Developin Operation Strategy

Developing a Sound Operations Strategy’s Balanced Scorecard Using System Dynamics: A Case Study

by Jorge Ayala Cruz Graduate School of Business Administration University of Puerto Rico Rio Piedras Campus Abstract Nowadays, companies face a diversity of operational challenges and decisions in accomplishing their operations strategies and their corresponding competitive priorities. Significant evidence suggests that successful companies have devised operation strategies internally consistent with their business strategy. Different classifications of operations decisions and metrics are used to characterize a particular operations strategy (OS) based on the proposed capacities, supply network, organizational structure, and processes technologies. In general, once the OS has been implemented, companies use performance measurement systems that measure the gap between actual operational performances and key benchmarked performance indicators (KPIs). In early 1990s, Norton and Kaplan introduced the Balanced Scorecard (BSC), a performance measurement framework that addresses the limitation of traditional performance measurement framework that relied exclusively on financial performances or measures. Through the BSC framework, the company's strategy is translated into strategic objectives and measured around four perspectives: financial, customer, internal process, and learning and growth. Although originally designed as a business wide strategy framework, the method quickly became popular in the development of functional strategies (operations management, marketing, finance, etc.) However, traditional BSC practices have serious shortcomings rooted in their inadequacies of dealing with dynamic, systemic, complex and unpredictable competitive and operational aspects in the internal and external company’s environments. This study describes a system dynamics (SD) simulation approach useful in the evaluation of operations strategies based on the BSC framework. The approach has...