins and evolution The foundation of the BSC approach was built in the beginning of the 1990’s by R. Kaplan and D. Norton. In the early stages of their work (1992), the authors were indicating that the BSC should be perceived as a multidimensional model to be used in establishing control and evaluating the company’s performance. The goal was to provide managers and executive with a performance measurement template that will focus on the whole picture and not mainly on the financial aspect. Later on however, the authors were stressing out that the BSC is more than just an operational measurement and it is used by innovative companies in order to manage their strategy in the long run. The pivotal processes to be managed according to authors are: translating the vision, communicating and linking objectives and measures, business planning, and feedback and learning (Kaplan & Norton, 1996, p. 10). Nowadays, the BSC approach is one of the most well-known and practiced performance measurement frameworks. The company’s performance is aligned with its strategic goal and evaluated from four perspectives in this way providing a balanced approach (Neely, Kennerley, & Adams, 2007, p. 147). The idea of balance is reflected in the fact that equal importance is conferred to short-term and the long-term goals; required inputs and outputs; internal and external performance factors; and financial and nonfinancial indicators (Striteska, 2010, as cited in Striteska & Spickova, 2012). The dominant advantage framework is that, unlike the traditional methods that focus only on the financial perspective, BSC offers a broader picture concerning the company’s performance. The approach allows a clear display of strategy into operational terms and facilitates communication (Striteska & Spickova, 2012).
3.3.2 The strategy map
The concept of strategy map was introduced by Kaplan and Norton in 2004. The authors considered it “as important innovation as the original balanced scorecard itself” (Kaplan & Norton, 2004 as cited in Niven, 2006, p. 99). The purpose of the map is to ease the translation of the strategy and to provide guidance in order to reach it. The question to be answered is “What must we do well in each of the perspectives in order to execute the strategy?” (Niven, 2006, p. 98). It is a top down approach and the process starts from dissecting the company’s vision into objectives. Further the measurements are cascaded down within the company for each department, division and individual. When selecting the measures, it is compulsory for them to be linked to the strategy. Linking the four perspectives based on a cause and effect relations will result in creating the company’s strategy map. It should identify also the
26 gaps between what is measured and what should be measured according to the strategy (Figure 3.2). Niven (2006, p. 99) defines it “as a one-page graphical representation of what you must do well in each of the four perspectives in order to successfully execute your strategy”. To summarize we can say that the map represents an effective tool that depicts company’s strategy in a way that makes it easier to communicate it to employees.
Figure 3.2:BSC Strategy Map
Source: (Kaplan R. , 2009)
3.3.3 The four perspectives The BSC framework and the four perspectives can be observed in the Figure 3.4. Further, more details are provided for each particular perspective.
Financial perspective:
The financial perspective is the first one discussed by authors. While studying this perspective, the authors limited to three stages of a business life cycle: growth, sustain and harvest. Also they identified the three financial themes: revenue growth mix, cost reduction/productivity improvement, asset utilization/investment strategy. From the created matrix the authors derived the drivers for the perspective. This aspect basically represents the company’s ability to generate profits (Kaplan & Norton, 1996). “How do we look to shareholders?” is the question to be answered according to Ivanov and Avasilcăi (2014). The focus should be on implementing the strategy for achieving growth and profitability from the shareholders perspective.
27 Customer perspective:
To begin with, the company must identify in what market segment to compete and who are the customers. The customers are important because they will represent the company’s sources of revenue (Kaplan & Norton, 1996, p. 63). The customer perspective mainly provides answers to the question “How do customers see us?” This aspect is identifying future wants and creating value from customer’s perspective in terms of time, quality, performance and service (Ivanov & Avasilcăi, 2014). Garengo et al., (2005) mention that in order to better understand the customer’s perspective direct and indirect measures should be used. The direct measures are represented by surveys and customer’s opinions, perceptions and level of satisfaction about the company’s image and services/products. The indirect imply that the customer is not directly involved and are represented by market share, customer retention, etc. Kaplan and Norton (1996, p. 67) indicate that the success of this perspective can be measured by: market share, customer: retention, acquisition, satisfaction and profitability (Figure 3.3). Poor performance in this perspective can be very detrimental to the company. However, it is possible for the company to achieve competitive advantage, if it manages to anticipate future customer needs.
Figure 3.3: Customer perspective: core measures and the causal chain of relationships
Source: (Kaplan & Norton, 1996, p. 68)
Internal business processes perspective:
The measurements from this perspective should help the companies to identify at what they can excel in order to create or add up value to customers’ satisfaction and achieve competitive advantage (Ivanov & Avasilcăi, 2014). The internal business processes perspective analyzes how efficient and effective are the company’s internal processes. The task is to evaluate which processes are the most important ones and select relevant measures for them. However it is vital that this part will be handled by a person who thoroughly knows the processes. The three key for success are innovation, operation and post-sale. These activities are focused on long term and are supporting the financial and customer perspectives. The measures are deducted from customer satisfaction. Increasing the quality of the process will result in an increase of company’s profitability (Kaplan & Norton, 1996).
28 Learning and growth perspective:
Can we continue to improve and create value? By enforcing the idea of continuous improvement and learning a company will succeed in maintaining and increasing profits (Ivanov & Avasilcăi, 2014). Learning and growth are the pillars for company’s success. The fourth perspective focuses on employee capabilities; information system capabilities; and on motivation, empowerment and alignment. The fierce competition in today’s global environments, forces the company to continually adapt and improve their products/services and also to develop and retain capable employees. Regarding the learning aspect, Kaplan and Norton emphasize that it is not only employee training, but also mentors within the company, and the ease of communication.
Figure 3.4 :BSC framework
Source: (Kaplan & Norton, 1996, p. 9)
3.3.4 Construction and implementation
Because every company is unique adjustments have to be made when implementing the BSC approach. The authors draw attention towards the fact that in order for the BSC to be successful the reasoning for implementing should be established and acceptance and support from senior managers should be reinforced. The process of adopting the BSC approach can be divided into two main steps: the design of the process and the actual implementation. The process of building a BSC incorporates ten tasks with four main goals (Figure 3.5).
However the authors are emphasizing that BSC is a continuous process and it is not finalized once the last task is executed. The approach enquires communication and education of employees and a follow up. The vision has to be shared within the organization. As the authors point out “in an ideal world, every person would understand the strategy and how his/her individual actions are supporting the big picture”
29 (Kaplan & Norton, 1996, p. 199). The techniques used to achieve this state are communication and education programs, goal setting programs, and reward system linkage. It is essential to have a clear understanding of the company’s vision and strategy; every employee should know his/her responsibilities, and feed-back should be reinforced in order to understand either the process was successful or not. Communicating and spreading the goal is not sufficient, the goal has to be measurable and applicable till the individual level in order for the employee to get involved; and rewarding performance will only reinforce the approach. The feed-back loop implies analyzing the relations between the measures and by learning the approach is corrected when needed and the process in continuously developed. Kaplan and Norton believe that the strategy can be spread and implemented through the entire company, but only when BSC is correctly constructed and a clear link is established between the indicators and the output.
Figure 3.5 BSC process Goal Tasks Define the measurement architecture Select the appropriate organizational unit
Identify SBU/corporate linkages
Build consensus around strategic Conduct first round of interviews objectives Synthesis session
Execute workshop: first round
Select and design measures Subgroup meetings
Execute workshop: second round
Build the implementation plan Develop the implementation plan
Execute workshop: third round
Finalize the implementation plan Source (Kaplan & Norton, 1996, p. 309)
According to Niven (2006, p. 305) , the ten main reasons for failure in the implementation of BSC are: - No executive sponsorship - Lack of BSC education and training - No strategy - No guiding rationale for the BSC program - Not reporting BSC results - Inconsistent management practices - No new measures - Ineffective team development - Lack of cascading - Premature links to management processes
30 3.3.5 Criticism Despite the model’s extensive application, researchers pinpoint towards numerous shortcomings. And as abundant is the research related to benefits of the BSC approach, not less can be found about its disadvantages. The many limitations shadow the usefulness of the model. Following, we will analyze the most important ones. According to Ghalayini et al., (1997, as cited in Tangen, 2004) the main weakness is that it addresses exclusively senior managers; the framework is not applicable to the operational level. In addition the authors consider it more of a control tool than an improvement one. Hepwoth (1998) was expressing his surprise about the fact that companies from UK are not eager to apply the framework. As an explanation he considered that the BSC is not an approach for those who seek simple solutions or for those who are comfortable with the traditional methods. Bourne (2008) also points out the difficulty in making the approach an operationalized one and because of this, the BSC are not implemented properly and consequently not the full advantage is obtained. Voepel et al., (2006) consider the method too simplified, vague and not up to date. Flamholtz (2003) criticize the authors for not explaining the cornerstone concept of the approach: the perspective. He continues by pointing out that the framework’s validity was not proven; also no empirical support was provided for the selection of the four perspectives. Are these the only and the appropriate perspectives? Nobody knows and only time will show. Another shortcoming of the model revealed by Voepel et al., (2006) is the fact that the linearity of the cause and effect process may not hold in the reality. The simplicity of the model does not depict the complexity of relationships in which the company has to engage. Susilawati et al., (2013) mention also the total omission of the perspectives related to external environment of the company represented by suppliers and stakeholders. The employees are tucked under the learning and growth perspective, giving the impression that innovation can be attained with or without them.
3.4 Performance of subsidiaries It is only obvious to assume that with the MNC developments, hundreds of thousands of subsidiaries appeared all over the world. Although some of the potential benefits of internationalization may include economy of scale, product improvement, intelligence gathering operational flexibility and stability, tax arbitrage, and organizational advantages (Malinaa & Selto, 2004), the degree to which the internationalization movement is contributing to overall performance of the firm is questionable (Garbe & Richter, 2009). Therefore for a better insight on the subsidiary contribution, the MNC needs to understand how it performs in international markets. Especially because most of the subsidiaries do not raise to headquarter expectations, due to MNC complexity and due to maladaptation to new cultural and environmental surroundings (Ghoshal & Bartlett, 1988). In addition, as a result of the fact that performance is a broad concept there are no already established and accepted performance measures for subsidiaries of MNCs. Andersson et al., (2001) specify that there is a limited amount of research dedicated to subsidiary performance compared to studies for JV performance. One of the biggest problems remains the choice of how to measure performance and how to balance the traditional financial measures with other indicators. However, according to the literature background, there are some groups of measures, which are most commonly used by researchers. For instance, (Hamman, Politte, Dykes, & Cavusgil, 2008) conducted a systematic literature review, which actually categorizes all the existing studies in order to figure out commonly used performance measures and they ended up following measures shown in Table 3.1.The common performance measures for subsidiaries are (1) financial performance, (2) operational performance and (3) overall effectiveness performance.
