The ESA’s Balanced Scorecard Damian Miles June 15, 2015 AMBA 630 – WEEK 10

EXECUTIVE SUMMARY
The Entertainment Software Association (ESA) is a U.S trade association dedicated to serving the business and public affairs needs of companies that publish computer and video games for video game consoles, personal computers, and the internet. Each year the ESA looks to find ways to highlight, and bring positive awareness to the video game industry, while also deterring negative press along the way. Our industry is fun, innovative, creative, and inspiring; and also has an enormous amount of growth potential. The ESA is directly serving the publishers of the gaming industry, by offering a range of services. Services are as follows, but not limited to; a global content protection program, business and consumer research, government relations and intellectual property protection efforts. The ESA also provided the industry with the biggest trade show, which allows our member companies to use a huge platform to bring their newest innovation, and technology to the public. The ESA measures company success from services provided video game industry is usually evident through different factors. The ultimate goal is to have every U.S. video games publishing company become a member of our company. That will happen if we continue to support, work, and build the industry through our services to our member companies. Financial success of the ESA comes from revenue growth, accurate funding and budgeting, resource allocation, maintain donations, and board approvals. The next and most important facet of company success comes from our customers. Our primary customers are the member companies, and the secondary customers are their stakeholders. Some of our member companies just to name a few are: Microsoft, Sony, Sega, Ubisoft, and Nintendo. These companies are who keep The ESA in business, and that is because we offer a service that is important to our members as well as the industry. We also measure success by observing our internal process through technology, programs, software, and innovation; and being sure these items are aligned with the company’s overall task. Lastly, the ESA must measure the rate in which staff is being developed. Employees are very important to the success of the organization. The ESA has to always find ways to help employees learn and grow in their roles. The year 2013 was challenging, yet historic year for the ESA and the industry we represent. The ESA provided support to historic video game console launches for two primary members companies. The two members were Sony and Microsoft, who launched the PlayStation 4 and Xbox One, respectively. This was a joyful and momentous occasion for our industry. ESA supported these members by extending a platform to introduce these innovative systems to the public at the E3 Trade Show. While we had our great moments, the ESA also had some adversity to endure in 2013. In December of 2012, there was a mass school shooting at an elementary school in Newtown, Connecticut. Anytime gun violence happens in the United States, there are people, organizations, and political groups who believe the video game industry is to blame for the tragic occurrences. They bypass issues of mental illness and gun control, which studies have shown are more to blame for these events. Since these tragic events occurred right before 2013, the ESA made sure we let everyone know that our industry is not the reason for these issues. We revamped our services of government affairs, lobbying, and industry public relations. The ESA will sometimes have world events that take place that can change the outcome of work that needs to be done. Although we have implemented a plan for a given year, events like the Newtown shooting are factors that we cannot account for while creating a budget and planning for the future, but it is an important occurrence that creates new work for the ESA. Financially in 2013, we under estimated our expense budgets for the departments of federal government affairs, state government affairs, and communications. Hostile federal content legislation bills rose for the first time since 2007. Bills like this usually go to congress after shootings like Newtown happen. Back in 2007, there was a shooting at Virginia Tech University and the same metrics were affected. Are member feedback was over 85 percent in 2013, which was 5 percent greater than our annual target. Although are member companies reported great satisfaction with our services, we did miss are target metric of adding one new member per year. When it comes to our business process, the ESA was able to succeed in 2013. We were able to sponsor 15 industry events to help showcase the video games to Capitol Hill workers, members of congress, bill makers, and lobbyist. The ESA’s target goal was to sponsor 10 events at the beginning of 2013. That explains again how the ESA was successful with business processes in 2013. Our employees were able to confirm that we are continuing to help them grow professionally. The ESA has a professional development budget set to send staff to trainings, conferences, and business meetings in order to increase their skills. In 2013, 6 employees utilized money from this budget to go to a business development endeavor. 6 employees surpassed the 4 employees that we wanted to utilize this benefit. All these measures indicate how the ESA cares about keeping employees happy.
Overall, The ESA had a very productive year. We were able to really take a step forward in our government affair efforts with continued support to introducing are member companies’ products and innovation to government officials. We were able to push the industry forward with our efforts in all federal government affairs, state government affairs, and legal activities. We had to deal with negative feedback from the Newtown shooting, but were able to handle all of the issues that came from it. In 2014, we expect to do a lot better to meet are target goals in all fields of business. The ESA wants to add more initiatives to our business process. An overall focus in 2014 will be to add value to the video game industry in all facets. Utilizing the metrics and goals created by management will expand the success of The ESA.

