Critical analysis of current problems

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There are several tools to measure the organizational effectiveness. Often, competing value method and the Balance Score Card is used to quantify the effectiveness of any organisation. The competing values framework was proposed by Quinn and Rohrbaugh in the Diagram 4: Balance ScoreCard template year 1988. This framework relates to the two dimensions of organizational effectiveness. These dimensions are – Organisational focus on the internal and external well being and the organizational preference for structure in terms of control and flexibility.

The balance score card method, on the other hand, is a strategic performance measurement tool. It is designed to keep track of the major functional dimensions against the vision and strategy of the organisation. The four functional dimensions are Financial, Customer, Internal Business Processes and learning & Growth (Smith, 2007). Each of these dimensions has quantifiable measures which are evaluated on a regular basis and their values are entered in the template, as given in diagram.

The balance scorecard is not expected to replace the traditional financial and operational measures in an organisation; rather, it is a summary of the major functions compared at the regular intervals (Kaplan, 2006). The primary advantage of the balance score card is that it strongly links to the organisation’s strategy and vision. This design of balance score card makes it easy for the management to keep an eye on the success of steps taken to achieve the organizational goals.

Kaplan and Nortan, in their seminal paper of late 1990s, mention following four steps to be part of balance score card – Converting the organizational vision into the goals which can be made operational Vision communication and its linkage to performance of individuals Setting up benchmarks and planning of business Adjusting of the strategy as per the learning and feedback In his letter to the Shareholders in the 2009 Annual Report, Ken Chenault, CEO of American express, identified following issues with Amex and the organizations operating in the same sector (Annual report, 2009) –

Melting Economy with near freefall of the financial system accompanied with longest recession in the recent decades High unemployment rate resulting in diminished household wealth while the Persistent unemployment poses significant risks Low consumer confidence hurt customers and, therefore, business of Amex A 14 percent drop in revenues for the preceding year, as individuals and companies cut back on spending and travel Higher credit losses as more card members had trouble paying their bills

For the year, spending on American Express cards fell 9 percent to $620 billion on broad-based declines among consumers, small businesses and corporations. Billed business was down 10 percent in the U. S. and 8 percent internationally The above issues converge to highlight the fundamental issue of global recession in the financial sector. As American Express is a payments company, these issues have their affect on its financial performance. The persistent low employment rate has resulted in the low consumer confidence in spending.

The companies have cut down on the expenses of travel and other related spending which resulted in the low spending on the business cards of American express. Overall, the picture was quite gray for all the businesses of Amex, whether it was consumer cards, Business cards or travel related services. Another related issue was the in-ability of the consumers to pay their bills on time. This issue resulted in greater credit losses for the organisation in the previous financial year.

While the focus had been consistently on increasing the consumer spend and billed business, the efforts were also required to decrease the cost through re-engineering activities. Though, appropriate caution needs to be exercised in identifying areas of re-engineering as this effort must not dig into the strong areas of operations. However, reducing costs through appropriate strategies is the need of the hour for American express. The quality of credit decisions is another important area where, though Amex has fared better than competitors, would need greater focus.

The significance of the credit decision quality is high as the quality of consumer’s results in better billing in business and lower credit losses to the organisation (American Express Investors relations, 2009). One of the important aspects where American Express needs to focus its attention is to modify the organisation structure to align with the businesses in changing times. The speed of execution and the faster time to market with an organizational agility would give it the edge, necessary in today’s business environment. (Annual report, 2009).

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