31
Table 3.1: Commonly used subsidiary performance measures Financial performance Operational performance Overall effectiveness performance Sales based 19 Market share 10 Performance relative to competitors 6 Profit based 15 Product/service quality 5 Reputation 3 ROA/ROI 9 Productivity/HMR development 4 Perceived overall performance 2 ROE 1 Market access 3 Set objective performance 2 Others 3 Marketing 2 Satisfaction 1 Others 6 Exit rate 1 Total1 29 17 13 Source: (Ramsey & Bahia, 2013) Performance is envisioned as a control tool and its purpose it to monitor the company’s alignment with the strategy. There are plenty of studies that addressed the relationship between strategy and performance. Among these, a considerable amount is dedicated to the evaluation of subsidiaries in the relation to its internationalization strategy (Schmid & Hefter, 2014). Ramsey and Bahia (2013) tried to demonstrate that the performance assessment should match the strategy of foreign subsidiary. The study addresses the importance of the strategies as they guide us to choose proper performance measures and how much weight each measure should be given. In other words, the study revealed five possible strategies, which are (1) sales/profit growth, (2) strategic position, (3) market entrance, (4) technological incorporation, (5) study market and determined corresponding proper performance measures for each of them. In following part, we will discuss more about the relationship between those strategies and measures that are basically shown in Table 3.2. Table 3.2: Weighting the measures according to strategy types Tech. Strategies Sales/ profit Strategic position Study market Market Entrance incorporation 1. Financial 50% 30% 40% 25% 15% a. Sales based 10% 20% 10% 15% 5% b. Profit based 20% 5% 15% 5% 5% c. ROA, ROI 20% 5% 15% 5% 5% 2. Operational 15% 25% 0% 50% 55% a. Market share 10% 25% 50% b. Productivity 35% c. Product quality 5% 20% 3. Overall effect 35% 45% 60% 25% 30% a. PRTC 10% 25% b. PRTG 15% 10% 35% 15% 15% c. POP 5% 5% 25% 5% 5% d. PRTH 5% 5% 5% 10% Total percentage 100% 100% 100% 100% 100% PRTC: Performance relative to competitors; PRTG: Performance relative to goals; POP: Perceived overall performance; PRTHQ: Performance relative to headquarters. Source: (Ramsey & Bahia, 2013)
1 Note: the total doesn’t necessarily sum to total number of measures used each performance categories because some studies employed more than one category.
32 Also, when describing the concept of performance we provided plenty of reasons from different authors about why measuring the performance is important. Most of them can be applied to both domestic companies and MNC. However MNC’s evaluation is more convoluted. The subsidiary has to perform not only in the local market but also within the corporate network. The question remains “Why some subsidiaries are performing better than others?” (Andersson, Forsgren, & Pedersen, 2001). In the IB literature, researchers indicated numerous factors for having an influence on the subsidiary performance.
Dikova (2009) focused her attention on analyzing either the physical distance has any influence on the subsidiary performance or not. The empirical study included 208 FDIs and concluded that a positive influence on performance exists only in the case when MNC has no knowledge about the market, otherwise no effect is registered. Over the years the interest in the relation between physical distance and performance only grew and the author is confident that future interest will also manifest mainly because the inconsistences in results is tempting. Demirag (1988) expressed his interest on the effect of the exchange rate and its fluctuation. He mentions that reflecting or not the gain/losses from currency fluctuation greatly influences subsidiary’s evaluation. In his research he targeted MNCs from U.K. and derived that 57% of them used foreign currency and sterling in the financial analysis of their subsidiaries.
Schmid and Kretschmer (2010) point out that that it is almost impossible to categorize the factors that influence the subsidiary performance, due to the multitude of variables analyzed by researchers. Some of the variables are: MNCs nationality, size and degree of internationalization, industry, technology, market share, form of market entrance, level of local resources, knowledge transactions, autonomy, and ownership. Nevertheless the authors identified three main trends: MNCs home country, MNCs size and subsidiary interdependence. Mainly the factors have an influence in the control mix over the subsidiary. The authors tried to elaborate a contingency framework for subsidiary’s performance evaluation (Figure 3.6). The authors consider important to differentiate between the object, the content and the process of performance evaluation. They concluded that with all the studies and focus towards the subsidiary, still the performance process is considered a headquarter responsibility. And if the research concerning some of the factors’ influence on performance is inconclusive, there is no doubt that performance has to fit strategy. Balance Scorecard and Performance Pyramid are tightly connected to strategy per se and strategy implementation.
33 Figure 3.6 Contingency framework of performance evaluation of foreign subsidiaries
Source : (Schmid & Kretschmer, 2010)
34 4. Methodology
This chapter describes the methodology that was used in the thesis and also provides an overview and an explanation of the work process. A general idea of how the work was conducted can be deduced from this section. 4.1 Research purpose and approach The researcher’s intention during the study was to develop a proposal for the implementation of the balanced scorecard framework. The author was interested in this topic mainly because the BSC is a well- researched subject; the theory concerning the phenomenon is abundant, but at the same time controversial. Knowledge related to BSC was accumulated mainly from the work of the founders of the concept, Robert S. Kaplan and Steve P. Norton. However articles from specialized journals were also used. According to Saunders (2009, p. 124) the research approach can be deductive or inductive. The difference between the two approaches is the fact that the deductive reasoning constructs a conclusion from general theories, while the inductive framework starts by analyzing a specific case and only after that grounds it into the existing theory. In our case, the thesis starts with a deep understanding of the theory and moves towards data indicating that the deductive approach has been chosen. In addition the thesis has exploratory elements (Saunders, Lewis, & Thornhill, 2009, p. 139). It is rooted in the opinions of the interviewees.
4.2 Research strategy The research strategy that was used in the thesis was the case study approach. Yin (2009, p. 18) defines the framework as “an empirical inquiry that investigates a contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. He also specifies that in situations when the research questions can be formulated as “how” and “why” types; the study case is considered an appropriate choice. Taking into consideration that the purpose of the thesis is to understand the current performance system and to suggest a new one, a thorough and in-depth analysis of the situation is mandatory. By asking “how” and “why” questions a clear estimation of the ongoing position can be made, so that the goal can be achieved. The thesis was focused only on one subsidiary of the multinational company. This restriction is mainly due to the lack of possibility to gain access to the necessary information for the analysis and to the time constraint. Also we inclined towards the case study framework because of author’s previous working experience within the company. Another thing to note is that the evaluation of subsidiary performance is a common and essential aspect for MNCs therefore we consider that our case could be applied to other subsidiaries as well. However generalizations of conclusions and recommendations should be avoided and further case studies should be analyzed for confirmation. To conclude, we can state that, based on Yin’s (2009, p. 24) classification matrix, our case is a single embedded one.
4.3 Data collection and analysis The terms qualitative and quantitative are mainly used during the research stage of collecting and analyzing data. In order to clearly distinguish the terms, Saunders (2009, p. 151) advises to associate quantitative with approaches that make use or generate numbers, while the qualitative framework generates words, pictures, video clips. He continues by mentioning that the sources can be primary or
35 secondary. According to Yin (2009, p. 101) the most used sources in the case study approach can be categorized into six main groups and are: documentation, archival records, interviews, direct observations, participant-observation, and physical artifacts. The author however points out that these are not the only ones and the list can be extended accordingly. In addition, each source has its advantages and disadvantages and using as many as possible is recommended in order to increase the quality of the research by gathering evidence from multiple sources. In our work, we made use of both qualitative and quantitative technique. We operated with secondary data for the theoretical part; the information was collected from books and academic literature. For the practical part we again relied mainly on secondary data, however we complemented it with primary research also. The primary data was collected by interviewing key employees from OMD. On top of that, we added our personal opinions. The discussions and interviews provided a deeper insight of the situation and served as a solid base for our research. The secondary data was relatively easier to obtain. The quantitative data utilized refers to group presentations, internal magazines, and financial reports. However, we have to mention that the analyzed subsidiary does not disclose the annual reports, so we made use of the corporate website. Discussions, emails and interviews represented the qualitative data.
4.4 The interview and interviewees The interview2
For us to develop a reliable proposal for implementing the BSC approach as a new framework for measuring performance; we had to gain access to information from inside the company. We recognized the interviews as being suitable for the complexity of our research. According to Saunders (2009, p. 320), when deciding what type of interview to use, the first distinction has to be made based on the way the interview will be conducted. Will it be a “highly formalized and structured” approach or will it be envisioned as “informal and unstructured conversations”. Based on the interview formality, the author distinguishes further between structured, semi-structured, and unstructured interviews. In our case, we made use of the semi-structured and unstructured form. The two types were considered relevant for the purpose of the thesis. The semi-structured were focusing around subjects related to research questions, however the background part of the questionnaire was common for all the respondents; this was mainly due to the fact that we wanted to know different information from different people. We deliberated that there will be no benefit for an interviewee to make assumptions about something that is in no way related to his area of expertise. Taking into account the fact that we envisioned to propose a totally new approach, that was never before implemented; the unstructured interviews gave us the freedom of exploring the possibilities.
The interviewees
We managed to discuss with six OMD employees, key figures from different levels in the company. From the beginning we focused our attention for specific OMD personnel. We selected the employees based on their strategic function, expertise in a specific area and years of activity in the company. More details are provided in Table 4.1. Except L. Nedeljak who has been OMD’s CFO for the last three years, all the other respondents have been working at OMD for the last ten or even fifteen years. So, all the persons have an
2 The list of questions asked during the interviews is in the Appendix 4
36 extensive knowledge about the company, its structure, procedures, and goals. Firstly a general email with the purpose of study and of the interview was sent. Afterwards, the employees were contacted via email and convenient time and a suitable way for discussion were selected. Some of the discussions were in person; some via telephone and some through emails. We refrain from giving exact numbers, mainly because of the fact that we had additional questions to clarify and contacted the respondents on several occasions. Five of the interviews were conducted in Romanian and one in English. We considered that due to the broad knowledge of the chosen employees, sufficient information was gathered in order to fulfill the purpose of the study.
Table 4.1: Interviewees from OMD Respondent Position Lubomir Nedeljak Chief Financial Officer (CFO) Maria Rotaru Head of Controlling Sergiu Ceban Sourcing and Purchasing Manager Adela Margine Human Recourses Manager Andrei Preasca Business to Business (B2B) Director Adrian Panuta Sales Director Source: Author
4.5 Research quality The quality of the research can be increased by constructing validity (internal and external) and reliability, (Yin, 2009, p. 24). Saunders (2009, p. 157) considers a study to be valid if the researchers is measuring what was intended to be measured and if the research can be generalized. As we mention before, making generic assumptions would have been more accurate if a multiple case study was applied. Nonetheless, it can be argued that since it is a MNC, similar results may be achieved in other subsidiaries. Although we have to point out that the subsidiary specifics may alter the results. The environment, culture, organizational factors, subsidiary’s role and strategy, all terms described in the theoretical part, create a peculiar and unique situation. Moreover, our goal is not developing a comparable method, but creating the roadmap for implementation. One thing to note is that, by using multiple sources (data triangulation) the validity of the study can be significantly maximized (Yin, 2009, p. 116). If the external validity is open to doubt, the internal validity was ensured by thoroughly selecting the questions and the respondents. We were fortunate enough to discuss with relevant OMD employees for our study. As a conclusion, it can be stated that validity was reached by connecting the theoretical part with the practical one and by collecting and applying the information as projected. Reliability according to Yin (2009, p. 45) represents the final step. The main idea is that the obtained results should be consistent over time, meaning that similar conclusions will be retrieved in case a similar study is conducted. Also the intention is to exclude errors and biases. The reliability can be increased when the sources are selected meticulously. In the thesis the sources were exhaustively verified, as to the data gathered from the discussions, it was corroborated by internal documents and reports. So that our belief is that we provided a reliable research. Some bias might have been encountered due to the previous working experience; nevertheless the thesis is reliable for the stated purpose. Also we need to mention that the validity and reliability of the literature review were
37 secured by providing a comprehensive analysis of theory. The basic theories were described and strengthened with opinions from different authors. The main resources for the review were books and up to date articles from specialized journals.