BALANCED SCORE CARD

The balance scorecard is a great tool that allows management, board members, or leaders of an organization to measure whether a company has been successful for the year. Devised by Kaplan and David Norton in 1990, a balance scorecard acts as a report card for a company. The balance scorecard has four sections, titled Financial, Customers, Internal Operations, and Staff development. These four sections are the measurement perspectives that companies’ objectives are classified by. For example, if a company uses profitability growth as an objective to measure success, then it would be classified under the financial measurement perspective. We also have a column titled “Objectives” which explains what the metric is measuring. The next column, “Measures” tells a manager what metrics should get utilized to effectively analyze whether an objective is completed. Geisler (2000) explains that “A metric is a system of measurement that includes the item being measured, the unit of measurement, and the value of the unit” (P. 1). Measures of objectives can be a dollar amount, percentage, or number of data. The next column “Targets” is the metric that a manger or leader must set as a goal, which if it is met means that the company was successful with the corresponding objective. The reason I have shown two fiscal year sub columns under targets, is because every year management can make the decision to increase or decrease target metrics. The last column “Initiatives” explains what action, program, or duty is established to complete a given objective. Historically, organizations have measured their performance primarily with measures derived from financial data (Zimmerman, 2004). Using a balanced scorecard gives management a road map to the connection between organizational strategy and financial data. I have created a balanced scorecard for my company The Entertainment Software Association (The ESA). The ESA is a non-profit organization, and applying a balanced scorecard was unclear in the beginning. I found that using these 6 categories below which are clearly related to the 4 measurement perspectives originally formulated for the balance scorecard made it much easier to apply to The ESA: * Revenue * Resource Allocation * Donors & Board members * Customers * Internal Operations * Staff Development
Dissecting the four general categories into these 6 categories made the balance scorecard compatible with non-profit organizations. If we think about the financial aspect of a for-profit versus a non-profit, there are some differences. One difference is how revenue is used, as well as how a business is funded. For example, The ESA takes total revenue and will used funds to give discounts to member companies for their member dues in the next year. This action only occurs if the company has succeeded with revenue for the year. The contrast between for- profit and non-profit companies is what prompted me to edit the four categories of the balanced scorecard. For-profit organizations would not use their revenue in this way because the main purpose is profitability, while non-profits main purpose depends on what the business supports. The action of The ESA explains the main focus is to support, help, and serve the member companies that make up the video game industry. This is something a for-profit company would not do, because it decreases profitability. This example leads us into explaining the financial portion of balance scorecard for The ESA.
FINANCIAL
The ESA has a membership of publisher companies who pay membership dues to get services rendered by the ESA. These membership dues are the main source of income for the company. Companies like Sony, Microsoft, Nintendo, and Atari have to pay a specific amount to The ESA based on the total sales from the previous year. The amount of budgeted dues has been set at the beginning of each year, and that number gives the CFO indication as to what is the estimated income they should expect for a given year. The amount of dues can increase, or decrease depending on how well each publisher company does the year before collection of the dues. The budget could be set to receive 10 million dollars of income from member dues, but we actually receive 11 million. That creates a surplus in income and allows The ESA to apply a discount to the next year’s membership dues. An extended discount to our members is a major driver of success for The ESA. It is an act of good faith to our member companies, and shows The ESA continued commitment to support and help the video game industry. The main objection of extending a discount is measured by the percentage of a discount that we can offer our members in the following fiscal year. The percentage of a discount management has calculated that we should extend to our members each year is 15 percent. In 2013, we had a surplus in revenue and were able to extend a 26 percent discount to all our member companies. Being unable to extent a 15 percent discount to our membership would create an issue for The ESA. The issue would show that the industry sales have declined, and that is a direct indicator that we have not done a great job pushing the video game industry forward. In 2014, we were able to provide our members with a 26 percent discount for all dues, due to the revenue surplus in 2013. Financially The ESA also had an objective to budget for expenses correctly. At the beginning of each year, department management gets together to produce a budget for expenses. Leaders account for areas in the previous budget where we overspent, underspent, and any industry information where leaders may want to allocate more money to a cause. A quarter before year end, the CFO sits down with managers to forecast for the remaining months of the year in order to have an accurate stance of how we are spending for the year. It is very important that The ESA takes steps to budget and forecast accurately before year end, because budget accuracy shows board members that the company is reliable. The balance scorecard of The ESA has $750 thousand as the metric to grade whether we have succeeded in the effort to budget expenses accurately. This means that as long as the total budgeted expenses cannot be understated by more than $750 thousand and overstated by 1 dollar. In a perfect world, companies’ expense budgets should not be overstated or understated, but by setting that as a metric to measure success creates an unrealistic expectation. In 2013, the total expense budget was overstated by $250 thousand and that was in line with the balance scorecard goal $750 thousand. The ESA also has its foundation which “is dedicated to supporting positive programs and opportunities that make a difference in the lives of America's youth” (The ESA Foundation, 2014). It is important that we get member company support for The ESA Foundation. The foundation annually sponsors a fundraiser gala to get support and donations from our member companies. Each year the goal is to have 75 percent of our membership company donate to the ESA foundation. In 2013, we received 100 percent participation from member companies to make a donation to The ESA Foundation. The balance scorecard only required that we get 75 percent participation, to measure our efforts as successful. The support and donations to The ESA Foundation, shows that the industry appreciates the efforts of the foundation and believes the organization has done good to complete the mission. The Foundation produces many initiatives like a scholarship program, grant program, and much more. The “Nite to Unite Gala” is the major initiative that the foundation sponsors in order to get member companies to support the foundations cause.
