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    CHAPTER 7: The Balanced Scorecard: A Tool To Implement Strategy The Balanced Scorecard Features of A Good Balanced Scorecard

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    Phia Teo
    The balanced scorecard translates a company's strategy into performance measures in four perspectives: financial, customer, internal processes, and learning and growth. It helps communicate strategy and measure health by linking strategic objectives to measurable targets. A good balanced scorecard tells the story of strategy, focuses on key measures, and highlights tradeoffs between measures. Common pitfalls to avoid include assuming precise cause-and-effect relationships, seeking across-the-board improvements, and using too many measures.

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    CHAPTER 7: The Balanced Scorecard: A Tool To Implement Strategy The Balanced Scorecard Features of A Good Balanced Scorecard

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    Phia Teo
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    The balanced scorecard translates a company's strategy into performance measures in four perspectives: financial, customer, internal processes, and learning and growth. It helps communicate strategy and measure health by linking strategic objectives to measurable targets. A good balanced scorecard tells the story of strategy, focuses on key measures, and highlights tradeoffs between measures. Common pitfalls to avoid include assuming precise cause-and-effect relationships, seeking across-the-board improvements, and using too many measures.

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    The balanced scorecard translates a company's strategy into performance measures in four perspectives: financial, customer, internal processes, and learning and growth. It helps communicate strategy and measure health by linking strategic objectives to measurable targets. A good balanced scorecard tells the story of strategy, focuses on key measures, and highlights tradeoffs between measures. Common pitfalls to avoid include assuming precise cause-and-effect relationships, seeking across-the-board improvements, and using too many measures.

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    Download as docx, pdf, or txt
    320 views2 pages

    CHAPTER 7: The Balanced Scorecard: A Tool To Implement Strategy The Balanced Scorecard Features of A Good Balanced Scorecard

    Uploaded by

    Phia Teo
    The balanced scorecard translates a company's strategy into performance measures in four perspectives: financial, customer, internal processes, and learning and growth. It helps communicate strategy and measure health by linking strategic objectives to measurable targets. A good balanced scorecard tells the story of strategy, focuses on key measures, and highlights tradeoffs between measures. Common pitfalls to avoid include assuming precise cause-and-effect relationships, seeking across-the-board improvements, and using too many measures.

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    © All Rights Reserved
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    of 2

    CHAPTER 7: The balanced scorecard: A tool to 4.

    Innovation and Learning – measures of the


    implement strategy firm’s ability to develop and utilize human
    resources to meet the strategic goals now
    The Balanced Scorecard and into the future.
    ■ Translates the organization's mission and Features of a Good Balanced Scorecard
    strategy into a set of performance measures
    that provides a framework for implementing 1. The balanced scorecard should tell the story
    strategy. of a company’s strategy by articulating a
    sequence of cause-and-effect relationships.
    ■ It is used to measure the company's health or
    performance. 2. It helps to communicate the strategy to all
    members if of the organization by
    ■ The scorecard measures organization's translating the strategy into a coherent and
    performance from four perspectives: linked set to understandable and measurable
    financial, customer, internal processes, and operational targets.
    learning and growth.
    3. In for-profit companies, the balanced
    ■ Strategic information using critical success scorecard places strong emphasis on
    factors such as growth in sales and earnings, financial objectives and measures.
    cash flow, stock price, market share, product
    quality, customer satisfaction, and growth 4. The balanced scorecard should focus only
    opportunities provides a road map for a firm on key measures to be used by identifying
    to chart its competitive course and serves as only the most critical ones.
    a benchmark for a competitive success.
    5. The scorecard should highlight suboptimal
    ■ To emphasize the importance of using tradeoffs that managers may make when
    strategic information, both financial and they failed to consider operational and
    nonfinancial, accounting reports of a firm's financial measure together.
    performance are now often based on critical
    Pitfalls in Implementing a Balanced Scorecard
    success factors in different dimensions.
    1. Don’t assume the cause-and-effect linkages
    ■ Financial performance measures -
    are precise.
    summarize the results of past actions and are
    important to a firm's owners, creditors, 2. Don’t seek improvements across all of the
    employees and so forth. measures all of the time.
    ■ Nonfinancial performance measures - 3. Don’t use only objective measures in the
    concentrate on current activities which will balanced scorecard.
    be drivers of future financial performance.
    4. Don’t fail to consider both costs and benefits
    Four Perspectives of the Balanced Scorecard of initiatives before including these
    objectives in the balanced scorecard.
    1. Financial Perspective – measures of
    profitability and market value among others, 5. Don’t ignore nonfinancial measures when
    as indicators of how well the firm satisfies evaluating managers and employees.
    its owners and shareholders.
    6. Don’t use too many measures.
    2. Customer Satisfaction – measures of
    quality service and low cost, among others,
    as indicators of how well the firm satisfies
    its customers.

    3. Internal Business Processes – measures of


    the efficacy and effectiveness with which the
    firm produces the product or service.
    Evaluating The Success Of A Strategy

    Assume the following operating incomes: Internal Business Processes Performance

    Year 2003 Year 2004 Delivery cycle time – The amount of time from when
    an order is received from a customer to when the
    Revenues: completed order is shipped is called delivery time
    (1,000,000×$26) $26,000,000 cycle.

    (1,100,000×$24) $26,400,000 Throughput (Manufacturing Cycle) time – The


    amount of time required to turn raw materials into
    Expenses: completed products is called throughput time or
    manufacturing cycle time. It is made up of process
    Materials 4,050,000 3,631,320
    time, inspection time, move time, and queue time.
    Other 16,000,000 16,000,000
    Process time – The amount of time work is actually
    Operating income $5,950,000 $6,768,680
    done on the product.
    How can the increase in operating income of
    Inspection time – The amount of time spent ensuring
    $818,680 be evaluated?
    that the product is not defective.
    Growth Component
    Move time – The time required to move material or
    Revenue effect of growth component = (Actual partially completed products from workstation to
    units of output sold in 2004 - Actual units of output workstation.
    sold in 2003) x Output price in 2003
    Queue time – The amount of time a product spends
    Cost effect of growth component = (Actual units of waiting to be worked, to be moved, to be inspected,
    input or capacity that would have been used in 2003 or to be shipped.
    to produce year 2004 output assuming the same
    Manufacturing Cycle Efficiency – Through
    input-output relationship that existed in 2003 - Actual
    concerted effort to eliminate the non-value-added
    units or capacity to produce 2003 output) x Input
    activities of inspecting, moving, and queuing to
    prices in 2003
    reduce their throughput time to only a fraction of
    Price-Recovery Component previous level.

    Revenue effect of price-recovery component = Manufacturing Cycle Efficiency Formula


    (Output price in 2004 – Output price in 2003) ×
    MCE = Value Added Time (or Process Time)
    Actual units of output sold in 2004
    Manufacturing Cycle Time
    Cost effect of price-recovery component = (Input
    prices in 2004 – Input prices in 2003) x Actual units where:
    of inputs or capacity that would have been used to
    produce year 2004 output assuming the same input- Manufacturing cycle time= Process time + Inspection
    output relationship that existed in 2003 time + Move time + Queue time

    Productivity Component

    Productivity component = (Actual units of inputs or


    capacity to produce year 2004 output - Actual units of
    inputs or capacity that would have been used to
    produce year 2004 output assuming the same input-
    output relationship that existed in 2003) x Input
    prices in 2004

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