4.6 Research ethics The information gathered from the company was treated in a professional manner and no abuse was made. Confidentiality is guaranteed because the sole purpose of the collected data was to be used in this paper; however sensitive information was not disclosed. There was no conflict of interest and the furnished data were analyzed in an objective manner.
4.7 Research overview The thesis is divided into two main parts: theoretical and practical. First of all knowledge was gathered from secondary research and a thorough literature review about concepts such as multinational, subsidiary, performance, and balanced scorecard was provided. Secondly, the accumulated theoretical knowledge was implemented in the practical part. The multinational company Orange was introduced, with its historical background and current state. Subsequently, the focus was switched towards the Orange Moldova subsidiary. After that, discussions and recommendations were formulated. .
38 PRACTICAL PART
5. Balanced Scorecard approach for Orange Moldova
5.1 Company overview - the Group Historical background and today
The Orange Group has its origins in the Ministry for Mail, Telegraphs and Telephone. France Telecom (FT) was known as General Directorate of Telecommunications, a division of the Ministry. In 1990 the Directorate became an autonomous entity and on the 1st of January 1991 the name was changed to France Telecom. By the end of 1996 FT was reorganized into a limited company. French state was the only owner of the company. However after being listed on the Paris and New York stock exchanges in 1997, the government started selling the shares to the employees and public. Nowadays, the share of French State represents only 23, 04% owned directly or jointly with Bpifrance. In 1994 in the United Kingdom (UK) Orange is launched. The telecommunication market (Telco) was revolutionized by the simplicity and the company’s approach towards its clients. In May 2000, FT bought Orange brand and company for €39.7M. At the time FT said that: “The acquisition of Orange is a major step in FT's international strategy to become a European leader and global player.” Since 2006 Orange is the company’s single brand for mobile, TV, Internet and digital services (Orange, 2014).
Today Orange is one of the main European operators for mobile and broadband internet services as well as a world leader in providing telecommunication services to businesses. Also, Orange is one of the most important players in the history of telecommunication industry in France. On a daily basis, the company offers solution and services that enable everyone to enjoy the best opportunities offered by digital technology. The Group has 156,000 employees and operations in 28 countries; served 263M customers, and revenues of €40.0 billions. The company’s headquarter is in Paris and the current chief executive officer (CEO) and Chairman is Stephane Richard. The Group’s footprint and an overview of the business activity are depicted in Figure 5.1 and Figure 5.2. Orange brand ranked 60th in the BrandZ Top 100 (the annual brand ranking published by brand valuation experts at Millward Brown) and the brand was evaluated at 17,384$M (BrandZ). Orange is a preferred brand mainly because: gives more and more access to digital services continuously innovates provides to customers offers, products, and services that are simple, accessible, reliable and responsible
The five values that the company lives by are: honest, dynamic, straightforward, refreshing, and friendly. Everything that is done has these values as a guideline; seeing and applying them on a daily basis will demonstrate to the stakeholders that Orange Group is an innovative, responsible and trustworthy company. The values are essential in the professional life and in adopting the Orange way of working. They should guide the thoughts, the actions and the processes used within the teams in all the countries.
39 In addition to all things mentioned above about Orange, it is worth mentioning the Orange Foundation. In 1987 when it was founded the main focus was on vocal music and gymnastics. However in 2005 two new lines of work were integrated: health, visual and hearing disabilities and education, mainly the struggle against illiteracy and girls’ education in developing countries. Since 2005, the Foundation actively supports philanthropic projects in Africa, Europe, the Middle East and Asia. Figure 5.1: Group’s business in 2015
Source : (Orange, 2015 Registration document: Annual Financial Report, 2015)
For the Group to easily manage the activities in the 28 countries, the countries are organized into the following operational entities: France, Spain, Poland, United Kingdom (EE)3, Belgium and Luxembourg, Central European countries, Africa and the Middle East, Enterprises (SCE), and International Carriers and Shared Services. The operational entities coordinate, for a country or region, all activities at close range. Figure 5.2: Orange footprint 2015
Source4 : (Orange, 2015 Registration document: Annual Financial Report, 2015)
3 EE was sold by Orange to British Telecommunications; deal is expected to be closed by the end of March 2016
40 Conquests 2015: Group’s strategic plan for 2010-2015
The slogan of Conquests 2015 was: “Together we can do more”. The business plan was co-developed by over 2,000 of Orange staff; the aim was to integrate business performance and social progress. Conquests 2015 was the starting point of a new journey for the men and women who work for Orange throughout the world. It was company’s and employees joint response to a clear-sighted analysis of a fast-developing competitive and technological environment. Stephane Richard put people at the heart of the company and its success. This change was due to the increased number of suicides at back then France Telecom. So the management had to address this sensitive issue and implement changes in human resources and the management of employees. Stephane Richard message to all employees in July 2010 was:
” You have responded to this new environment by dedicating yourselves fully to the joint development of the Group, contributing an unprecedented number of ideas, skills and initiatives. Our road map is clear: we must put people back at the heart of our organisation, ensure that our networks are top-drawer, become a true digital guide for our customers and boost our international presence.”5 (Group CEO)
The strategic action plan relied on four strategic axes and three key success factors. The axes were: the people, the networks, the customers, and the international development. The success factors were: excellence in execution, managerial room for maneuver, and running the business with a stronger operational focus. The plans priorities are depicted in Figure 5.3.
Figure 5.3: Conquests 2015
4 Orange Armenia was sold at the end of 2015 5 Source: Group magazine Connect, July 2010
41 5.2 Company overview - the Subsidiary Historical background
In 1995 the Ministry of Communications and Informatics issued the first license for installing and operating a digital cellular telephone system in Moldova for Moldavian Mobile Telephone (MMT) Company. In 1997, after an international bid, the first mobile operator was chosen: the joint venture START. The joint venture was between France Telecom Mobile International, MMT, Moldtelecom, and MobilRom. The French, Moldovan and Romanian partnership registered as Voxtel. The 15-year license required the Company to create a nationwide network that will ensure coverage of 56% of the Moldovan population within four years of operations. The project had the purposes to bring in modern technology, to upgrade the country's communications infrastructure and to fulfill the demand for more and better quality communications. The first call was made on 27 of October 1998 by Jacque Chirac in the presence of Petru Lucinshi, former presidents of France and Moldova. With this call the company started its activity as a commercial entity. On 25th of April 2007, Voxtel was rebranded and integrated into the Orange group under the name of Orange Moldova (OMD). Now Orange Moldova is one of Orange subsidiaries.
Orange Moldova today
OMD is the largest mobile network operator and the undeniable leader in the country. Orange works with GSM 900 and 1800 MHz and UMTS 2100 MHz, LTE 2600 MHZ. The company provides mobile telecommunications services: pre-paid, post-paid, and internet services. OMD owns 65.4% of the Telco market and serves more than two and a half million subscribers. At this time, Orange has the widest GSM coverage: 99.4% of the population, and 98.9% of the country's territory, plus 88.5% of 3G services. Seventy of the most important cities in the country enjoy the 4G coverage with the fastest wireless Internet, up to 150 Mbps. Also, OMD customers have access to free Wi-Fi in public transport stations and train stations. The company's services can be accessed through the customer care service, available 24/7, both on the phone and online or through an extensive distribution network, 28 direct stores all over the country, more than 90 partner shops, and around 3,600 points of sale for Orange PrePay. OMD has a team of about 1000 employees. In May 2015, OMD announced the partnership with UK operator Everything Everywhere (EE). The OMD employees will provide services concerning finance, IT and customer support for EE. OMD also has agreements with Mobistar in Belgium and Salt in Switzerland. Mobistar is an Orange subsidiary, and Salt is the new name of Orange Switzerland. So far there are 170 employees that are engaged in the nearshoring project. EE was a 50-50 joint venture between Deutsche Telekom and Orange, however it was announced in February 2015 that it will be sold to BT for 12.5 billion GBP. The deal is expected to be closed by the end of March 2016. It is the country’s number one taxpayer; its contribution to Moldova's GDP is 3%. The company is a socially responsible operator, status reconfirmed by Orange Moldova Foundation's (OMF) work. OMF was launched in November 2009; its activities are directed towards three main areas: health and disability, education, and culture.
At the time of the thesis presentation, the company’s top management will not be the same. On the 4th of February, Gervais Pellissier, Executive Director for Europe within the Orange group, announced changes in the structure of the senior management team of Central and Eastern Europe, effective May 1st. Changes that are part of a broader strategic development plan for the area. Orange Romania's CEO Jean-Fransois
42 Fallacher ends his mandate and will take new challenges at the helm of Orange Poland. Orange Moldova's CEO Liudmila Climoc will be appointed CEO of Orange Romania. Meanwhile, Julien Ducarroz, who currently is Orange Romania’s Chief Commercial Officer, will move to Chisinau as CEO of Orange Moldova. The other key figures in OMD’s management are the directors. Presently there are eight more directors besides the CEO: Human Resources, Financial, Sales, B2B, Mass Market and Customer Care Relations, Marketing and Communication, International Operations, Technical. The directors meet at least once a week, usually Tuesday, to discuss and coordinate various aspects related to the effectiveness of the company. Within each department there are several specialized teams that are headed with a manager. The OMD organizational structure with more details is depicted in the annexes (Appendix 3).
5.3 Subsidiary performance characteristics
The measurement of subsidiary performance is mainly done in order to keep track of the progress of following the Group’s strategy. Monitoring the progress offers the possibility of implementing necessary adjustments in time. One thing to note is that it is more difficult to successfully manage subsidiaries from emerging markets, because of factors such as economic, administrative, cultural and geographic distance. As it was already mentioned in the theoretical part of the thesis, cultural influences are not to be neglected. The impact is not only on the subsidiaries-headquarter relations but also within the whole MNC. The interaction among the subsidiaries within the MNC is also affected. MNC has to create a local-corporate symbiosis. To adapt and assimilate to the new cultural environment with different norms, while enforcing and spreading its values. One problem of emerging countries is that it is necessary to adjust to the local economic environment. The GDP/person (Gross Domestic Product) and the income/person are lower than in developed countries. The MNC is forced to keep its level of excellence when providing services while at the same time keeping the prices low. A thorough analysis is mandatory for adjusting the prices for the services to be offered on the local market. Moldova is considered one of the poorest countries in Europe and the situation got even worse when in November 2014, 1$ billion disappeared from three local banks. The amount represented the equivalent to 12% of Moldova’s GDP. Even though Moldova evolved from a communist regime, it is still far from having a capitalist one. The country has been in transition since its independence that happened in 1991. Understanding the post- Soviet Union way of doing business, needs time. Time that costs money for the MNC and that it can be very frustrating. Cultural differences have an impact on the day to day way of working, on how people see the hierarchy and power relations in the company. Crafting the strategy and defining the best objectives has to take the historical and the actual situation into account. But of course, there is no general rule to state that if the subsidiary is from a country with communist regime more control has to be applied. The situation has to be always adapted. There is no generic model that could facilitate the directors work in facing this challenge of profitably manage the subsidiary. In our case Orange remains a centralized company, still considered a nationalistic firm deeply entrenched in its home country.
Successfully administer international operations, demands from managers additional skills and knowledge than managing domestic ones. Predominantly due to cultural differences, at the beginning, OMD had only expatriates on key positions. The rationale of this decision is the fact that the expats were familiar with the MNC policy, environment, and principles, so their goal was to control the subsidiary and to acquire knowledge about the local environment in order to create a synergy between headquarter and subsidiary.