When mentioning financials we cannot talk long without mentioning the board of directors. The board plays a huge role in the approval of the budget and funding. In order for the ESA to gain full board support of a proposed budget, additional funding, and approval of the year end forecast is very important. The balance scorecard shows that the measure of success when it comes to the board is 100 percent. All financial data proposed to the board should all get 100% approval. To move forward with a budget or any financial proposal to the board members, should be based on a majority vote. The goal to have 100% approval is a metric that confirms that the board all agrees and believes in the financial process of the company. It would be an issue if at any time 100% of the board does not support the actions proposed by management. It shows that some doubt exist among the board of directors about the future plans for the company.
CUSTOMERS
The ESA does not sell products, but the company does provide an array of services in support of member companies. The only customers for The ESA are their member companies and the video game industry. Each year the communication team looks to gain new membership in this growing industry. The metric for growing The ESA membership is to add one more member company each year. In 2013, The ESA failed to add a new member company. This is an issue because the video game industry is continually growing, and new publishing companies are emerging every year. When a new member is not added, it indicated that The ESA is not doing enough to push the video game industry forward. The efforts to support this industry are going unnoticed, and we must find new innovative ways to showcase efforts moving forward. The communications department who handles membership had some unforeseen initiatives that they had to complete due to the tragic Newtown Connecticut shooting that occurred in late 2012. This event caused a change in attention among the communications team, work switched to highlight the industry during the aftermath of the Newtown tragedy. The ESA still failed to meet the goals set, to become successful.
INTERNAL OPERATIONS The ESA operates business initiative to help promote the video game industry. As a trade association, the government affairs segment of our business works to introduce policymakers, hill staff, congress officials, and others to the innovative products and services that are member companies have produce for the public. The main point of emphasis is making Congress understand video games, and how fun they are in all spectrums. The importance of The ESA, linking federal government people in the room with the industry is a powerful tool. The ESA understands that interaction with the video game industry products has the power to change opinions, beliefs, and insight. In 2013, The ESA’s government affairs initiative was able to throw 15 events in which member companies bring their products to a venue and showcase them to members of Congress. A list of a few of the government affairs scheduled events in 2013 are the following:: * Madden 2014 launch party * Video Game Lounge * PlayStation 4 launch party * Xbox One Launch party
The balance scorecard reveals that in order for The ESA to promote the gaming industry effectively throughout the year, we must sponsor at least 10 events. In 2013, the ESA was success at promoting the video game industry by sponsoring events. The issue with not having more than 10 events that promote the industry affects law maker’s perspective of the industry. The less exposer that the industry gets, the more likely it is that law makers will pass bills that negatively affect our industry.
STAFF DEVELOPMENT The last section of the balanced score card addressed staff development. The ESA does a great job to developed employees. The majority of these tasks come from the Department of Human Resources. I have split staff development into 2 categories; learning and growth. The first objective is staff professional development. The metric used to measure this task is the number of employees that utilize a company paid professional development activities. This can be a conference, meeting, or class that will directly correlate to an employee’s current position. In 2013, six employees utilized a professional development event. Human Resources (HR) providing these types of benefits to employees will increase employee morale and commitment. In order for an organization to grow, management must have great leadership skills. An objective that is very important to The ESA is world class leadership. The balance scorecard presents 2 metrics that can measure whether world class leadership is evident at The ESA. Every year employees are asked to complete an employee satisfaction survey. The survey is graded on a 5 point scale. Every year HR averages out the scores and if the overall average is not a 4 or higher then management has failed. This 5 point scale reveals to management whether they are doing a good job each year. If the average score fell to 3 or below, that would mean it is an issue with the management and leadership that senior staff is preforming. Every year, The ESA holds a senior staff retreat for management to have conferences and discussions to improve leadership. Another metric used from the balance scored card to measure The ESA’s leadership is the percentage of senior staff that attends the leadership retreat. In 2013, 90 percent of senior staff attended the annual senior staff retreat. I think these measures are some of the most important of the entire balanced scorecard because learning and growing is a very important business factor. If leadership proves to be inadequate, then turnover will grow. If The ESA does not use meet these metrics when it comes to leadership, it can definitely become an issue for the organization.
CONCLUSION
While creating this balanced scorecard, I can see how important it can be to a manager of an organization. Applying this method of a balanced scorecard to a nonprofit was somewhat challenging. Quantitative data was not prevalent when applying the balanced scorecard to my nonprofit organization The ESA. Figures like total sales, ROE, ROI and other data were not useful when analyzing the strategy of The ESA. The ESA is a company that uses a budget that is created by initiative that promotes the video game industry. Four perspectives utilized in the balanced score card was financial, customers, internal operations, and staff development. Each of these 4 perspectives is directly linked to the overall strategy on The ESA. Analyzing the balance scorecard further unveils some major issue in each of the 4 categories. Understanding how to fix those issues is an important part of the balance scorecard theory. The ESA’s metrics where always nominal or ordinal, because those metrics necessary where simple and all about a relationship with an industry or stakeholders. Overall, a balance scorecard is a great tool that can add value to any business.

REFERENCE
Geisler, E. (2000). The metrics of science and technology: Evaluation of research, development and innovation. Westport, CT: Quorum Books.