43
“We, expats, have a dualistic role. We have to share headquarter vision, while at the same adjusting to the local situation.” (CFO) Another reason for using expats is the lack of competent and trained personnel. It was the case of Moldova too. Orange was the first company to enter the market, so there were no specialists in the area. At the beginning, consultants were sent to Moldova to train the local managers. Nowadays as the CFO states:
” Previously all the expats were French, however now the situation has changed. Back then having an expat that was not French or even having a local director was not a situation frequently encountered. Now the MNC is more open to international mobility. Discussing the case of OMD, the CFOs were French, Romanian and now Slovak and let’s not forget that OMD’s CEO was till recently a local.” (CFO)
We can say that Orange is not mainly a French company anymore, but an international one. Having different nationalities in the subsidiaries can promote the cooperation and a better communication between entities. On the other hand, even though there was a lack of specialists, there was no language barrier. Because Moldova was a country member of the Soviet Union, French was the foreign language taught in schools. A majority of employees had at least the basic level of French. However even this aspect has changed over time, English became the official language and not only among the subsidiaries, French people are speaking it too.
As the CFO reminds Orange has a two folded image when entering a new country. On the one hand its main purpose is considered to make cash, but on the other hand Orange is considered to be an expert. So the subsidiary and the employees have a unique chance to gain knowledge from one the best company. Concerning the knowledge transfer within the MNC, the CFO is confident that positive changes occurred. The direction of information changed, it is not a one way street any more. OMD became an innovative company; it was the first operator in the world to launch HD services for mobile phones: HD Voice and HD Voice International. The first call was made on the 09.09.2009 at 09:09. It was a noteworthy event because no improvements have been made in voice transmission area since the 1990’s. As a result OMD won the 2009 GSM World Congress Technology Breakthrough Award. With HD services a better quality for voice transmission is guaranteed. Today, HD voice services are implemented in Group’s subsidiaries all over Europe and Africa and the Middle East. In short, we can say that knowledge is transferred from OMD to headquarter and to other subsidiaries. There are also particular situations, when even though the solution proved to be successful in France; it wouldn’t have been the perfect one for the subsidiary. It was the case of Orange Armenia6 when due to cultural similarities, specialists from OMD were sent to implement the Group’s practices. Some of them were even offered strategic position and relocated.
The administrative distance emphasizes the role of the government. The relationship with the government also influences the situation. Even from the beginning Orange encountered some unpleasant surprises. In
6 Orange Armenia is not an Orange subsidiary since December 2015
44 1998 Orange Moldova7 was the only provider of telecommunication services in Moldova. Although the license agreement granted the company exclusive rights for a period of five years, only after a year, a second license was issued. The new company Moldcell started its activity in April 2000. On the 1st of March 2007, another mobile operator began its activity. Unite, operates with the CDMA standard and is owned by the national telecommunications company Moldtelecom. The company obtained its license without any competition in July 2006. So, from these two examples, it can be concluded that business rules are not always followed by the Moldovan government, situation that makes even more complicated the management of the subsidiary. Moldova still lacks transparency in how the laws are created and enforced. Political uncertainty in the lack of economic stability in the country makes investors hesitate.
The impact of culture can be easily noticed in the company’s cooperation with local suppliers. To our surprise, the S&P manager revealed that for the buyers, working with international suppliers, obtaining savings8 it is rather easy. On the other hand, on the domestic market there is very little room for maneuver. No savings – no performance. Buyers negotiating with local companies have argued that some of the main issues are: - No price flexibility - No such thing as cheap or expensive, it just “my” price - Preconception of OMD “having money” - Quality insurance - Personal meetings - Corruption
S&P manager outlined that local suppliers consider that OMD has the money to pay their price, and their value added (profit margin) is most of the time exaggerated. The same goes for the quality. Short term gain is prioritized and the long term benefits are ignored. The management style of the companies is considered entrenched in the past. The process of negotiation is preferred to be done during personal meetings, not on the phone, or email. And the last, but not least critical problems are the nepotism together with corruption. Local suppliers still believe that they can be selected based on bribing or being someone’s relative, instead of offering best prices and quality..
So, we can conclude that when assessing subsidiary performance local aspect has to be taken into consideration. As Melnyk, et al., (2014) argue, if the performance measurement does not “’fit” the strategy and the environment, it will affect negatively the company’s performance. The authors point to the fact that the literature studying the connection between the performance measurement and the environment is still scarce and that most of the researchers consider that a change in environment will change the strategy and only lastly the measurement (Figure 5.4).
7 Orange Moldova was still Voxtel in 1998 8 Savings (from a sourcing point of view):difference between the total cost before a buyer’s action and the total cost after a buyer’s action
45
Figure 5.4: Theoretical framework of the interfaces with the PMM system
Source: (Melnyk, Bititci, Platts, Tobias, & Andersen, 2014)
5.4 BSC application to Orange Moldova 5.4.1 OMD Vision and strategy
From the beginning, OMD imposed as a company that provides quality. The initial strategic objective of the company was to ensure a qualitative network through the whole country. Nowadays, the objectives are mainly focused on reaching the absolute quality towards the customer. Company’s vision is that everyone should have access to today’s digital experience because we live in times of technological revolution that are changing our life and the way we interact with the world. But, in order to secure a positive technological progress, the experience should be available and tailored according to the needs. Therefore, OMD’s mission is to connect its customers to what is important to them, meaning simple and functional solutions, fast and reliable networks, best quality price ratio for services, and personnalized approaches. Orange strategic vision is to retain and strengthen its leading position in the Telco market of Moldova
“Every day changes with Orange” reflected OMD vision during 2010-2015. Daily changes occurred with Orange in: Communication: with services and subscriptions for 2M inhabitants Access to Internet: with the fastest Internet 3G in the country Businesses: because it is an integrated operator that offers mobile, fixed, and Internet fiber optics Technologies: by providing simple and innovative services Quality: the certification in the international standards Emotions: by HD Voice world premiere Music: the best concerts in the country Care: by implementing a 24/24 customer support
46 Hope: by supporting children from socially vulnerable families, students in boarding schools, children with disabilities, thanks to Orange Foundation
The primary objective according to Conquests 2015 was: to be the most loved brand in the Telco market in Moldova: number one in terms of customer loyalty and the number one choice of customers for voice and data services by. Reaching this objective was possible by: expanding LTE coverage in the big cities offering best phone deals and thus increase the utilization rate of smartphones and mobile data consumption explore and promote innovative services to customers capitalize on all the opportunities for market growth
5.4.2 BSC design
When reviewing the literature concerning the process of implementation of a new performance measurement (section 3.2), we provided two perspectives concerning the main steps to follow. Bourne, et al. (2000) envisioned the process as a 3 steps approach: the design, the implementation, and the use; while Franco-Santos, et al. (2007), in their study of reviewing the definitions of the process, identified twelve steps that were categorized into five stages: selection and design of measures, collection and manipulation of data, information management, performance evaluation and rewards, system review. In addition we described the steps for the particular implementation of the BSC framework according to Kaplan and Norton (1996, p. 309) (section 3.3.4).
The underling goal of the BSC is to translate the group’s vision into objectives that are easily measurable. Having precise and smart objectives would offer the company a clear perspective on the process and progress in realizing them. As already mentioned in the theoretical part, the BSC enhances the measurement of performance, it strives to balance the financial and non-financial perspective for reaching breakthrough results. BSC will allow the subsidiary to measure how it is performing according to a number of indicators for each perspective. No one perspective should be emphasized, the distribution of importance should be equally performed. However as Kaplan and Norton (1996) remind, each company is specific so there is no template that could be applied to all organizations in order to reflect the performance.
“The complexity of the method should not be underestimated. I am confident that if implemented, at the beginning it will create more problems, than solve; primarily because the method involves data that was not taken under observation before.” (CFO)
Regarding the design of the framework, the CFO’s main concerns are how exactly to translate the strategy into daily activities and how to spread within the company its strategic objectives. Because according to the BSC method, all the employees should be involved in the process, from the CEO till the receptionist.
47 “No good will be achieved by measuring just for the sake of it. Measures should create value and not waste money. How transparent we should be towards employees and how to communicate the goals so that each and everyone will understand them?” (CFO)
The CFO’s apprehension is pointed out by Neely, et al. (2000) as one of the method’s weaknesses. The authors criticize the approach by indicating that although the perspectives are specified, no explicit guidance is provided on how to choose and employ the measures. By insisting on the fact that the BSC is not a template and should be adapted to each company, Kaplan and Norton made the situation even blurrier. Neely, et al. (2000) argue that the four “how” questions to be answered when envisioning to adopt a new performance framework are: How to design, implement, use, and maintain. (Figure 5.5)
Taking into account that it is a new framework, we would advise using the BSC both ways in order to understand the complete picture and to ensure a better assimilation within the company. The bottom up way will guarantee employees involvement while the top down will point out towards the important aspects for the management. The process can be started by asking employees about what would they consider that it should be measure. However, there is the risk of employees proposing too many and too different measures. In addition, if the employees do not understand the company’s strategy, there is also the risk of the measure being irrelevant. A bottom up approach on the other hand will insure company’s alignment with the strategic objectives.
Figure 5.5: Measuring business performance
Source: (Neely, Bourne, & Kennerley, 2000)
48 5.4.3 Strategy map
As we have mentioned in the theoretical part, a strategy map explains the links between strategy and the actions to reach it. It represents an understandable visual explanation of steps to be followed. The map enhances the communication and the communication issue was repeatedly mentioned during the discussions. As was specified by the CFO, OMD has 1000 employees all with different backgrounds and positions. So the challenge of making them all understand and realize how the framework will be useful to them is huge. The BSC should not be seen as a list of random targets for four different areas. The linkage has to be enforced through a cause and effect relationship, so that employees will also have a clear vision about the method. The communication aspect represents one of method’s weaknesses, obtaining the synergy within the company and to agree on what is strategically relevant is time consuming and requires additional effort from employees, but with a strategic map, this issue is diminished. The simplicity of the map should be its prime characteristic. Also, when designing the strategy map, the company should focus on pinpointing the activities that are crucial for value creation.
Figure 5.6: Simplified strategy Map OMD
Source: Author
49 5.4.4 BSC Perspectives Learning and grow perspective
As already mentioned, the slogan of Conquests 2015 was: “Together we can do more” and people represented the cornerstone of Conquests 2015. The Group’s perspective was that Orange culture has to be integrated into the human resources (HR) practices. At OMD employees are considered an important asset for the company. As A. Margine, HR Manager at OMD, expressed:
“OMD desires to become an employer of choice and to represent a great place to work. The company’s commitment is to create a place that employees will love to be a part of.” (HR Manager)
In this perspective the concern is how much time and money is spent on educating the personnel and how satisfied are the employees. According to HR Manager the basic assumption is that employees can always improve the way they work in order to achieve excellence. Supporting the people will help the company build an extraordinary Orange experience.
“Succeeding in creating a happier and more satisfied employee implies better services and a higher quality of work.” (HR Manager)
One of the most common indicators for measuring this perspective is employee satisfaction (Niven, 2006, p. 159). OMD is not an exception, however even though satisfaction is measured; it is not included in the general subsidiary evaluation. Once a year, a survey is conducted by Profiles International. It is a Romanian company considered the world leader in online assessment of human resources with over 40,000 customers in 120 countries (http://profilesinternational.ro/). The employees are answering a number of questions under anonymity; nonetheless the participation rate is less than 40% and many of the employees do not take this survey seriously. The data from the survey represent a valuable input for assessing the satisfaction, however it is done only once a year. When asked about the possibility to increase the number of surveys from one to two, the HR Manager replied that:
“We are in no way undermining the importance of employee satisfaction, however assessing it involves time and money. It is a complex process that usually takes a few months.” (HR Manager)
The second measurement for this perspective is related to employee training and as Niven (2006, p. 158) points out, in one way or another, every company measures it. Still the author urges the company not to focus only on attendance at those trainings and advises to use methods to share the acquired information. Stephen Covey refers to it as a “third-person teaching” (Niven, 2006, p. 158). Among the benefits from sharing the information the author lists: increased attention during the training. Also when analyzing the budget spent, close attention should be paid to the number of employees involved in trainings. For example, three of the directors were enrolled in MBA courses. Even though the directors are representing key figures in the company and the whole company will benefit, when it is translated into numbers, the
50 result is that the company invested in only three people out of 1000. Different types of trainings are provided by the company. HR Manager uncovers their typology:
“We differentiate between general training, management training and job-related training. Each category has a specific purpose. The general offers knowledge about the common culture; the management develops managerial competencies and the job-related develops particular skills necessary for the job.” (HR Manager)
All new employees have to attend the well-being and security at the work place training. It takes four hours and it is provided by an employee from the Security Department. The Brand Induction training is one day introduction training about the fundamental concepts such as: the brand, OMD values, core principles, action plan, and corporate social responsibility. Now the training is optional, however it should be considered making it mandatory. One issue related to the organization of the training is the fact that the HR department requires minimum 15 employees. Sometimes this results in the fact that the training is held after one or even three months. With this delay, the utility of the Brand Induction training about the basics concepts is close to none.
In addition, OMD employees, like all Orange employees have access to the SkillSoft platform that offers access to a vast library of books in pdf, e-reader or audio format; a multitude of courses, webinars, interactive lectures. Despite the undeniable advantages of the platform, the percentage of use is very low. HR department is continuously striving to improve the participation rate. Some of the reasons of this phenomenon are lack of time and motivation.
When analyzing the employee retention, the HR Manager brings up the high turnover in Mass Market Customer Care (MMCS) department. As mentioned during the discussion, this is in no way related to company’s policy or working conditions. The main reason is that the employees working in Help Line are usually students in the process of graduating. So from the beginning, this job is considered for a short period of time and not envisioned as a potential full career path. Some of the graduates’ reasons for leaving only after a short period of time are that the job is not fit for them and they were not aware of what exactly they will suppose to do.
“We consider that applying a reward policy or a bonus system will insignificantly change the situation, so we don’t consider it as a solution for increasing the employee retention.” (HR Manager)
A proof of OMD exceptional employee conditions are the Top Employers Certifications. The company received the award in 2014 for the first time and since then again in 2015 and 2016. OMD is one of the two companies in the country that received this award. HR Manager highlights that OMD offers package of benefits that no other company in the country: vacation, sick leave, additional insurance policy, phones at promotional prices (discounts offered based on years worked in the company), etc.
“At OMD by understanding and anticipating the employee’s challenges, the company is helping them to develop and to achieve their goals.” (HR Manager)
51 To summarize, we suggest measuring the following indicators: employee satisfaction, employee retention/turnover; amount spent for education and training per employee. Also, we would advise firstly to shorten the period from when the person was employed till he/she benefited from the Brand Induction training. Instead of gathering more newly employed personnel, the HR should assign a tutor. Secondly, to follow up Niven’s suggestion, we consider that it will be relevant to create an Intranet module dedicated to review on trainings. In this way the information will be more easily spread in the entire subsidiary. The SkillSoft portal might seem overwhelming; this page however will be only for the trainings that OMD employee attended. Lastly, an intranet application should be developed in order to check the employee satisfaction. At the same time in order to increase the participation rate we would recommend for the HR or Internal Communication section to make more transparent the actions taken when solving some of the dissatisfactions from the survey. In this way we consider that participation rate will considerably increase.
One additional thing to be noted is that five years ago marketing department went through some internal changes and the decision to increase the number of personnel in the Internal Communication section was taken. Until then, the intranet site update and maintenance were administered by the local company WebartPro. Since the reorganization, the Intranet is managed internally. So developing any additional module on Intranet will generate no additional costs for the company and could be assigned as targets for the Internal Communication team.
Customer perspective
Being a universal operator means answering and anticipating the digital needs of the customers. The group emphasises the idea of offering the same high level of customer experience across all its markets for individuals and business alike, this while persevering in innovating and producing services, functions and security that make the difference. The objectives were to first of all manage clients and not contracts, and to become a true digital guide for customers. The Group’s priorities were: making people’s lives easier always being close to the customers offering the most innovative services providing the richest possible digital experience thanks to partnerships with content providers guaranteeing the security of personal data and privacy
As B2B Sales and Customer Care Director A Preasca reminds, the second pillar of Conquests 2015 was the Customer. The Group’s ambition was to be a service provider that the customer can trust and a leader in customer service and as a result to increase the customer base from 200M to 300M and double international sales by 2015. Both B2B and Sales Directors agree that OMD’s leadership on the market, among other factors, is justified by its focus on customer relations. Further they mention that:
” The customers should always benefit from an excellent experience in the shop, on the phone, or online. The same level of excellence in service should be encountered in OMD as it is in the whole MNC. Give the best experience to customers; this is the motto we live by.” (B2B and Sales Directors)
52 How the company is positioned on the market in terms of quality and prices is depicted in the Figures 5.7 till 5.10.9
Figure 5.7: Operator with high quality of services Figure 5.8: Operator with best geographical coverage
Figure 5.9: Operator with optimal ratio of quality and Figure 5.10: Operator with the highest prices prices
Source:(Orange Moldova report survey)
The first distinction that should be done when analyzing OMD customers is between postpaid and prepaid users. We can further distinguish for the postpaid category between private consumers and companies. The case of prepaid customers is more specific. There is no way for the company to measure some of the core indicators in customer perspective such as the retention rate or the repurchase rate. There is no database for the owners of a sim card. Anyone can purchase a prepaid package, no identification document is needed. We can conclude by stating that the main customers of this product are anonymous. To make the situation even more complicated measuring the total sales or number of packages sold will also be irrelevant due to the fact that the package are sold in the 28 direct shops, 30 partner shops and 3600 points of sales (POS). An increase or decrease in the number will in any way reflect the quality of services. For the postpaid category, the companies are managed by the B2B department and the customers with contract are the responsibility of Mass Market Customer department.
The excellence approach is implemented within the MNC and OMD is not an exception. This can be achieved only by engaged and motivated employees. The importance of customer service is emphasized
9 The survey was based on users of mobile services and the numbers represent the percentage of population
53 for the sales consultants. The quality of services in the shops is measured twice a year by hiring a specialized company in providing surveys and Mystery Shopping services. The main idea of the program is that the persons are disguised as an ordinary customer and test the shop assistant in order to understand and analyze its behavior. The period of the survey and the shops to be investigated are kept secret. The purpose of the visit is to assess the quality of services in the direct shops. The aspects that are scrutinized are welcoming the customers, presenting company’s products and services, how well the consultant knows the latest offers, dealing with questions, doubts and problems, closing the deal. So, the main goal is to see if the consultants are following company’s policy. In addition, each shop has the complaints register, so that every customer can fill in a complaint if necessary. As A. Panuta, the Sales Director, reveals OMD is in the process of testing a new approach for a better customer analysis. The company introduced as a pilot program the People Counter in the Central shop. The shop was the first one to be opened and due to its strategic positioning in the city center, it is the most profitable one. However it is too soon to indicate either the project will be extended to all the other shops or only the most important ones, or abandoned all together.
“Counting can be beneficial because the shop could have a clear perspective on attendance, visiting trends. We could deduct the percentage of visitors converted into clients. However we have to outweigh the possible benefits with the cost of acquisition the equipment, the software, and the maintenance”. (Sales Director)
The indicators related to customer satisfaction were always important. It is already general knowledge that good customer experience leads to more customers, which will lead to more sales, which will increase the revenues. As B2B Sales and Customer Care Director A. Preasca indicates the focus is to cultivate and enhance the company customer relationship whatever their profile is. Each customer should find a convenient service/package. Providing the best customer service through competent treatment will secure the creation of value for the company.
” High quality is a requirement for his team of Key Accounts. When quality is not delivered, customers are not paying”. (B2B Director)
The way the company treats its customers influences greatly its results in the short and long run. Being a customer oriented company increases the possibility of reaching the targets. One thing to note is that the customer satisfaction is an indicator constantly changing, so that the company should proactively act on it and require feedback in order to understand how happy the customer is. As being pointed out by Niven, for the customer perspective, 70% of companies using the BCS approach, include the customer satisfaction. Further, the author mentions two surprising facts about this indicator: - having a satisfied customer does not equal to success. The K-Mart case illustrates it perfectly. Even though the customer satisfaction index increased, the company was registering significant declines in sales. - striving for perfection is also not always justified. One recent study revealed that 80% satisfied customers are spending as the 100% satisfied (Niven, 2006, p. 152).
Kaplan and Norton (1996, p. 67) suggest, that for the customer perspective mostly the indicators to be measured are market share, customer retention, acquisition, satisfaction and profitability. The Group
54 already measures the NPS. The NPS is a recently emerged way of measuring customer loyalty. The concept was introduced by Frederick Reichheld in 2003 in his article “The One Number You Need to Grow” and since then it gained popularity among the top of business management (2003). According to the author in this way the process of measuring customer is considerably simplified and the loyalty indicator is calculated by answering one single question: “How likely are you to recommend our company to a friend or colleague?” The answers are based on a scale from 0 till 10. The underling idea is that the company measures how many of its customers like their brand enough to promote it. Still, as some authors argue, although the method offers a snapshot of customer loyalty, relying on one single question is a “gross oversimplification”. They conclude by stating that the net indicators are not trustworthy indexes of performance, focusing only on NPS could be misleading and provide not enough information for improving the performance (Pingitore, Morgan, Rego, Gigliotti, & Meyers, 2007). Due to these antagonistic opinions about the indicator, we would consider including in the customer perspective also: Customer satisfaction and Market share.
To conclude, we have some suggestions for the Sales and B2B departments that we want to point out. We would advise for the OMD to increase the number of mystery shopping operations. One of the reasons could be the fact that customers do not differentiate between direct or partner shop. So when a bad service is provided from a consultant from an indirect shop, the company’s image has to suffer. For the expenses not to be increased considerably this can be a shared program among all the partners. For the B2B department, we consider that an exhaustive client analysis has to be performed. Each customer brings a different amount of value to the company. As Raisel (1999, p. 30) mentions, the 80/20 rule is one to live by and it is “one of the great truths of management consulting and, by extension, of business”. In his book “The McKinsey way” he reminds about this axiom and urges companies to look for it. Because a thorough analysis of the most profitable companies has never been done before, we suggest identifying those 20% of clients that bring 80% of business. The customers have to be prioritized based on their importance. By gathering, analyzing, and organizing the collected information a more detailed view into customers’ needs and trends could be created so that the approach will be tailor made. By enhancing the relationship with them the notoriety of OMD will increase.
Internal perspective
In this perspective, as Kaplan and Norton reveal, the business processes that the companies are predominantly focusing on are: innovation, operation and post-sale services. Niven adds one more classification to the innovative perspective: regulatory and social measures. The managers should identify those unique and essential processes for achieving the customer and shareholder objectives. (Kaplan & Norton, 1996, p. 96; Niven, 2006, p. 156). This perspective is at least implicitly connected to all the other objectives; efficient processes are supporting reaching the targets.
In pursuance of a holistic picture concerning the subsidiary performance, this is a perspective that has to be thoroughly analyzed. Discerning the firm’s internal source of advantage could improve the efficiency of the entire company. And due to the precarious situation in the country OMD is focused on creating value by being cost effective. After the discussion with the CFO, we understood that the Sourcing and Purchasing (S&P) division is of main importance for the company. Despite its importance, it is not properly measured. However before proceeding further with an in depth analysis of the S&P activity,
55 some important terms have to be defined; terms such as: request form (RF), purchase order (PO), supplier selection (SS), and savings. A RF has to be initiated by a requestor and approved by its manager/director. The RF expresses a need: what needs to be bought, what quality and amount and by when. Based on the RF, the buyer launches (when the case) a SS and after selecting the supplier, a PO is issued. The PO represents the official OMD confirmation order, the company’s engagement to buy. Savings represent the difference between the total cost before a buyer’s action and the total cost after a buyer’s action.
On a general level, it might not be so evident why the S&P influence on the overall company performance should not be ignored. But one thing to note is that, the S&P practices could lead the subsidiary into developing a competitive advantage. A strong S&P division can ensure an effective management of the entire process loop, can constantly strive for improving the value delivered to customers, and can reduce costs and increase savings. In order to understand the S&P importance, the CFO fancied into giving a hypothetical example of how the S&P activity impacts all the other departments:
“Let’s just assume one of many possible cases. If the supplier selection for some specific security phone equipment was not performed in reasonable time, the whole project of launching the shop can be jeopardized. The shop not opening as planned will result in unsatisfied customers and will negatively influence the brand. However this is just a fictional situation.” (CFO)
To remain competitive OMD has to ensure that its S&P division delivers the required products and services in time and within the right quality. Also, a balance should be between local and global sourcing orientation. Of course, it can be argued that economies of scale can be reached when following a global sourcing strategy however it is not always possible as the CFO and the S&P Manager mention. The S&P division has to adapt to local market and at the same time to keep in line with Group requirements. OMD has to analyze customer requirements and implement a logistic solution that will fit best. OMD’s sourcing strategy is oriented towards the quality of purchased goods and services rather than price alone criteria. In addition, criteria such as flexibility and speed are taken into account when choosing a supplier. However following the Group requirements is not always attainable.
“In Moldova, there are only three major companies that provide security services; the funny part is that all of them have the same director. So, in this case, a supplier selection can’t be performed.”
(S&P Manager)
As the S&P Manager mentions, there will always be some special situations. But what is important is that 99% of cases are aligned with Group’s instructions and guidelines.
“We try to stay proactive; however there are exceptional situations when we are caught off guard. The case of Samsung phones delivery from Ukraine is an example. We could not find a transportation company willing to deliver the phones from Ukraine during the crisis.” (S&P Manager)
56 From the discussion with the S&P Manager, we deducted that its division is already striving for excellence by: consistently searching alternatives for the suppliers that OMD is dependent and evaluating the suppliers based on quality, flexibility, and price.
The main concern of the S&P Manager was the fact that the team is already “buried” in reports. Compiling them takes time, time that could be used for finding ways to develop a more efficient workflow for the division. Some of the revealed reports are summarized in Table 5.1. Table 5.1: S&P reports10 Report Frequency Department Cut-Off monthly Controlling Open PO Capex weekly Controlling Site expenses monthly Controlling Shop costs report monthly Sales PO approval weekly Directors Cars maintenance expenses monthly Logistics Post factum PO monthly S&P Prepayment PO monthly S&P PO in process monthly S&P Weekly report weekly S&P
Suppliers’ evaluation is conducted annually. Based on this evaluation the contracts with suppliers are either ceased, in case of a negative ranking, or prolonged, for a positive result. On top of that, if one supplier was selected, it should not be assumed that it is for an undefined period. A reevaluation of existent suppliers is done at least once in three years.
To underline the importance of the S&P, a new project was implemented within Orange Europe Purchasing Community: take, grow up while sharing (TGS). As the S&P Manager explained the TGS program main goal is to leverage the best existing practices in a “giving country” and to boost the efficiency of one or several other “needing countries”. Sharing sourcing solutions will only strengthen and develop an efficient purchasing team and values. It is an easy way of not only improving the purchasing techniques, but also to increase collaboration of teams from Orange Europe area.
“There is no doubt that a competitive advantage can be created by improving the S&P processes; which in term might lead to lower costs and increased value for the customer. As a resul,t the performance will be enhanced.” (CFO) We propose to strive for efficiency and the indicators for this perspective: - average time for purchase order approval: 3 days - time between RF approval and PO closure date - precision in delivery ( no errors: on time delivery11 and of the required quality) - saving increase
10 Reports compiled only by PO administrators, byers’ reports were excluded 11 Exceptional situations will be excluded.
57
In addition to measures reflecting the operational excellence, we consider including one from the regulatory and social type: implemented solutions for a greener world. As Niven (2006, p. 155) states “these days it’s not enough to simply be a good corporate citizen, companies must demonstrate adherence to regulatory and environmental standards, and commitment to social causes”. And because the Group and OMD heavily invest in the network and one of pillars of Conquests 2015 was the network we advise measuring the evolution of the 4G implementation project. The Group is a market leader concerning 4G coverage in several countries already.
Financial perspective
Last but not least is the financial perspective. We will only briefly focus on this perspective, because it was always taken into account and managed. Performance measurements are often criticized for relying only on financial indicators. All the companies, no matter the size, the strategy, the ownership, the number of employees are measuring the financial aspect of the performance. A big percentage of those companies are still relying mainly on this kind of indicators when making decisions. The rationale could be the fact that it is mandatory for the company to submit the accounting statements, so the indicators are easily extracted. Or as Kaplan and Norton (1996) expressed, at the end, the results from all the other perspectives will be reflected in the financial one. The debate related to the “right” financial indicators in the literature is endless.
The Group is not an exception and the prevalence of financial measures, although they are historical by nature, was mentioned by both CFO and Head of Controlling. As long as OMD fulfills the financial criteria set by headquarter, no further questions are asked. The CFO however agrees that only focusing on financial targets could be an impediment in viewing the bigger picture. Measures such as customer satisfaction, employees’ development, and operational efficiency, etc. create the company’s competitive advantage, so also have to be analyzed.
“One has more confidence in numbers, in the financial indicators in this case, however for a long term profitability the non-financial indicators are to be calculated. The sole focus can’t be only on the financial and to expect to succeed for a longer period. You can sacrifice it one year maybe, but not more.” (CFO)
Currently the Group uses the following financial indicators: Earnings before interest, taxes, depreciation, and amortization (EBITDA), Profit & Loss, Cash Flow. The profit created by the company from its operations is reflected by EBITDA, or also called the gross operating profit. It is mainly the short term ability that is depicted by the indicator, because it is not influenced by the company’s long term financial decisions. As mentioned by the authors, EBITDA/Sales is a relevant way to estimate the “potential for profitability” (Stolowy, Lebas, & Ding, 2013, p. 561). EBITDA is a preferred way of measuring the profitability also because it offers the possibility of comparison between companies. To emphasize the importance of the indicator we can mention that according to the CFO, the possibility of not achieving the predicted EBITDA is out of the questions. Cash Flow is also of importance for the company and even though operational measures take account of the cash flow, shareholders are interested in understanding
58 the full picture. In addition, from the cash flow statement, the free cash flow is usually calculated; indicator that provides a clear view of the company’s ability for future investments. Another thing to note is that free cash flow is influenced by management choices and it can be increased by reducing capital expenditures (Grant, 2010, p. 40).
”Although there is a lot of talk about getting the full picture by combining the financial an non-financial measures, at the end of the day, the Group is interested in the financial part, and this is the perspective that matters the most.” (CFO)
As the CFO mentions not every indicator should be new, particularly in the financial perspective. A balance has to be kept. The “old” indicators can be combined with new ones. We consider that measuring the profitability and the cash flow are sufficient to express how the company is being run at the operational level and how it is managed from the shareholders point of view. However we would advise to include also the return on capital employed (ROCE). Because OMD is focused on increasing operational efficiency, we consider ROCE suitable. The ratio reflects how efficiently and effectively the available resources were managed.
5.4.5 BSC measurements
The actual measurement of subsidiary performance is not based on the balanced scorecard method. This framework is unfamiliar to the company. At the moment, the indicators used by the Group to evaluate subsidiary’s performance are mainly financial. However the company is aware about the importance of a balanced approach while measuring performance and also measures the Net Promoter Score indicator (NPS). When the general idea of the BSC approach was illustrated, CFO explained that in business numbers speak. The Group is mainly interested in the financial aspect of the subsidiary. So the pressure to achieve the targets is big, that’s why sometimes the non-financial indicators are sacrificed. Even though all four perspectives are important for the subsidiary’s long term success, the financial and the customer perspectives prevail and are considered more important.
“One has more confidence in numbers, in the financial indicators in this case, however for a long term profitability the non-financial indicators are to be calculated. Focusing solely on the financial angle and expecting to succeed in the long run is unrealistic. You can sacrifice it for a few years, maybe.” (CFO)
The CFO considers important to take into account the cost and the benefits of analyzing the indicators. Collecting data can’t be too expensive. He also insists that complex measures are to be excluded from the approach. Ideal would be that the measures to be contained in the BSC framework, are easy to retrieve, understandable, and comparable. As it was mentioned be the CFO, the financial measures are straight- forward and with those indicators there will be no problem. The Group already measures and monitors some of the most important ones. The CFO’s opinion is that:
59 “If an indicator, needs too much time or work to be extracted from the huge amount of data, then measuring it should be done less frequently or it should be replaced by other indicators.” (CFO)
M. Rotaru, Head of Controlling and Business Planning Department also mentioned that the large amount of information is overwhelming. And while some managers keep insisting on the fact that more reports offer the possibility of understanding the whole picture, the Head of Controlling specifies that this comes with the risk of being too complex or even for the measures to be overlooked. She expresses her opinion that fewer measures can be as efficient as tens of reports if chosen carefully. On the other side due to complexity of factors impacting the business results, selecting three indicators will never reflect the entire situation, so middle has to be found.
“Having an extraordinary and very detailed report that not many people will understand is useless. I am in no way suggesting that is should be over simplified, but a good report has to be easily comprehended and with some key indicators.” (Head of Controlling)
To summarize the discussions we can state that the CFO and the Head of Controlling consider that allowing every manager to choose its measures would be problematic. Even though, they consider that everything has to be measured, it is not always the case. And it is not only about the fact that compiling the indicators and creating the reports needs time and money; it is about how understandable by others the reports will be. So it is only to be expected that some indicators will be measured on a monthly basis while some others quarterly or even annually. Also the measures have to be comparable. There is no justification to measure something that cannot be compared internally or even to other operators. Some of the appropriate indicators for external benchmarking could be customer satisfaction, market share and the company’s image. Another thing to note is that due to this cost benefit relation, the non-financial measurement were put aside, even though were considered important. From the discussions, the established objectives and detailed analysis of the perspectives we are indicating the following measures to be taken under consideration.
Measures for the Learning and Grow Perspective with the goal to be employer by choice are presented in the Table 5.2
Table 5.2: Strategic objectives and measures for learning and grow perspective
Strategic Objectives Measures Initiatives Staff recognition Number of certificates Introduce a module on Budget spent/employee Intranet for trainings review
Increase employee capabilities Time in training/employee % of employees attaining trainings Support employee training Monthly contests with online Hours in SkillSoft platform souvenirs Improve employees strategic Reintroduce the project: awareness Intranet questionnaires Coffee with the CEO
60 Introduce projects for Strengthen culture and develop increasing the spirit of collective pride Staff retention belonging Future performance Staff retention Decrease in turnover incentives Increase employee satisfaction % of satisfied employees Source: Author
Measures for customer perspective with the goal to be a provider that customer can trust and leader in customer service, are presented in the Table 5.3.
Table 5.3 : Strategic objectives and measures for customer perspective Strategic Objectives Measures Initiatives Mystery Shopping survey Achieve service excellency Customer Satisfaction with partners Number of complaints Orange events for B2B Increase loyalty NPS customers Brand awareness at cultural Most loved brand Market Share events Increase sales Total sales Source: Author
Measures for internal processes perspective with the goal to be efficient and to integrate processes through best practices are presented in the Table 5.4.
Table 5.4: Strategic objectives and measures for internal processes perspective Strategic Objectives Measures Initiatives Cost management Savings Purchasing accuracy % of PO with mistakes New innovative processes Implement best practices Boosting process improvement introduced from TGS program Introduce SharePoint Optimize processes Time/process application Improve Efficiency Delivery in full on time Technology leadership 4G coverage Innovative solutions for a greener world Number of collected phones Recycling campaign Source: Author
61 And finally, the measures for financial perspective with the goal increasing the operational efficiency are presented in the Table 5.5.
Table 5.5: Strategic objectives and measures for financial perspective
Strategic Objectives Measures Initiatives Profitability EBIDTA Profitability growth Revenue growth Maximize use of existing assets Cash Flow Manage operating costs Operating costs Return on capital employed ROCE Source: Author
62 Vision: Absolute quality towards the customer Strategic Priorities Strategic Objectives Measures Initiatives
Staff recognition Number of certificates
Budget spent/employee Introduce a module on Intranet for Increase employee capabilities Time in training/employee trainings review % of employees attaining trainings Employer by Support employee training online Hours in SkillSoft platform Monthly contests with souvenirs choice Reintroduce the project: Coffee with Improve employees strategic awareness Intranet questionnaires the CEO Strengthen culture and develop collective Introduce projects for increasing the Staff retention
Learningand Grow pride spirit of belonging Staff retention Decrease in turnover Future performance incentives Increase employee satisfaction % of satisfied employees Mystery Shopping survey with Customer Satisfaction partners Achieve service excellency Number of complaints Most loved brand Increase loyalty NPS Orange events for B2B customers
Customer Most loved brand Market Share Brand awareness at cultural events
Increase sales Total sales
Cost management Savings
Purchasing accuracy % of PO with mistakes Implement best practices from TGS Integrate Boosting process improvement New innovative processes introduced program processes through best Optimize processes Time/process Introduce SharePoint application practices Improve Efficiency Delivery in full on time Technology leadership 4G coverage
Internal Processes Internal Innovative solutions for a greener world Number of collected phones Recycling campaign
63
Profitability EBIDTA
Profitability growth Revenue growth Increase operational Maximize use of existing assets Cash Flow efficiency Manage operating costs Operating costs Financial Return on capital employed ROCE
64 5.4.6 Implementation and post implementation
It is to be expected that the implementation of BSC framework will not be without obstacles. Whenever a new measurement, procedure or method is implemented resistance to change is often met. However resistance is common to any change. As Kaplan and Norton point out, the BSC is a change in the management approach towards performance, so the personnel has to be educated about the new method, its implementation, tasks to be performed and so on (Kaplan & Norton, 1996). The resistance can impede to reach the full potential from applying the framework. And one way to deal with resistance is to achieve the method’s successful implementation and to show the advantages of the framework. The idea and the benefits of the method have to be spread and understood within the whole subsidiary. Nevertheless, the change has to be moderately implemented so that the chances of acceptance among the employees will considerable increase.
For a smooth and a successful implementation of the approach it will be beneficial to create a team and a leader in charge of the new method especially because the implementation of the BSC represents a considerable change. Besides the team we encourage to employ external consultants in order to improve the chances of successfully implement the framework. To have a general overview of the process, we consider that the work will be mainly divided into three main phases. During the first one, a thorough evaluation of the company should be done in order to assess the potential improvements, the second phase will be discussing the relevance of objectives with mangers and the last phase will be the process follow up. Team’s main purpose will be to assist company’s employees in the process of adoption the new framework. An action plan should be put in place and a dead line set. Also, a chain in command has to be established. For each step during the framework implementation tasks and responsible persons delegated. The responsibilities should be clearly described, in order to avoid confusions and misunderstandings. While implementing any kind of project, time, resources and financial constraints are the main things to be carefully managed. The company will have to invest in training the managers so that they will be able to provide guidance and assistance for the employees. Their knowledge will have to be assessed through simulation in workshops. Two things have to be kept in mind when analyzing the time. The implementation of the framework will be a pilot project, so the tasks for the team will be on top of their current normal full time job. Due to that the project might take longer, but at the same time, it can be envisioned as an advantage for the teams to have more time so that the information will better seek in. In addition, rushing through the project will only have a negative impact on its results. Anchoring the idea of change within the company is another key factor. The strategy has to be clarified, meaningful goals for each perspective set, and the links explained. A comprehensive document regarding a general overview of the process has to be published on intranet and internal magazine. Promoting the project implementation within the subsidiary is essential. Employees have to be aware of the process. Also managers could explain it during weekly meeting with employees and encourage them to provide feedback and general thoughts. It is crucial to keep the whole process simple, in this way more employees will have the opportunity to engage.
We have to highlight the fact that difficulties are to be encountered in the process; however we will refrain from making judgements about the success or failure of the BSC framework. The method has to be tested and not only once, and at least over a period of time before making a clear statement. Reviews and
65 evaluation of the approach are to be performed, corrective measures, if the case, will have to be implemented, measures to be updated. The success of the method relies on too many factors, for us to have a solid opinion about it. Nevertheless it is important to highlight the key factors for a successful implementation such as: visualizing by a strategy map, having discussions and encouraging feedback during the project, clear division of functions and description of roles, and the last but not least educating the personnel.
One last critical issue concerning the implementation of the approach is the cost. However an accurate assessment is rather hard to realize. There are too many variables that could impact the final price. To understand the complexity, we can get into more details, and provide a rough estimation. The cost of the project will have to include expenses related to: training, consultant fee, software, hardware. Firstly, the costs related to training will depend on how many modules will be chosen and how many employees will attend the courses. According to the information from the official site ( http://balancedscorecard.org/) the prices for Getting Started Courses, that include four modules are the following: (1)BSC:E-Learning Overview - Online Training (995$), (2) BSC Executive Overview – Onsite (4,750$) or Webinar(495$), (3) BSC Essentials (995$), (4) Principles of the BSC (995$). So to sum it up, for the entire course, the cost per person without discounts will be 3,480$. However, there are discounts if three or more persons will register. Secondly, there is the fee for consultancy services. Will it be a fee per project or a daily fee; in case of a daily fee, does it include the daily allowance? Does the company have to pay for the flight and accommodation too? Thirdly, the expenses related to software include: the actual acquisition of software, its implementation and its maintenance (typically 20% of the cost of the software). Lastly, related to hardware: when running new software the company usually has to upgrade or buy a new server. So, from the mentioned above, we can conclude that a correct estimation can’t be provided, because it will not reflect the reality.
66 6. Discussions and conclusions
Discussions and analysis
Based on the interviews, internal documents, and own observations we want to point out to some issues that we consider having an impact on company’s performance and implicitly on the overall achievement of the strategic objectives. Our suggestions should be taken under advisement by the company. Further we will shortly summarize them.
From the discussion with the S&P Manager we understood that the project of implementing the SharePoint is on hold. We strongly suggest moving this initiative in the top priorities, as they say at OMD in the “yesterday12” category of projects. SharePoint is a Microsoft Office System and its implementation will optimize the RF flow and approval transparency. It will be possible to create a RF database. The current state is that a template from Intranet is printed and sent for approval and because it is in the “paper format”, keeping track of it is rather complicated.
We also consider that the situation with failure to deliver phones from Ukraine should serve as a lesson. This kind of business interruption can severely affect the brand reputation and customer satisfaction, so the S&P manager should consider opening a new position in the division for a risk analyst. The appointed person should be in charge of identifying, assessing, and monitoring risk (internal and external).
Concerning the customers we realized that customer satisfaction data are already collected on different levels in the company; despite this we suggest increasing the number of Mystery Shopping surveys. As we mentioned before, the distinction between direct and indirect shops, from the point of view of customers is blurry. There are cases when poor customer service, is associated with Orange, when in reality it is not; and it turns to be an indirect shop. So, OMD can convince the indirect shops of the advantages of the survey and share the costs, while increasing the number. For the B2B Department we consider that a distinction should be made among the customers.
For the learning and growing perspective, even though the HR Manager was skeptical towards the implementation of incentives in order to fight the high turnover of employees in MMCS Department, we tend to disagree. Financial incentives are a very important factor in employees’ retention in this specific department, mainly because the employees are students always in need of money. We consider that higher job embeddedness can be reached if incentives will be linked to short term future performance targets. Employees might stay in the company for longer periods of time, and in time even focus on achieving long term objectives. Another thing to note is that, once hired a strong connection with the company’s value and principles has to be created. That is why we recommend having a tutor for the Brand Induction training and not postpone the training until a certain number of employees are gathered. In addition, communicating and creating career opportunities also will contribute to employees’ retention.
12 Yesterday of project implies urgency
67 Conclusions
There is a long-standing tradition for measuring performance by solely financial measures. But as it was repeatedly expressed during the thesis, the financial measures are only reflecting the past and give little guidance towards the future. And in a fast changing world as today, a proactive approach to future challenges has to be adopted by companies in order to remain competitive. Nowadays business are facing fierce competition from all around the world due to globalization; the customer preferences are also constantly changing based on price, quality, brand, technology. So, the company is constrained to be responsive to external changes while trying to reduce cost and making internal process more efficient. To successfully face the hazard of the world, the company requires a good performance measurement method. A modern and praised approach in the literature is the balanced scorecard. It has been argued by the authors, that the method keeps the company aligned with its long strategic vision, while translating it into meaningful and understandable measures that are cascaded through the organization (Kaplan & Norton, 1996).
Orange is a world leader in providing telecommunication services and Orange Moldova is one of Group’s subsidiaries. In 2010 the company implemented its new strategic project: Conquests 2015. The purpose was to integrate business performance and social progress. The primary objective of Orange Moldova for the period was to be the most loved brand on the telecommunication market. A great objective! But how to reach it? We considered that it could be achieved by implementing a performance measurement that will provide management with updated information about the company’s overall performance, without deviating from its long term strategic objectives.
Our research question was „How to develop and implement the balanced scorecard framework at Orange Moldova?” In order to answer the research questions, first of all, an extensive literature review was conducted focusing on the multinational, the performance, the subsidiary and combinations of these three elements. The main issue of subsidiary performance was discussed and represented the context framework. The concept was used as a base line for analyzing the data in the case study in the empirical part. The question of why writing a paper about it and not just follow the steps provided by the authors could arise, nevertheless we want to bring up that Kaplan and Norton stress out that each balanced scorecard is specific and the framework should not be considered a template. Each company due to its unique characteristics such as vision, strategy, time frame, resources, and environment has a specific balanced scorecard. If implemented, we would recommend for the company to adopt the top down approach, we consider that deriving the objectives from the overall strategy in order to achieve the goal will be more efficient. The bottom up way will be more time consuming and sometimes even less relevant. The possibility of the measures not supporting the goal might encounter.
As Niven (2006) pointed out, a prime requirement for reaching framework’s full capacity is top management involvement and support. It is essential to also realize that achieving breakthrough results will not be possible by only formulating a great strategy. The company has to involve all the employees in the process. Although management might have a clear view about the strategy, it has to be also executed. During the interview was continuously emphasized that employees represent the cornerstone of the company, however none of the interviewees was able to explain to us how exactly the strategy is communicated within the company. We realized that employees from lower levels within the company do
68 not fully understand how they are contributing to company’s performance. Company’s vision is viewed as fancy words, that don’t say much to other than management. We strongly advise to improve this aspect, it must be very clear for each and every one what the company strives to achieve and how. The aim is to ensure a better employees awareness about company’s strategic objectives by cascading them down within the company. One possible way could be discussing the objectives during weekly employees meetings. We encourage this way, due to information sensitivity.
We also want to highlight the local issues that should not be overlooked. They have to be taken under consideration while developing and implementing the framework. A good assessment of local particularities can prevent the company from setting the improper objectives. The performance measurement should not only fit the strategy, but also the local business environment. For example the local political instability from last years induced the country into a deep recession and of course affected the business environment. Or another more specific example can be the case local supplier’s inflexible way of doing business. Cheap labor force, on the other hand, can be considered an opportunity. Although applying same set of measures to all the subsidiaries may offer the possibility of comparison among the entities, customized measures on the other hand would reflect more accurately the “real” performance.
Reviewing the literature and compliment it with primary data from discussion with key figures at Orange Moldova, makes us believe that our work would be useful to the company. Our developed proposal could serve as an overall guideline for the actual implementation. The work was however limited to only providing a proposal due to time constraint. Implementing the method takes from a few months to up to a year. In addition, the indicators will have to be continuously improved, so that the framework will continue to bring value to the organization. Nevertheless, we are optimistic and expect this paper to be an eye-opener for the company’s management and when analyzing the “tailor made” framework they will see the advantages and proceed with its implementation. To sum it up, we consider that the current financially oriented framework excludes reflecting some important perspectives about the company’s performance. This being said we encourage the implementation of the balanced scorecard approach. The framework’s perspectives are reinforcing each other so that a holistic overview about performance can be obtained. Most importantly, the balanced scorecard ensures a clear long term direction to reach company’s vision.
69 References
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76
Abbreviations
BSC - Balanced Scorecard BT - British Telecommunications B2B - Business to business CEO - Chief executive officer CFO - Chief financial officer CNET - Centre national d’etudes des télécommunications EBIDTA - Earnings before interest, taxes, depreciation, and amortization EE - Everything Everywhere EFQM - European Foundation for Quality Management ERP - Enterprise resource planning FDI - Foreign direct investment FT - France Telecom GBP - British Pound GDP - Gross Domestic Product HQ - Headquarter HR - Human resources IB - International business ILO - International Labor Organization IJV - International joint venture IS - Information system JV - Joint venture MMCS - Mass Market Customer Care MMT - Moldavian Mobile Telephone MNC - Multinational company MNCs - Multinational companies NPS - Net promoter score OMD - Orange Moldova OMF - Orange Moldova Foundation RF - Request Form ROS - Return on Sale R&D - Research and development PO - Purchase Order POS - Point of sales ROCE - Return on capital employed S.A. - Société Anonyme SBU - Strategic business unit SMART - Strategic Measurement and Reporting Technique SS - Supplier selection S&P - Sourcing and Purchasing Telco - Telecommunication TGS - Take, grow up while sharing program UK - United Kingdom US - United States WOS - Wholly owned subsidiary $ - US Dollar
77
List of Tables
Table 3.1: Commonly used subsidiary performance measures ...... 32 Table 3.2: Weighting the measures according to strategy types ...... 32 Table 4.1: Interviewees from OMD ...... 37 Table 5.1: S&P reports ...... 57 Table 5.2: Strategic objectives and measures for learning and grow perspective ...... 60 Table 5.3 : Strategic objectives and measures for customer perspective ...... 61 Table 5.4: Strategic objectives and measures for internal processes perspective ...... 61 Table 5.5: Strategic objectives and measures for financial perspective ...... 62
78
List of Figures
Figure 3.1: Phases in development a performance measurement system ...... 24 Figure 3.2:BSC Strategy Map ...... 27 Figure 3.3: Customer perspective: core measures and the causal chain of relationships ...... 28 Figure 3.4 :BSC framework ...... 29 Figure 3.5 BSC process ...... 30 Figure 3.6 Contingency framework of performance evaluation of foreign subsidiaries...... 34 Figure 5.1: Group’s business in 2015 ...... 40 Figure 5.2: Orange footprint 2015 ...... 40 Figure 5.3: Conquests 2015 ...... 41 Figure 5.4: Theoretical framework of the interfaces with the PMM system ...... 46 Figure 5.5: Measuring business performance ...... 48 Figure 5.6: Simplified strategy Map OMD ...... 49 Figure 5.7: Operator with high quality of services ...... 53 Figure 5.8: Operator with best geographical coverage ...... 53 Figure 5.9: Operator with optimal ratio of quality and prices ...... 53 Figure 5.10: Operator with the highest prices ...... 53
79 Appendices
Appendix 1 Orange historical background: highlights Year Event 1794 The non-electric telegraph was invented and the first message was transmitted
1837 Electrical telegraph was invented by Charles Wheatstone and William Cooke. The inventors proved that information can be sent over long distances by using electricity, more particular their five needle telegraph based on the concept of electromagnetism developed by Michael Faraday.
1944 Creation of Centre national d'études des télécommunications (CNET), that represented the French telecommunications research center. The center was in charge of research and development (R&D) in the telecommunication. Orange Labs has its roots in CNET
1962 First televised images were transmitted live from US to France by using two satellites Telstar 1 and 2. Before this event life television transmission across the world was impossible. The television networks used tapes. Important events were registered and shipped by plane across ocean.
1970 First fiber optic was invented by researchers Robert Maurer, Donald Keck and Peter Schultz from Corning Glass. Optical fiber wire could carry 65,000 times more information than copper wire. The information was decoded thousands miles away by a pattern of light waves.
1974 The French inventor Roland Moreno applied for a patent for the IC card, which was later called smart card. His invention is nowadays used in identity cards, passports, drivers’ licenses, oyster cards and SIM cards.
1982 Minitel was launched in France. The company provided Videotex online services that allowed clients to make online purchases, have a mailbox, chat. It was considered to be one of the world’s most successful pre-World Wide Web online services provider.
1984 First French telecommunication satellite 1A was launched. It was operated by France Telecom under government sponsorship.
1986 Launch of the Radiocom 2000 service, the first car telephone
1991 Directorate General of Telecommunications becomes France Télécom on 1st of January
1992 Mobile radio communications company Itineris launches its services on GSM
1994 Launch of Orange in the United Kingdom, which revolutionizes the market, in particular with per-second billing
1996 Launch of Wanadoo: Internet for all
1997 Launch of OLA, a consumer mobile telephone service in France
80 Year Event
2000 Acquisition of mobile telephone operator Orange
2003 Launch of 3G in France
2003 Orange is the first operator in France to launch TV over ADSL, with the first TV decoder, and TV over mobile
2004 Launch of the "Broadband for All" plan in France
2005 first global trial of the new contactless mobile technology, NFC (Near Field Communication)
2006 Orange becomes the single brand for mobile, TV, Internet and digital services in our main markets
2006 The application Orange Money was launched in Africa; it represents a mobile payment service
2008 Deployment of solar-powered mobile base stations, which represent an element of the sustainable-development policy
2009 Worldwide first launch of Mobile HD Voice in Moldova
2009 Inauguration of the new LION submarine cable in Reunion; continuation of the high-speed Internet development strategy in the Indian Ocean
2009 Implementation of the multiscreen strategy: mobile, TV, PC
2010 Launch of the "Conquests 2015" strategic plan, as well as the social contract and Orange People Charter, which encapsulate our goal of becoming the preferred employer everywhere in the world
2011 Landing in Brittany of the new ACE (Africa Coast to Europe) submarine cable, which will link France to South Africa and serve 23 countries
2012 In France, France Télécom fixed-line becomes Orange
2012 4G is launched in eight countries: France, Romania, Moldova, the United Kingdom, Luxembourg, Belgium, the Dominican Republic and Mauritius
2013 The Group becomes Orange
2013 Hello Show, the conference that presents all the Group innovations
2014 The Group celebrates its 20th anniversary with the launch of Futureself, a unique digital experience
2015 “It’s all about what matters to you”: the Orange brand develops and unveils “Essentials2020”, its new strategic plan up to 2020
81 Appendix 2: Group organizational entities division
The Group organizational entities division
Source: (Orange, 2015 Registration document: Annual Financial Report, 2015)
82
Appendix 3: OMD Organizational Structure
OMD Organizational Structure -
Source:(OMD Internal Documents)
83 Appendix 4: Interview questions
Background and general information
1. Could you please state your name and position? 2. What does your job consists of and how long have you been working at OMD? 3. Describe the OMD Company and its vision. 4. What is OMD strategy?
Performance measurement
1. How is currently evaluated the subsidiary? 2. What are the main indicators? 3. Are the same criteria used for measuring the performance of all the subsidiaries? 4. Are the performance results communicated to employees? 5. Do you think the current way of subsidiary evaluation is sufficient?
Balanced scorecard measurement
1. Do you think OMD employees are aware of the company’s strategy? 2. Have you heard of the Balanced Scorecard method for evaluating performance? 3. From the four perspectives incorporated by the BSC approach does OMD measure any of them besides the financial and customer ones? (learning and growing and internal processes) 4. Will OMD consider balancing their focus and include indicators for measuring internal process and growth and learning perspective? 5. Do you feel that incorporating the non-financial indicators will bring a new perspective about performance? 6. Any thoughts about what measure to include in the framework? 7. Do you think a better communication with employees will have a positive impact on performance? 8. Do you think implementing the BSC framework would offer the company a better perspective about the performance? 9. In case the framework will be implemented do you expect resistance of any kind?
84 Balance scorecard perspectives
Learning and Grow: 1. How are the competences of employees developed? Is there a program? 2. If the trainings are offered, in what areas? 3. Do you measure employees’ satisfaction? How? 4. Can you tell us more about the compensation system in the company? 5. Does the company offer any kind of rewards based on company’s performance?
Customer: 6. Can you tell us more about your customers? 7. Do you measure customers’ satisfaction? How? 8. What do you think the customers value most? 9. What do you consider affects customers’ loyalty?
Internal Business Processes: 10. Are there any possibilities for optimizing internal processes? Can you give an example? 11. How does Sourcing and Purchasing impact the company? 12. How often delivery errors are encountered?
Financial: 13. What are the company’s financial objectives? 14. Do you consider that the financial measures are the most important? 15. What financial performance indicators are used today?
Other: 1. Is there anything else you would like to add or suggest? 2. Thank you for your time!
85